A state technical team has completed a first-phase cost estimate for a 24-inch natural gas pipeline that could be built from the North Slope to the state's larger cities in Interior and southern Alaska.
The estimate was done in the event that a planned large-diameter pipeline by either TransCanada or Denali consortiums to the Lower 48 is substantially delayed.
Bob Swenson, manager of the Alaska in-state gas pipeline project, said capital costs for a 24-inch, 800-mile pipeline would range from $6.4 billion for a 24-inch pipeline moving 250 million cubic feet of gas daily to $10.9 billion if additional compression is added to increase the gas throughput to 1 billion cubic feet daily.
Swenson presented the estimates at a July 1 briefing. Under new legislation, the project was taken over July 1 by the Alaska Gas Development Corp., a state corporation operating under a management team of several agencies. Prior to July 1 the project was managed by the governor's office.
The new team will continue working on studies and cost estimates. A final feasibility study is to be complete by July 1, 2011.
The estimated tariff for moving the gas would be $14.71 per thousand cubic feet with a 24-inch pipeline moving 250 million cubic feet per day. The cost declines if larger volumes of gas are shipped with additional compression, according to the study. At 1 billion cubic feet per day, the tariff is estimated at $7.34 per thousand cubic feet.
The state's analysis also included cases of the pipeline moving 500 million cubic feet per day, 750 million cubic feet per day, operating at high pressures or moving natural gas liquids.
When possible costs of purchasing gas from North Slope producers is included, the total cost of gas would be about twice the approximate $8 per thousand cubic feet that Southcentral Alaska consumers now pay for Cook Inlet gas delivered by Enstar Natural Gas Co., the regional gas utility.
Cook Inlet gas is inexpensive compared with what it might cost to bring North Slope gas to the region, but gas fields in southern Alaska are being depleted and the region may be short of having enough to supply utilities with their needs by 2014 or shortly after, according to studies commissioned by Enstar and other utilities.
Since the soonest a "bullet line" could be in operation is 2017, which is the assumption in the state's current study, liquefied natural gas may have to be imported for a period of time into southern Alaska, until the bullet line can be built. In all likelihood it would be after 2017 before the pipeline could be completed.
The best case is for demand from industrial customers in southern Alaska to help consumers carry the load of the pipeline costs. The gas throughput cases studied -- from 250 million to 1 billion cubic feet of gas per day -- assume that there would be industrial customers purchasing the additional gas.
However, there are concerns on whether industrial customers will be able to afford the North Slope gas even in the most optimistic cases in the state's study. Richard Peterson, president of Alaska Natural Gas-to-Liquids, a company working on developing a gas-to-liquids plant in Alaska, said he is worried about industrial projects being able to pay the costs estimated in the study.
One potential industrial customer is the natural gas liquefaction plant at Kenai that now exports LNG from Cook Inlet. The plant's LNG export license is due to expire in 2011. The plant owners, ConocoPhillips and Marathon Oil, have asked for a two-year extension of the export permit, to 2014.
If the state were to proceed with a bullet line from the North Slope, the two companies could request that the export license be extended further.
However, the high cost of North Slope gas delivered through a 24-inch pipeline might be difficult for the plant to pay since its LNG must compete in Asia against LNG from Sakhalin, Malaysia and Australia.
Tim Bradner can be reached at email@example.com.
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