Alaska News

Pipeline conference speaker: Gas market means 2030 is Alaska's year

[Editor's note: Larry Persily, the head of the office of the Federal Coordinator for Alaska Natural Gas Transportation Projects, prepared the following from a pipeline conference in Houston on Tuesday, April 19, 2011.]

"We don't know what hydraulic fracturing regulation will look like over time," said Ed Kelly, vice president for North American Natural Gas and Power with international consulting firm Wood Mackenzie. "We're all making a lot of assumptions."

"Environmental resistance and political attention continue to build," adding uncertainty to shale gas production, he said. "Regulatory costs and permitting delays could slow development considerably."

Despite that uncertainty, there likely will be enough shale gas in the market for the next 20 years to push the Alaska natural gas pipeline past 2030, said Kelly, one of several speakers at the Pipeline & Gas Journal's annual Pipeline Opportunities Conference in Houston April 19.

But that could easily change, he said, depending on regulation of fracking and increased demand for gas. "Close to 50 percent of total supply longer term will be affected by regulations on hydraulic fracturing," he said.

"By 2013-2014, we will know much more about how shale wells perform longer term, and will have a much better idea of ultimate recoveries and production potential."

Bruce Henning, vice president for regulatory and market analysis at consultants ICF International, also talked about shale gas production and the high-profile opposition to fracking. "There are real environmental concerns," he said, though ICF, just as Wood Mackenzie, predicts shale production will continue to grow and dominate the U.S. market for years to come.

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However, he also offered a warning: "Industry is only as good as its least diligent player."

Several speakers at the conference talked about the need for the oil and gas industry to prove to the public that it can operate pipelines safely and without leaks and spills. More than half of the pipes in the ground were put there more than 40 years ago, said Peter Lidiak, pipeline director at the American Petroleum Institute. Corrosion is the single largest cause of pipeline leaks, he said.

The industry will have to work with the Federal Energy Regulatory Commission to ensure it can recover its costs of pipeline repair and replacement, estimated in the tens of billions of dollars, said Daniel Martin, senior vice president for pipeline safety at El Paso Corp.

Much of the day's discussion, however, centered on gas demand, supply and shale. An estimated 450 people attended the one-day conference.

The Interstate Natural Gas Association of American Foundation sees gas demand growing by 6 billion cubic a day by 2020 and an additional 5 bcf a day by 2035, with most of that demand growth coming from power plants. INGAA sees long-term gas prices settling in a range between $6 and $7 per thousand cubic feet, said Richard Hoffman, executive director of the trade group's foundation.

The key, Hoffman said, will be to get a high enough price to cover costs and make a profit, but not so high as to stifle demand growth. Wood Mackenzie predicts gas will settle into a long-term price around $6.50 per thousand cubic feet (2010 dollars).

Coal-plant retirements and a resumption of economic growth could add 1.5 bcf a day to U.S. gas demand each year through 2020, according to Wood Mackenzie.

"It's really looking pretty good for gas," Kelly said. The "silver bullet" to creating more demand, he said, would be carbon regulation on the federal level. "That could have added 10 bcf a day to the demand side," joking that independent gas producers could have helped themselves had they voted for Al Gore for president in 2000.

New federal legislation probably will not happen, especially after the 2010 Republican gains in Congress, but EPA carbon-emissions regulation is entirely possible. The long-term prospects for natural gas are favorable, Kelly said, based on the anticipated retirement of a lot of older coal-fired power plants.

"Carbon and environmental policy, coal retirements are the lever" on the demand side, according to the Wood Mackenzie presentation.

There also is good news for gas on the industrial side, Kelly said. After years of reduced demand and shuttered plants, "industrial demand redevelopment really is happening," with even the petrochemical industrial seriously considering expansions to take advantage of affordable, plentiful domestic gas supplies.

Shale gas production is behind the talk of new petrochemical and industrial demand.

But the unknowns of future shale production, its costs and environmental constraints maybe could help prospects for the Alaska gas line, Kelly said. Maybe.

Alaska gas does not compete with today's shale plays, he explained. Rather, Alaska's competition in the 2020s and beyond will be shale plays not yet under production, and with possibly higher costs. Alaska competes "with the next most costly shale."

Larry Persily is a former Alaska journalist, including stints as editorial-page editor of the Anchorage Daily News, managing editor of the Juneau Empire, and twice editor of his own weekly newspaper. He also served in the administrations of Alaska's past three governors, most recently as oil and gas, transportation and Arctic issues staffer for Governor Sarah Palin in the state's Washington, D.C., office. He is currently the head of the office of the Federal Coordinator for Alaska Natural Gas Transportation Projects in March 2010.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch. Alaska Dispatch welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.

Larry Persily

Larry Persily is a longtime Alaska journalist, with breaks for federal, state and municipal service in oil and gas, taxes and fiscal policy work. He currently is publisher of the Wrangell Sentinel weekly newspaper.

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