By Dina O'Meara, Calgary Herald, December 24, 2010
Gas prices too low for project, says analyst
Bleak price outlooks for natural gas in North America have wiped the proposed Mackenzie pipeline off the map, according to a recent report by U.S. energy regulators.
The TransCanada Corp. project didn't figure in the Energy Information Administration's annual outlook because of costs, said an agency analyst Thursday.
The report suggested natural gas prices wouldn't support shipping natural gas volumes from Alaska south until 2033, EIA analyst Joe Benneche told the Herald.
"So if the price isn't high enough to spur along the Alaska, it wouldn't be high enough to spur along the Mackenzie," Benneche said.
He noted the Northwest Territories pipeline lacks economies of scale and infrastructure already existing on the North Slope, making it more costly.
Prices in the Lower 48 have to be high enough to make paying for transportation costs economically attractive, the analyst said.
The Washington-based agency estimated prices at the wellhead, not including transportation tolls, would have to be $6.18 US per thousand cubic feet to trigger producer interest in building an Alaska pipeline. Prices are currently around $3 US.
Canadian energy regulators approved the Mackenzie pipeline last week, more than 30 years after the project was first proposed. Analysts dismissed the ruling, saying the 1,200-kilometre line and associated facilities was drowning in floods of cheap, accessible shale gas from the United States and Canada.
TransCanada chief executive Russ Girling said the project still is in the Canadian public's interest but northern producers have to compete against cheaper southern volumes.
"If we want to develop that resource, I believe the Canadian government is going to have to get involved in some form of fashion," he said in a recent interview.
Girling acknowledged Alaska's larger reserves, existing production and infrastructure give North Slope gas certain advantages, as does a $500-million state incentive.
The Calgary-based corporation and partner ExxonMobil Corp. have been promoting a massive natural gas pipeline to bring prolific North Slope natural gas to southern markets by 2020.
However, high construction costs and low prices will likely shelve the $40-billion project and its rival the $20-billion Denali pipeline until 2033 as demand for natural gas in the Lower 48 states is met by cheaper, more accessible volumes, according to the EIA report.
The project would snake through Alaska, Yukon and British Columbia to feed into Alberta's well-established natural gas pipeline network and facilities.
A line could be in service by 2036 or 2037 after construction started, Benneche said.
domeara@calgaryherald.com
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