Denali: Conditioned bids for ’significant capacity’ on proposed natural gas line in Alaska

Denali reports bids for ’significant capacity’

JUNEAU, Alaska — Denali-The Alaska Gas Pipeline has reported receiving bids for “significant capacity” on its proposed natural gas pipeline in Alaska.

It’s a pronouncement similar to one made in late July by TransCanada Corp., which is working with Exxon Mobil Corp. to advance a competing project that would bring gas from Alaska’s North Slope to market. And it came Monday at the close of a three-month open season in which Denali, a joint effort of BP and ConocoPhillips, courted gas producers and sought shipping commitments.

Denali President Bud Fackrell said in a statement that the bids included conditions, some outside Denali’s control; he wasn’t specific, though energy companies in the past have raised concerns about having long-range tax and royalty certainty from the state.

Fackrell said Denali would evaluate the bids and continue with confidential negotiations, a process TransCanada has been engaged in and hopes to conclude in the next several months. The ultimate goal is to reach binding agreements; Denali hopes to do that by early next year.

The market will dictate what happens next, and there are numerous factors that will have to be weighed including the competitiveness of Alaska gas against the rise of North American shale, the gas market and price forecasts and resolution on disputed leases seen as a key element to further unlocking Alaska’s development potential. Estimates have put proven gas reserves on the North Slope overall at 35 trillion cubic feet.

“Denali is a market-based project,” Fackrell said, “and our next steps will be determined by the commitments our customers are willing to make.”

It is virtually agreed that there is only room for one major line, if one is built. TransCanada and Denali have each proposed lines that would deliver about 4.5 billion cubic feet of gas per day to North American markets by larger lines to Canada; the goal of each is to be in service by about 2020.

Denali has estimated its project will cost $35 billion; TransCanada has estimated its cost at $32 billion to $41 billion.

TransCanada, which is based in Alberta, Canada, also has offered another option: a $20 billion to $26 billion line that would lead to a liquefied natural gas facility that could export fuel by ship.

For years, Alaskans have dreamed of a pipeline, seeing it in part as a way to shore up royalty revenues amid projections of a continued decline in oil production. As a way to spur progress, then-Gov. Sarah Palin championed the Alaska Gasline Inducement Act, under which TransCanda is moving ahead. It is receiving up to $500 million from the state for its effort.

Denali, which has balked at terms of the act, is moving ahead without state support.

Dave MacDowell, a Denali spokesman, said there have been no merger talks with TransCanada. However, Tony Palmer, TransCanada’s vice president for major project development, said the company has been open to having the likes of BP and ConocoPhillips sign on with its project.

Steve Rinehart, a spokesman for BP Alaska, said BP’s goal all along has been to develop the gas resource. He said the company carefully evaluated proposals by Denali and TransCanada, though he declined to say whether it submitted bids for either. A ConocoPhillips spokeswoman said in an e-mail that the company did submit an initial bid for the Denali project. Natalie Lowman said the company “anticipates further confidential discussions to address issues” regarding that bid.