Phillips Alaska wants to cut gas line risks

Posted: Sunday, January 27, 2002

ANCHORAGE (AP) -- Officials with Phillips Alaska Inc. say they want Congress to streamline federal permitting before the company moves ahead with a North Slope natural gas pipeline to the Lower 48.

Company officials say they need assurances that the multi-billion-dollar project won't become bogged down in environmental permitting delays. The project would cost an estimated $15 billion to $20 billion.

Natural gas prices are another risk. The pipeline project was revived after two decades of dormancy when prices spiked up to about $10 per million BTU 13 months ago. Prices have since subsided and ranged between $2.03 and $2.55 this month.

Future price swings could threaten the profitability once the line is operating, Phillips said.

To cover itself, the company is proposing a federal law that would give it tax income credits when the gas price is below about $3.75. During years when prices are high, Phillips said it would reimburse the government, the Anchorage Daily News reported.

According to energy forecasts, prices should climb to the $3.75 range or above during the next decade.

Don Duncan, a Phillips Petroleum Co. lobbyist, presented the proposals Friday at The Alaska Support Industry Alliance's annual conference in Anchorage.

Duncan hopes the permitting legislation will be included in the Senate energy bill, which is expected to come up in February. He said the tax credit would be included in a separate bill.

U.S. Sen. Frank Murkowski, R-Alaska, said he plans to meet Feb. 4 with gas companies and some state leaders to discuss what should be included in federal legislation.

Phillips is one of three gas producers considering whether to build a gas treatment plant on the North Slope and gas line from Prudhoe Bay to Chicago.

Phillips, BP and Exxon Mobil own most of the Slope's proven gas reserves of 35 trillion cubic feet. The companies have completed a $100 million study on the cost of threading the line along the Alaska Highway or running it under the Beaufort Sea and across the Canadian Arctic.

While final results haven't been announced, preliminary analysis questioned whether either route would return enough profit.

The route itself is another issue that must be resolved.

Phillips wants the line to pass through the Interior and along the Alaska Highway. That path is supported by most Alaska politicians because it would bring gas to Alaskans as well.

The gas producers support legislation to streamline permitting for the Alaska Highway route, Duncan said.

Duncan said the Phillips proposal also calls for federal tax income credits if gas prices drop below $1.25 at the wellhead. That price does not include the costs of transporting the gas from the Slope to the Lower 48.

When a $2.50 transportation charge is added to the wellhead price, the threshold is $3.75, said Will Nebesky, an economist at the Alaska Division of Oil and Gas who is familiar with the Phillips proposal.

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