Alaska gas pipelines, through the ages

1
Alaska gas pipelines, through the ages

• Four decades -1968 to 2008
• Tim Bradner

2
How much gas is there?

• 26 trillion cubic feet (tcf) in Prudhoe Bay
• 9 tcf in Point Thomson
• Reserves enough for 20 years
• 50 tcf needed to fill pipeline, 35 years
• Industry confident more gas to be found

3
Gas in terms of oil

• Since 1977, gas used to help produce oil - 3
  billion additional barrels produced
• 4.5 billion cubic ft./day equal to 800,000
  barrels oil/day (Btu equivalent)
• At 9 mcf/gas, 100 bbl/oil, same btus in oil
  worth twice same btus in gas
• 30 billion-plus transportation system needed to
  get gas to market

4
Arctic Gas First Over the Top

• Arctic gas proposal - first over the top
• Running afoul of Canadian politics
• El Paso - All-America pipeline, first LNG
  Never seriously considered
• Northwest proposal - down the highway
• 1 billion spent - market went sour
• Yukon Pacific Corp., LNG to Asia
• Asia market crowded with LNG projects

5
1992 - Producers look at LNG

• Producers look at LNG alternative
• Smaller market-sized project not viable
• Exxon looks at Gas-to-Liquids
• Ultra-clean fuels batched in TAPS
• Producers take new look at pipeline
• 125 million spend on feasibility studies

6
2000-2005 Producers start working on highway
route

• Producers propose highway project to Gov. Frank
  Murkowski
• Freeze on gas, oil taxes key part of deal
• governor gets producer agreement on net-profits
  tax
• Murkowski wanted state equity share
• State equity share would boost state revenues
• Deal gets too complex, controversial
• Frank Murkowski loses to Sarah Palin

7
Palin pitches producers contract

• Palin pitches Murkowski contract
• Sets up AGIA to solicit new proposals
• TransCanada sole qualified applicant
• 48-inch pipeline to B.C.-Alberta border
• Nov. 06 ConocoPhillips submits an independent
  proposal
• 48-inch pipeline to B.C.-Alberta border
• AGIA has worked as a market test

8
TransCanada, AGIA path

• Receives 500 million state grant
• 2009 open season, on the cheap?
• Locked into AGIA requirements
• 9 billion meatball liability?
• Needs new federal guarantees?

9
BP/ConocoPhillips submit a new proposal

• Have credibility as gas owners
• Can work with independent pipeline
• No fiscal agreement needed, for now
• Financial strength
• Will bring in ExxonMobil, eventually
• Governor receptive, but cautious

10
Can BP/CP and TC get together?

• No, if TransCanada gets AGIA license
• AGIA poison pills for producers
• No fiscal terms in AGIA
• Incremental 15 rolled-in tariff increases
• Lock-in on preliminary FERC decision
• Producer-only lock-in language
• 300 treble damages against state

11
AGIA policy strategy

• State goal - independent pipeline
• Should state seek to influence private
  sector?
• Can any of this work?

12
Gas to Alaskans

• Spur lines to Southcentral
• ANDGA, Enstar
• Gas liquids shipped to Southcentral?
• Gas supply for Kenai LNG plant?
• Gas for value-added manufacturing?

13
Will our oil last until gas flows?

• Production is declining faster than industry,
  state have expected
• New exploration has modest potential for major
  reserve replacement
• However, prospects are good for new reserves
  developed in existing fields

14
How things looked in 2000

• We forecast that total petroleum will hold
  between 1.05 and 1.07 million b/d for the next 5
  years. Fall, 2000 state revenue forecast.
• Actual Average FY 2007 740,000 b/d
• Forecast FY 2008 680,000 b/d

15
Will we get gas in time?

• At 10 average decline rate, oil flow could drop
  by 2016 to where TAPS may face operational
  challenges
• If gas pipeline is delayed beyond 2017 and oil
  decline continues, state will face serious fiscal
  challenges

16
Will exploration bail us out?

• Modest potential in onshore areas of slope now
  open to exploration.
• ANWR opening appears unlikely
• Offshore has good potential, but OCS production
  pays no state tax, royalty

17
Few exploration wells drilled

• State has done a good job with making acreage
  available in lease sales and offering exploration
  tax incentives
• Not enough exploration wells drilled
• Problems Costs high prospects for large
  discoveries may not be there

18
Existing fields have potential

• More intensive development, new EOR technologies
  in existing fields offer significant potential
  for new reserves
• BP 73 new wells on slope in 2006 70,000 b/d new
  production added
• Heavy oil has large in-place resource, but
  requires new technologies

19
Good news New projects

• Decisions on new projects are pending
• BPs decision on Liberty field soon
• Eni decision on Nikaitchuq
• ConocoPhillips decision on expansion of West
  Sak heavy oil development
  Will tax decisions affect
  these projects?

20
Industry capital investment(estimates)

• 2004 1.5 billion
• 2005 1.83 billion
• 2006 2.04 billion
• 2007 2.65 billion
  UAA Institute of Social and Economic Research,
  annual survey of anticipated industry investment

21
Will investment continue?

• 25 of estimated production in 2010 will be from
  projects not yet decided
• 50 of estimated production in 2017 will be from
  projects not yet decided

22
Where to from here?