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Momentum seen for new pipeline

04/16/2001

By Jim Landers / The Dallas Morning News

PRUDHOE BAY, Alaska – There are 35 trillion cubic feet of proven natural gas reserves under the North Slope of Alaska – the equivalent of a supergiant oil field with enough energy to light and cool California for years.

And for nearly two decades, most of it has been literally stuck on a titanic merry-go-round.

The gas is a byproduct of the search for oil that began in Alaska in the 1960s. Today what comes out of wells here is 92 percent natural gas, 5 percent water and only 3 percent oil. And as the desirable liquid is piped off, the gas must go somewhere. So far, that's been right back where it came from.

Like a huge mechanical heart, the world's largest gas plant – a quarter-mile long, nine stories tall, filled with huge pipes, valves, jet-engine turbines and vacuum chambers – pumps the volatile vapor in and out of the frozen tundra. Some propane and butane is peeled off and liquefied, but the rest helps pressurize the underground field, only to return with fresh oil.

Now some oil industry officials and politicians want to interrupt the merry-go-round.

And if they succeed, in a half-dozen years a vast stream of North Slope natural gas would be diverted south to help ease the kind of energy problems now bedeviling the lower United States, particularly electricity-starved western states.

The symbolic key to the plan is one unusual valve in the gas plant here. It has no pipe attached to it. But it was installed in anticipation of the day when an army of welders would march into the Arctic and string 1,600 to 2,000 miles of pipe to connect it with an existing North American gas distribution system in the Canadian town of Windfall, Alberta.

A market emerges

That day may be near at last, says Alaska Gov. Tony Knowles, a Democrat originally from Oklahoma who presides over a political establishment restless to get the state's gas to market.

"We have the largest natural gas reserves of any state," he says. "Up to 100 trillion cubic feet. That's a couple generations of America's natural gas needs. The reason why we have not utilized it is because there hasn't been a market.

"That market is now sending a signal."

The signal is a sharp spike in prices, from $1 per 1,000 cubic feet in the spot market at the end of 1998 to $9 by the beginning of 2001. Average consumer prices this winter were more than double last year's, and the Energy Department forecasts more of the same for the next two years.

Revisions

So even as a national debate brews on whether to open Alaska's Arctic National Wildlife Refuge to oil drilling, the companies are sharpening their pencils and revisiting the idea of building a massive international pipeline to move their existing locked-in gas south.

Irving-based ExxonMobil Corp., which owns more North Slope gas than anyone, once expected to be selling it in the lower 48 by 1982. But one proposal after another fell apart in the face of high transportation costs.

This year ExxonMobil, BP Amoco Plc. and Phillips Petroleum Co. will spend $75 million to study whether a new pipeline finally makes financial sense.

"Up until now the market has never really supported the investment required," says Terry Koonce, president of ExxonMobil Production Co.

Alaska, feeling the economic impact of steadily declining oil production, is starting to apply pressure to get the gas moving. It is on state lands and would mean a 12.5 percent royalty if it were sold. Legislators are introducing bills to tax or even strip the oil companies of their reserves if they don't move them to market.

The companies also have more incentive among themselves than in the past, when they owned unequal shares of Prudhoe Bay's petroleum resources.

Until this year, BP owned half the oil at Prudhoe Bay, while Exxon and what had been Atlantic Richfield Co. each owned 40 percent of the gas. Since rerouted gas does help squeeze more oil out of the field, BP didn't want to sell it if that would interfere with its main interest. As recently as 1990 some engineers feared gas projects would cut 1 billion barrels off the amount of oil BP could ultimately recover.

Then BP bought Amoco and Phillips bought the Arco Alaska properties. Exxon bought Mobil. The newly constituted ownership of the Prudhoe Bay field agreed to align their oil and gas shares equally.

Alaskan gas could reach the rest of the country by 2007, says Ken Konrad, a senior vice president with BP Exploration (Alaska) Inc. Accomplishing that, he says, would require "the largest energy project on the planet" with a ballpark price tag of $8 billion to more than $10 billion.

"We're doing everything we can to add value to the project as rapidly as possible," he says. "We're really pedaling as fast as we can."

North and south

The companies are weighing two pipeline routes.

The northern route would go beneath the Beaufort Sea from Prudhoe Bay to Canada's Mackenzie River Delta, then south through Canada's Northwest Territories to Windfall – 1,650 miles in all.

The southern route would stretch 1,998 miles and follow the Trans Alaska oil pipeline to Fairbanks, then turn southeast along the Alaska Highway into Yukon Territory, British Columbia and finally Windfall.

Two lower legs of the system were built in the 1980s to bring large volumes of Canadian gas into the United States. They stretch from Alberta to Chicago and San Francisco.

Politics weighs in

Democrats in Washington have pressed the Bush administration to explain why it is pushing to open the wildlife refuge to oil drilling while so much natural gas sits stranded in Alaska.

Alaska, Canada and the federal government approved permits and rights of way for a gas pipeline several years ago. An Environmental Impact Study was completed.

Government is often called inefficient, says Democrat Ed Markey, a Massachusetts representative. "But here, we finished the whole process, the EIS, everything. We said build, and in 19 years they haven't built.

"And yet, we're being told we have to go to the rest of the Alaska North Slope, which is pristine wilderness, and allow them to start over there. ..."

Several Senate Democrats have advanced an energy policy bill that, rather than opening Alaska's wildlife refuge to oil drilling, would offer tax incentives for an Alaskan gas pipeline.

