A BP PLC (BP, BP.LN) and ConocoPhillips (COP) joint
venture said Tuesday that it is scrapping a $35 billion
Alaska
natural gas pipeline project because of weak customer demand and poor project
economics.
Denali
, the joint venture, had proposed building a 1,700-mile pipeline from
the
Alaska
's oil- and gas-rich
North
Slope
to
Alberta
,
Canada
. The pipeline would have shipped about 4.5 billion cubic feet a day of
gas.
A rival project proposed by TransCanada Corp. (TRP, TRP.T) and Exxon Mobil
Corp. (XOM) is still on track, TransCanada said Tuesday. That project, estimated
to cost up to $41 billion, has a license and financial backing from the
Alaska
government.
Denali
's project, which didn't have state backing, appears to have been more
vulnerable to recent low natural gas prices, while TransCanada's project has
enjoyed strong support from two
Alaska
administrations.
Denali
said it was unable to secure financial commitments from gas producers
on
Alaska
's
North Slope
despite 18 months of negotiations. Major producers in the area include
BP, ConocoPhillips and Exxon.
Denali
also blamed low gas prices and strong domestic supplies of natural gas
produced from shale rock in
Texas
and other parts
of the
U.S.
for the project's cancellation.
Spokesman Scott Jepsen said
Denali
had unsuccessfully sought more than $100 billion in financial
commitments from
Alaska
gas producers to build the project.
"We've been trying to get some agreements...that have teeth in it so we
could continue [developing] the pipeline," Jepsen said. "We haven't
been able to get the level of support we require...the impact that shale gas
has had on North American markets," particularly "near-term [low]
natural gas prices certainly haven't helped the project."
Jepsen declined to provide details of
Denali
's negotiations or to name any of the oil and gas producers, citing
confidentiality agreements. He also wouldn't say how many people are employed
by
Denali
, although said the joint venture was made up mostly of employees on
loan from BP and ConocoPhillips, who would return to jobs at their respective
companies. The company said it spent $165 million on the effort.
Rival Pipeline Progresses
Tony
Palmer, TransCanada's vice president of
Alaska
development said, "We continue to be confident that we can advance with
the project."
TransCanada and Exxon Mobil Corp. have proposed building a $32 billion-$41
billion 1,700-mile pipeline from
Prudhoe Bay
on
Alaska
's
North
Slope
to
Alberta
,
Canada
,
which would connect with TransCanada's existing pipeline system that carries
gas into the
U.S.
The
pipeline would ship up to 4.5 billion cubic feet a day of gas and could be
expanded to carry 5.9 billion cubic feet a day.
Low gas prices won't affect TransCanada's pipeline project, Palmer said. Since
it is scheduled to go online around a decade from now, the only gas prices that
matter are those in effect at that time, he said.
"The timeframe for this project is not today or tomorrow, it's 2020 and
beyond," Palmer said.
Key negotiations remain, including talks between TransCanada and oil and gas
producers in
Alaska
over
terms of a pipeline shipping agreement, and talks between producers and the
state of
Alaska
over
production taxes and incentives, he added.
TransCanada has a license and financial backing from the state of
Alaska
,
obtained during former Gov. Sarah Palin's administration. The license includes
a 10-year guarantee that locks in tax rates for producers. However, producers
have said the 10-year term is too short, in part because it doesn't match up
with a pipeline commitment, which would likely be 20 years or longer.
Alaska Gov. Sean Parnell, a strong supporter of the pipeline project, said
Tuesday that he hopes TransCanada and Exxon's project will proceed, with the
participation of BP and ConocoPhillips.
"While we dislike seeing the demise of any gas pipeline project before a
gasline is under way, the silver lining here is that
Denali
's
announcement frees ConocoPhillips and BP to independently become partners in
another
Alaska
gasline project," Parnell said. He added "alignment" among gas
producers, the pipeline developers and state and federal agencies "will be
necessary to advance a project of this magnitude."