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How Alaska gas pipeline price tag grew 300 percent in 12 years

May 12, 2013 Costs have ballooned for the long-awaited project to tap Alaska’s vast natural gas reserves in the Arctic, skyrocketing 300 percent in 12 years as the proposal morphed from an overland route bound for the Lower 48 to a dramatically different project to ship liquid natural gas across oceans. The skyrocketing estimates are increasingly important as state officials consider the benefits of joining oil titans such as Exxon Mobil Corp. to become a partner in the project. A state official said the latest estimate — $45 billion to $65 billion or more — isn’t out of line with a 2008 analysis by Gas Strategies, a London-based energy consultant. The price tag is higher than previous estimates, despite that not as much costly steel would be needed in construction. In 2006, the gas pipeline proposal called for 3,640 miles of buried steel tube as the line snaked from Alaska’s North Slope oil and gas fields, southeast through Canada, and ended in Chicago. The current proposal would need only about 800 miles of pipeline, as it would run from the North Slope, south through the state, and end up somewhere in Southcentral Alaska, perhaps in Valdez, also the terminus of the trans-Alaska oil pipeline. Larry Persily, the federal pipeline coordinator, said the latest cost estimate makes sense. The biggest numbers in such efforts aren’t tied to steel pipe, he said, but associated with the liquefaction plant needed to super-chill the gas. The liquefaction plant, plus storage tanks and a shipping terminal, could alone cost $23 billion to $25 billion, Persily said. « These things are really expensive, » said Persily, who has studied the cost of other new gas-liquefaction operations around the world. Oil and gas attorney Bill Walker, who is challenging Gov. Sean Parnell in the 2014 Republican primary election, said the Gorgon LNG project under construction in Western Australia is estimated to cost $55 billion. And that would be smaller than Alaska’s project. The long-running effort to tap the North Slope’s ample reserves — estimated at 35 trillion cubic feet of technically recoverable natural gas — is littered with decades of broken promises by politicians, oil companies and speculators. But the project in recent years has become more critical to Alaskans as crude production declines in the state’s aging oil fields — a major source of state tax revenue. Here’s a brief timeline of the growing costs for a proposed North Slope natural gas project: * After two decades, Yukon Pacific Corp. in 2001 began to abandon hope of developing a project with an 800-mile pipeline, liquefaction plant and shipping facilities. Officials with Yukon Pacific, a subsidiary of Virginia-based transportation giant CSX, blamed oil company executives and state leaders who claimed the economics didn’t pencil. The Yukon Pacific project would have shipped 2.5 billion cubic feet (bcf) of gas a day, making it smaller than the current gas project plan of 3-3.5 bcf a day. The estimated cost of the LNG project in 2001 was pegged at $8 billion to $10 billion. * Also in 2001, the state’s biggest oil and gas producers estimated an « over the top » pipeline — a line traversing across northern Alaska, buried in the Beaufort Sea and extending through the Canadian Arctic, and eventually to the Lower 48 — would cost $19 billion. The companies also estimated a 3,640-mile buried pipeline running from Prudhoe Bay, through Canada and on to Chicago would cost $19.4 billion. In 2005 and 2006, then-Gov. Frank Murkowski pushed hard to reach a deal with Exxon, BP and ConocoPhillips for the 3,640-mile pipeline, with cost estimates increasing to $25 billion — nearly $6 billion more than five years earlier. Joe Balash, a deputy commissioner at the Alaska Department of Natural Resources, said in a recent interview that this estimate may have intentionally been low-balled as an attempt by the oil and gas producers to « maximize their commercial leverage relative to TransCanada » or other pipeline builders. Basically the producers said, « ‘Hey, I can build my own for this much, (so) if you want me to move my gas on your pipe, you’re going to have to make me a better deal than that,' » according to Balash. In 2008, then-Gov. Sarah Palin pushed for an overland pipeline running 1,715 miles, moving 4.5 billion cubic feet of natural gas into Alberta, Canada, where other pipelines would deliver it to the Lower 48. At the time, the line was predicted to cost $26 billion to $30 billion. But the price rose by 2010, reaching $32 to $41 billion. When Palin joined John McCain in the 2008 presidential race, she introduced the Alaska gas pipeline to Americans, saying, « We began a nearly $40 billion natural gas pipeline to help lead America to energy independence. » Yet today, no company is close to starting construction on the pipeline. Fast-forward to the present. Last fall, BP, Conoco and Exxon — in conjunction with pipeline builder TransCanada Corp. — announced the current pipeline-LNG project under consideration would cost up to $65 billion or more.



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