Thursday, January 8, 2009

Concoco-Phillips Denali Project

The decision by BP and Conoco Phillips to build a pipeline to take North Slope NG to Canada is a definite change of heart for two out of the three Producers on the North Slope.

I believe the reason for this change is not because all of a sudden BP and Conoco want to get NG off the North Slope, but rather because the alternatives are lacking for another high priority project.

Between unstable tundra along the proposed route due to permafrost melting to legal challenges by Deh Cho and other Native groups, and as yet unsettled right of way regulatory issues, the NG from the MacKenzie River Delta that was intended to fuel the separation of oil from the Alberta Tar Sands is not going to be available within the time frames originally envisioned for the MacKenzie River Delta pipeline project. An alternative had to be found, and Alaska’s North Slope gas reserves is that alternative.

The increasing price of oil is driving the recovery of oil from Alberta Tar Sands at an ever increasing pace. A supply of cheap NG is necessary to the economic viability of the separation process.

The only long term viable source of NG without rights of way issues at least to the Canadian border is found on Alaska’s North Slope. The rights of way and other issues would still have to be worked out to get the NG to Alberta, but, undoubtedly, BP will wield considerable influence in dealing with the Canadian side, given the Crown’s interest in BP along with the imperative to get the Tar Sands oil to market.

It is unlikely that Exxon will seek its own means to transport NG off the North Slope, especially with the promises made regarding development of the Pt. Thompson NG reserves made in order to retain those leases. Exxon is in a market it or else situation with the Pt. Thompson NG reserves. Therefore, it is reasonable to assume, that although unannounced, Exxon will eventually join with BP and Conoco Phillips.

Exxon was a player in the MacKenzie River Delta pipeline project, and a major advocate of taking Alaska’s NG over the top and plugging into the anticipated MacKenzie River Delta pipeline system.

Through a subsidiary, Exxon is also a major player in the Alberta Tar Sands project.

A major concern of those who live in the Mat-Su Valley is whether or not there will there be a provision for a spur line from Big Delta down to the Palmer Enstar NG Hub to provide NG for south central?

It is already a fact from the last round of this game under Murkowski that Alberta was all too willing to provide a ready market for Alaska’s NG liquids, such as propane and butane.

Will the Governor and the Legislature allow these valuable NG liquids to be transferred to Canada without proper consideration given to the long term benefits of value added processing in Alaska?

Stripping them out and using these gas liquids here would provide the building blocks for a petrochemical industrial base. A benefit with economic benefits far beyond just resource extraction that the pipeline represents.

Obviously, value added development of our NG resources would allow Alaskans greater opportunity beyond just the construction of a pipeline. Once the last pipe is welded into place, the pipeline jobs go away. Value added industrial development would be a lingering base upon which to ensure that the benefits from our NG resources go beyond fueling bloated, growing, and ever greedy state and local governments.

If the money goes directly to government, we all lose. If there is value added development, then we the people will benefit along with the Producers and government through jobs and infrastructure upon which to build industry.

The challenges for the Palin Administration, the Legislature and the Producers will be to balance the interests of all parties against the imperatives of the looming south central NG crisis, the economics of the proposed pipeline, and the constitutional requirement of the State to gain maximum benefit from the exploitation of this nonrenewable resource versus the interests of the Producers with respect to their profit motive.

Until there is a NG pipeline from the North Slope generating revenue, our responsibility as citizens will be to see that our elected officials do not spend revenue that is not there. And, to see that maximum benefit is exactly what is bargained for across the board.

Another blog dealing with this subject is to be found at

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