Republicans answer: Do both. Vice President Dick Cheney, head of the White House energy policy task force, has endorsed new energy infrastructure and has said government should create a regulatory climate that allows such things as pipelines to be built on schedule.

Faced with mounting opposition to drilling on the wildlife refuge, President Bush recently began talking up natural gas, too.

"There's gas in our hemisphere, and the fundamental question is where's it going to come from," he said. "I'd like it to be American gas, but if the Congress decides not to have exploration in ANWR, we'll work with the Canadians."

Industry projections envision new supplies from multiple places. Consumption is growing so rapidly that fields in Alaska, Canada, the Rockies and the Gulf of Mexico will all be needed, says Stan Horton, chairman of Enron Gas Pipeline Group of Houston. "The good news is, the resource base is more than adequate."

Until now, Alaskan gas has always been judged too far away to be useful in the lower United States. Since 1969, Phillips and Marathon have been liquefying gas produced in the Cook Inlet outside Anchorage and shipping it to Japan.

Failed plan

Former President Jimmy Carter and former Canadian Prime Minister Pierre Trudeau approved an Alaska gas transportation route in 1977 roughly along the same path as the proposed route via Fairbanks and the Alaska Highway.

The sponsors initially said federal money wouldn't be needed, but cost projections escalated wildly – well beyond $30 billion. The sponsors turned to Congress for guarantees that their expenses could be recovered even if the pipeline wasn't finished. Congress, under intense industry lobbying, agreed. Still, the plan died.

"We worked hard up until the early 1990s, and then everybody kind of gave up," says Mr. Koonce, the ExxonMobil executive. "The market wasn't there, prices were low, so people turned elsewhere."

The exercise left many Alaskans fuming. Walter Hickel, a former secretary of the Interior and two-time Alaska governor, became a champion of liquefying Alaska's gas and shipping it to Asia.

That project called for a new pipeline paralleling the existing oil pipeline down to Valdez, where the gas would be liquefied in supercold temperatures and shipped in cryogenic tankers.

When the effort failed, Mr. Hickel accused the oil companies of deliberately hanging onto Alaskan gas so they could sell their Indonesian and Australian gas.

"There's not even an ounce of truth in that," Mr. Koonce says. "We looked very hard at LNG [liquefied natural gas]."

The problem, he says, was that the liquefied natural gas market is global and many producers are closer to the customers. "They don't need a pipeline."

Good and bad

Each of the overland pipeline routes in contention has advantages and drawbacks.

A northern route would cost less and could easily connect with abundant Canadian gas supplies.

But a southern route would avoid burrowing through the sea near the wildlife refuge, already the scene of an environmental battle. It would appeal to Alaskans who want gas made available in Fairbanks. And it would create thousands of in-state jobs.

The decision may hinge on how attractive the state and federal governments make it for the oil companies. Alaska could provide tax and royalty relief. Federal tax incentives, as proposed by Senate Democrats, could also make a difference, oil officials say.

"Anything that's positive will help, because the basic economics – because of the size of the investment – are not real robust," Mr. Kooncesays.

"So we're going to have to have favorable fiscal terms to make this thing go."

Fueling America: Energy and Nature in Alaska

A special report by The Dallas Morning News and Belo Broadcasting. Reporters Jim Landers and Terry Maxon of The Dallas Morning News and Tom Ackerman and photojournalist Mike Kornely of WFAA-TV's Washington Bureau prepared the project, which appears in The Dallas Morning News , dallasnews.com and on WFAA-TV (Channel 8).

TODAY:

• Serious lessons: Industry sinks big money into efforts to prevent another Valdez spill

• Warming trend heats up Alaska's drilling debate

MONDAY:

• Alaskan gas has nowhere to go.

On WFAA-TV (Channel 8):

-- Anonymous, April 15, 2001

Answers

Build 'em, lay 'em, traverse 'em whatever it's called just get it done. Reminds of a Cliff Robertson line in Three Days Of The Condor. Yep, sure does.

-- Anonymous, April 17, 2001

Can't CarLOST. MR and Mrs. NIMBY SAY "I don't want any of those dangerous pipelines in my back yard, town, under MY river, bothering MY OWLS, disturbing the mating of MY Salmon, cutting down MY trees.".

-- Anonymous, April 17, 2001

Still with the funny little names 'eh CEEP?

-- Anonymous, April 18, 2001

Can't CarLOST. MR and Mrs. NIMBY SAY "I don't want any of those dangerous pipelines in my back yard, town, under MY river, bothering MY OWLS, disturbing the mating of MY Salmon, cutting down MY trees

Charles, I don't. The pipeline that broke and who's fuel exploded killing those three boys a few years ago runs a few blocks from my home. I do not want it there, but it was there before I moved here and had I known of it;s existence I would not have done so. I also do not want them running next to our (my) streams, interfering with the spawning salmon (YES they are more important to me then the profits of oil tycoons), I have watched for decades as the sides of mountains have been stripped of the forests, it's ugly and unnatural, and the endangered state of the spotted owl is a symptom of the damage that has already been done to the area in which I live. We do not choose to live as people in Texas do, on flat, dried out land full of oil wells and refineries belching polution into the air we breath. You know the song, "The bluest sky's you've ever seen are in Seattle", they are clear and blue, not polluted and brown, and we choose to keep it that way. Even the most conservative republican in this area appreciates our natural beauty and has used their voice (at the polls) to vote to keep it that way. It is our choice and we have made it.

-- Anonymous, April 19, 2001