JUNEAU, Alaska — One of two groups planning to build major natural gas pipelines in Alaska has dropped its bid, saying Tuesday that it didn’t get the agreements necessary to justify continuing.
The Denali-The Alaska Gas Pipeline announcement raises questions about the prospects for building a long-hoped-for line in Alaska. Denali had been competing to build a line with Calgary-based TransCanada Corp. (TSX:TRP), which continues work though lawmakers have expressed frustration with the pace.
Denali is a joint venture of BP and ConocoPhillips (NYSE:COP). TransCanada is working with Exxon Mobil Corp. (NYSE:XOM) on the other project.
TransCanada has been moving forward with state financial support, something Denali never received.
Like TransCanada, Denali has been working since last year to secure shipping agreements necessary to move its project forward. But Denali said it hadn’t received the commitments necessary to continue work and was cutting its losses.
In a statement, Denali President Bud Fackrell said the company could not spend the billions of dollars necessary to advance the project without binding agreements with shippers. Denali reported spending over $165 million in pursuing the project.
“Denali is ending its effort because of a lack of customer support,” Fackrell said. “Denali is a market-driven company.”
Denali, a joint venture of BP and ConocoPhillips, had estimated its project would have cost $35 billion. Both Denali and TransCanada had proposed plans to be in service by about 2020 and deliver about 4.5 billion cubic feet (130 million cubic metres) of gas per day from Alaska’s North Slope to North American markets by larger lines to Canada.
To keep going, Denali needed firm transportation agreements in excess of $100 billion and transportation commitments of at least 20 years for a line that wouldn’t be in service until at least 2020, said Scott Jepsen, vice-president of business services for Denali.
While he couldn’t comment on specific concerns raised by shippers in negotiations, citing confidentiality, Jepsen said today’s market conditions — the rise of North American shale, relatively low gas prices — aren’t a secret. And he said those complicated efforts.
He declined to speculate on whether he believes a major line will move forward in Alaska. Given that Denali has always been cast as a market-driven project, he said he doesn’t believe its project would have fared any better had it received state financial support.
For years, Alaskans have dreamed of a gas line as a way to help shore up revenues as oil production declines, create jobs and provide a more reliable source of energy.
But the U.S. endured an economic slump, and the world has changed since the 2007 passage of the Alaska Gasline Inducement Act, pushed by then-Gov. Sarah Palin as a way to get a project moving.
TransCanada won the exclusive licence to pursue a project, meaning it got the pledge of up to $500 million in state aid but also had to meet certain benchmarks.
TransCanada’s Tony Palmer said the company was making progress and has resolved nearly all the issues it has with customers. He said some of the others — including resolution on disputed leases and long-term certainty on royalty and tax issues — need to be dealt with by the state and the gas companies.