Commodities

Thursday November 19, 11:56 PM
Alaska should cut risk of natgas pipeline -sponsor

By Yereth Rosen ANCHORAGE, Alaska, Nov 19 (Reuters) - The head of the BP -ConocoPhillips joint venture seeking to build a huge Alaska natural gas pipeline said on Thursday he worries that the state government is doing too little to reduce the project's economic risks.

Uncertainties over long-term state tax rates, the fate of disputed leases at the Point Thomson oil and gas field on the North Slope and other matters should be addressed by the state of Alaska, said Bud Fackrell, president of Denali, the BP-ConocoPhillips company promoting the massive natural gas project.

Denali plans to hold an open season in 2010 to formally solicit potential natural gas producers' bids for shipping space in a yet-to-be-built pipeline, Fackrell said.

'I believe that Denali will have a high-quality cost estimate that shippers will have confidence in,' he said in a speech at the annual conference of the Resource Development Council of Alaska. 'I am, however, very concerned that we will have heavily conditioned bids at open season.'

If that happens, Denali will likely have no control over the major conditions, he said.

'What does that mean for the project? It means delay. Delay after delay,' he said. 'We're hoping for success in that open season, but frankly, we need some help from other people.'

TransCanada Corp, which holds a state gas-pipeline license entitling it to up to $500 million in state funding and other benefits, is promoting a competing plan.

TransCanada (TRP.TO - news) also plans a 2010 open season. Tony Palmer, TransCanada's vice president for Alaska natural gas, said his company also expects potential shippers' bids to be conditional. But he told the conference audience that he hopes TransCanada and new partner Exxon Mobil Corp (NYSE: XOM - news) will resolve those issues after the open season closes on July 31.

Alaskans have long sought a natural gas pipeline to ship the North Slope's vast reserves to markets. Up to now, economic barriers have kept the resource -- proven reserves of 35 trillion cubic feet and much more in potential finds -- stranded in North Slope oil fields, most of which have been pumping crude for decades.

The competing TransCanada and Denali proposals both envision a pipeline that would ship about 4 billion cubic feet a day to U.S. markets through Alberta. State officials estimate such a gas pipeline would cost over $30 billion.

Fackrell said he believes the federal government, long supportive of the project, is doing a good job to promote gas-pipeline plans.

However, climate legislation recently passed by the U.S. House does not provide enough incentives for major energy users to shift from coal to natural gas, he said.

'The problem with the climate bill is it gives special provisions to other energy sources, like coal,' he said. A carbon cap-and-trade system can give natural gas -- and the Alaska project -- an edge, but only 'if you stand back and say natural gas is the cleanest-burning fossil fuel, by a significant margin,' he said.

Mark Myers, the Alaska state gas-pipeline coordinator, also said reworked climate legislation could brighten the project's prospects.

Myers said quick, significant reductions in carbon emissions are needed to avert a climate crisis. 'Any logical, pragmatic approach to the problem requires us to use a lot more natural gas,' he said told the audience.

(Reporting by Yereth Rosen; Editing by Marguerita Choy) Keywords: ALASKA NATGAS/PIPELINE

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