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Tight gas supplies, high prices fuel interest in Alaska gas

Posted: Sunday, January 21, 2001

ANCHORAGE (AP) -- While soaring natural gas prices have many Americans turning down their thermostats and wrapping themselves in sweaters, seismic crews are fanning out over the northern foothills of Alaska's Brooks Range in search of natural gas deposits.

During the next three months, 135 technicians, surveyors, heavy equipment operators and support staff will travel across the hilly, snow-covered tundra caravan-style to map the subsurface geology.

''This seismic program will give us another leg up in understanding this region,'' said Mark Hanley, a spokesman for Houston-based Anadarko Petroleum Corp. Exploratory drilling will begin next year.

It marks the first time anyone has searched for gas -- not oil -- on Alaska's North Slope.

Tight supplies, growing demand and rising prices for natural gas have focused new attention on Alaska's gas reserves. The North Slope holds proven reserves of about 35 trillion cubic feet of natural gas. The United States currently consumes about 21.5 trillion cubic feet of gas per year and demand is expected to grow by about 2 percent annually for the next 20 years.

Oil companies have known of Alaska's abundant gas reserves since oil was first discovered at Prudhoe Bay in 1968, but while gas prices were low it was too expensive to bring it to market. Without a pipeline, the gas that's brought to the surface during oil production has been injected back into the ground to help maintain oil well pressure.

The spike in gas prices during the past year and the surge in demand as well as advances in technology and regulatory changes have suddenly made a pipeline project viable and set oil companies scrambling to bring Alaska gas to market.

''Basically, 21st century technology has lowered the cost quite a bit,'' said Ken Konrad, BP's manager for Alaska gas development. That technology includes high-strength steel that allows gas to be sent through a pipeline at high pressure and improvements in communications and remote control systems to operate the line.

Alaska hasn't seen the likes of such a huge project since the trans-Alaska oil pipeline was built in the 1970s. It will take a year for steel producers to manufacture the steel needed for a gas pipeline. In addition, the oil companies would have to build ''the largest gas treatment plant on the planet,'' said Joe Marushack, vice president of gas commercialization with Phillips Alaska Inc.

Alaska's three major oil producers, Phillips, BP Exploration (Alaska) Inc. and Exxon Mobil Corp., control most of the known gas reserves on the North Slope and are working together on a $75 million study of the gas project.

Unlike the major producers, Anadarko doesn't own big oil reserves and the natural gas that comes with them. It has launched its gas exploration program, costing tens of millions of dollars, in hopes of being at the table when decisions are made about the proposed pipeline. And there are many decisions to be made, including what the capacity of the line will be and what route it will take.

Alaska backers of the project, including Gov. Tony Knowles, are advocating a nearly 2,000-mile route that would head south from Prudhoe Bay, following the trans-Alaska oil pipeline and the Alaska Highway through Alaska to Canada. In Alberta, it would tie into an existing pipeline network to the Lower 48.

Such a route would provide easy road access to the line and would make it possible to deliver gas to Alaska communities. Its estimated cost: $10 billion.

A rival route would go east from Prudhoe Bay, along the Arctic coast, before heading south along the Mackenzie River through the Northwest Territories. The Arctic coast route would be about 300 miles shorter and cost about $2 billion less than the Alaska route. It could also be used to transport some of the 9 trillion cubic feet of natural gas in northern Canada.

But the Arctic coast route could face environmental hurdles and a long and costly regulatory battle because it would skirt the coast of the Arctic National Wildlife Refuge and would travel through an area of northern Canada that is largely undeveloped.

And a natural gas line isn't the only project that could tap North Slope gas. Several companies, including Phillips, BP and Yukon Pacific Corp., have been studying how to convert the gas to liquid fuel that could be sold to overseas markets. BP is constructing an $86 million gas-to-liquids demonstration plant to test the technology.

State Rep. Scott Ogan, who chairs the House Oil and Gas Committee, wants to see a gas line project that will accommodate a number of uses.

''Today in California they're talking about rolling blackouts. The time may be right for LNG to be shipped to the West Coast as well as the Pacific Rim. We have enough gas to do both,'' Ogan said. ''We need to plan ahead for future uses.''

Also still to be decided is the question of ownership of the line. The boroughs through which an Alaska pipeline would pass have formed a pipeline port authority. They say public ownership of the line could save billions of dollars in federal taxes and reduce the cost of the project.

BP, Phillips and Exxon have assembled a team of about 50 engineers and regulatory experts to sort through the issues over the coming months. A decision on a route is expected later this year. If all goes smoothly, the gas line could be completed by 2007, Phillips' Marushack said.

While the recent high natural gas prices may have spurred the Alaska gas line project, developers say they are not counting on prices to remain at current levels. Natural gas is currently selling on commodity markets for about $8 per thousand cubic feet. That's down from more than $10 last month but nearly four times higher than a year ago.

''We have to have a pipeline project that is as low cost as possible so that it will weather not just the good times but the low gas price times as well,'' Marushack said.



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