North Slope gas producers announce joint pipeline project to Lower 48

Posted: Wednesday, December 06, 2000

ANCHORAGE, Alaska (AP) -- Alaska's three major North Slope natural gas producers announced a joint agreement Wednesday to build a pipeline out of the state for gas delivery to Canada and the Lower 48.

Most of the work over the next year will involve design, determining costs, permitting, structures and overall viability, the producers said.

The focus will be on route evaluation and selection leading to a filing of applications with U.S. and Canadian regulatory agencies, the companies said.

Participants in the program are BP Exploration (Alaska) Inc., Phillips Alaska and ExxonMobil. Costs and management will be shared equally among the three producers, the companies said.

Participation by other companies will be considered in the future, the producers said.

Costs and scope of the operation's first phase are still being determined and will depend to a large extent upon route options, the companies said. But the start-up program is expected to run at least $75 million, officials said.

Work force levels could range from 50- to 100 full-time-equivalent staff from the three companies, with sizable contractor support.

The project will be managed and staffed largely out of Anchorage, with other facilities in Canada and the Lower 48, the companies said.

The announcement comes at a time when crude oil prices have fallen slightly, but natural gas prices have risen dramatically.

Natural gas prices for delivery in January rose 11 percent Monday on the New York Stock Exchange, or to $7.43 per million British thermal units. At one point during the day, January gas prices were as high as $7.95. Tuesday, the price settled at $7.38 per million Btu.

That's more than three times the average U.S. wellhead price in 1999.

Wellhead prices are only roughly comparable to the New York exchange's futures prices, said petroleum economist Chuck Logsdon, with the state Department of Revenue. Nevertheless, he said, ''gas prices are sending a very strong signal that the system needs more gas.''

Ronnie Chappell, a spokesman for BP Exploration (Alaska) Inc., said prices are not likely to stay so high in the long run.

''The activity in the market today is interesting but not really very useful in terms of understanding where gas prices are going to be long term,'' he told the Fairbanks Daily News-Miner.

''There's already been a tremendous response to the prices we see today in terms of drilling activity. Typically a new supply follows an increase in drilling activity. And with new supply comes downward pressure on prices.''

Most of the new drilling is the Lower 48 and Canada, he said.

The high prices continue to help with proposals to use Alaska gas, though.

''The prospects have never looked better for pulling together a competitive Alaska project,'' Chappell said.

He made the comments Tuesday, a day before the North Slope producers announced their joint project.

Natural gas prices for next-month deliveries are up considerably even from late September, when they reached just over $5 per million Btu.

At that time, industry and political leaders said short gas supplies and higher prices had finally made North Slope gas sales economical.

Gov. Tony Knowles helped convene a meeting of governors in Ohio, where he pitched Alaska gas as a partial solution to the shortage. Sen. Frank Murkowski, R-Alaska, held a hearing in Washington, D.C., where several major oil companies said they would be applying for federal pipeline permits early next year.

Oil prices, meanwhile, fell below $30 a barrel this week for the first time in recent months. Logsdon said prices actually were down about 20 percent from recent highs.

While crude and gas price trends normally parallel each other, the recent difference ''shows you that they're not directly linked,'' Logsdon said.

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