Companies building Alaska natural gas pipeline prepare for open season

CALGARY - TransCanada Corp. (TSX:TRP) and ExxonMobil Corp. (NYSE:XOM) are about to take the next major step in the development of their Alaska pipeline, which is now estimated to cost as much as US$41 billion.
The Calgary-based firm and the U.S. energy giant filed a plan Friday with the U.S. Federal Energy Regulatory Commission for an open season - an invitation for producers to commit to ship their gas using the project.
The proposed pipeline would be the first to tie into natural gas fields on Alaska's North Slope, eventually moving the gas to southern - and possibly international - markets.
"This filing is an important milestone for the project and Alaska," Tony Palmer, TransCanada's vice-president of Alaska development, told reporters Friday.
If the U.S. regulator approves the filing, the offer will be open to potential shippers at the end of April. The open season would last through to the end of July for U.S. shippers, while a separate process would be held in Canada.
"No matter how you measure it, the Alaska pipeline project would be an exceptional world leading project and one of the largest private investments in the history of North America," said Paul Pike the Alaska pipeline senior project manager for ExxonMobil.
The results of the open season will be used to help determine the route of the proposed pipeline.
One option to be weighed in the open season is to build a 2,737-kilometre line from Alaska to Alberta, where it would connect with TransCanada's existing network that stretches into U.S. markets.
An updated estimate puts the cost of that option between $32 billion and $41 billion. It would deliver about 4.5 billion cubic feet of natural gas per day.
When TransCanada filed an application to build the project to Alaskan authorities around two years ago, the price tag had been pegged at around US$26 billion.
The earlier estimate was based on preliminary work TransCanada had done. When ExxonMobil joined forces with TransCanada in June, it was able to use its expertise in building gas treatment plants to help pin down a more accurate cost estimate for that component, Pike said.
"All that together has resulted in a refined and updated and a more comprehensive estimate," he said.
The overall economic environment has changed drastically over the past two years, TransCanada's Palmer added.
"We've also gone through an epic financial crisis in the world," he said.
The emergence of prolific new shale plays in Canada and the lower 48 U.S. states is also a "new reality in the natural gas business," Palmer said.
A second option would be to transport natural gas 1,287 kilometres to the port of Valdez, Alaska, where it would be converted into liquefied natural gas and transported by sea to North American and international markets.
The Valdez option would cost between $20 billion and $26 billion. It would be able to deliver three billion cubic feet of natural gas per day.
Both options would have an expected in-service date of 2020. It is not feasible for both proposals to go ahead.
As the Alaska project charges ahead, doubts remain over the fate of a smaller pipeline further to the east in the Northwest Territories' Mackenzie Delta, in which both ExxonMobil and TransCanada are involved.
After years of delays, a federally appointed panel finally approved the C$16-billion Mackenzie pipeline - with conditions - a month ago.
Palmer said gas from both Mackenzie and Alaska will be needed to meet demand.
"Neither of those projects are restricted by lack of demand," he said.
"Regulatory and commercial breakthroughs on both projects will determine the timing and advancements of those projects."
ExxonMobil, Houston-based ConocoPhillips (NYSE:COP) and the U.K.'s BP PLC are the three main producers on Alaska's North Slope.
ExxonMobil is the largest, so its backing of the TransCanada plan is a big boost in favour of that proposal.
However, ConocoPhillips and BP continue to work on a competing pipeline called Denali outside of the Alaska government process.
TransCanada has offered an equity stake to any producer that wants to come on board its proposal, but to date no concrete negotiations have been held with the Denali partners.
"We believe the best and most effective way to bring the project forward is in the alignment of five key parties: the state of Alaska, the three major North Slope producers and TransCanada," Palmer said.