|Alaska Gasline Bidding Ends|
Anchorage – The bidding has ended for proposals for building the Alaska Natural Gas pipeline to bring Alaska North Slope natural gas to market. The State, led by Governor Sarah Palin, closed the bidding Friday evening at 5pm Alaska Standard Time. A total of 5 bids and one non-conforming proposal were received by the State.
The bidders were: TransCanada Corp., Chinese energy giant Sinopec, Aenergia from California, the Alaska Gasline Port Authority and the Alaska Natural Gas Development Authority. ConocoPhillips provided a non-conforming proposal.
Governor Palin started the process rolling earlier this year with the Alaska Gasline Inducement Act (AGIA) which lays out the foundation for the agreements and timelines for approval on construction of the line. Bidders had to agree to the guidelines and processes set forth in AGIA to submit a qualifying bid. The State will now review the submitted bids and announce a winner some time in February 2008. From that point it will be up to the State Legislature to approve the winning bidder. That is expected to happen in summer 2008. The project will be one of the largest in North American history costing up to an estimated $42 billion dollars and taking 10 years to build depending on the route. The route for the pipeline has yet to be determined, but it will either follow the existing Trans-Alaska Pipeline (TAPS) from Prudhoe Bay to Valdez, or more likely travel from Prudhoe Bay to central Alaska and then head east into Canada and down into Alberta and the central lower 48. It is roughly estimated that’s its capacity will be around 4 billion cubic feet of gas a day supplying 7% of America’s needs. Due to the nature of natural gas transport it is probable that the pipeline will be buried. The project will also involve construction of natural gas processing facilities at Prudhoe Bay and at the line’s termination point. It may also involve spur lines in central and southcentral Alaska. If natural gas is shipped to Valdez it will be compressed into liquid and thus require compression facilities and port facilities for highly specialized LNG tankers. Natural gas is usually produced with oil and water and is either a product from a natural gas well or separated from oil and water from an oil well. Currently North Slope natural gas is re-injected into the ground to maintain oil reservoir pressure underground. There has been no way to get it to market.
Despite being an historic first step for the construction of the long overdue line, many questions still remain as to its operation. A pricing point needs to be worked out between the operator of the line and the suppliers which will allow profit enough for both to justify the investment made in keeping the line open and the gas wells producing. The state and federal government will need to work out the actual assistance given in the financing of the line that will allow a company to take the financial risk in construction and operation. AGIA sets the state inducement at $500 million and a gas producers tax freeze for the first 10 years of operation. Many potential bidders have said this is simply not enough and not long enough. Because the supply of gas will act similar to a public utility long term supply contracts will be the norm of operation. Unless shippers can guarantee a supply at a set price for long periods of time, energy buyers at the end of the line will not sign on. At the beginning of the line problems also exist in that the line operator must agree to transport the gas at a certain price for suppliers. This transport price must be less than the cost benefit obtained from re-injection, otherwise there is no incentive the gas producers to ship the line to market. Another aspect of the risk involves the future of US energy and the potential opening up of gas fields off the east, west and south coast of the lower 48. More economic fields closer to market could make the Alaskan supply uneconomic. A similar affect could be produced by sudden access to cheaper supplies imported from sources in Canada.
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