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Tuesday, July 11, 2006

FERC Report Contains Gas-Line Irony

The Federal Energy Repulatory Commission issues its second report on the status of various proposed Alaska gasline projects. While briefly mentioning two other projects, including the Alaska Port Authority ("All-Alaska") project, the report focused on only one--the Producer-Murkowski project.

At first read, the FERC report seems to be a piece written to support the Producer-Murkowski Gasline Contract. Certainly the report in 7/11/06 ADN characterizes the FERC report as such "Delay May Scuttle Gas Line, Feds Say".

On closer read, however, there are some surprises.

One of the important factors for the economics of the Canadian Route may be the ability to mix a subsidized Canadian gas stream into an end product that sells as a higher end price. That was part of the economic calculus for the Northwest Alaska Project in the late '70s. The 1.2 billion c.f. gasline out of the Canadian Arctic and down the MacKenzie Valley, partly sponsored by Alaskan Producers, Conoco-Philips and Exxon-Mobil, is not a slam-dunk, however. The report (P. 9) says that "...discussing royalty and fiscal issues concerning the project with the Government of Canada... have paused pending review of the project's cost estimate and construction schedule"
According to today's L.A. Times there is still an unresolved Native Claims Dispute in the MacKenzie Project. See ADN Section F P1 7/11/06.

A delay in the MacKenzie Pipeline might also benefit the Alaska projects by reducing the impact cited in (unattributed) "industry reports" by FERC of a supply-side conflict caused by dual Canadian-Alaskan projects. Steel and workers would would be in short supply FERC says.
Another interesting argument FERC makes for an expedited Alaska Gas project in the study is competition with foreign supplies. Competition is indicated in the approval by FERC of 11 new LNG infrastructure projects in recent years. FERC staff argues that this indicates that there will be a large stream of gas coming from somewhere else entering the American Market-- presumably in competition with Alaska Gas.

Ironically, would this not strengthen the Port Authority project argument?
One argument I heard last year against the Port Authority project is that an LNG port-based system would face downstream distribution delays through LNG conditioning bottlenecks. But with an abundance of LNG facilities being built, such a bottleneck may no longer be a problem. Finally, and most interestingly, if all of these LNG facilities are economical for natural gas transported from countries like Venezuela, surely an LNG facility serving domestically produced gas would be economical as well.

Added together: the extra-territorial regulatory, the Canadian Native claims issues and the timing linkages between the Producer-Murkowski pipeline and the producer-sponsored Canadian Line, and the FERC report is a boost for the Port Authority project.

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