Study finds Alaska pipeline more cost-effective than LNG exports

Study finds Alaska pipeline more cost-effective than LNG exports

New York (Platts)--24Apr2006

A proposal to export natural gas from Alaska's North Slope to the West
Coast of North America in the form of liquefied natural gas is less
cost-effective than shipping the gas on a pipeline to the Chicago market,
according to a recent report from Washington-based consultant PFC Energy.
The report, commissioned by the Alaska Department of Revenue, found that an
LNG terminal proposed by the Alaska Gasline Port Authority at Valdez "offers a
significantly lower netback to North Slope gas than the Chicago pipeline
project" proposed for construction along the Alaska Highway.

The consultant "estimates a netback to North Slope gas via the Chicago
pipeline of $4.69/MMBtu, as opposed to $3.17/MMBtu for the AGPA project based
on available public-domain asset cost estimates. Using internally generated
asset cost estimates, PFC Energy found that the netback difference widens,
"with the AGPA netback dropping to $3.05/MMBtu."

Moreover, the average price that gas from the AGPA project would receive
in West Coast markets would be about 61 cents/MMBtu lower than that realized
through the Chicago pipeline largely because of "regional gas price
differentials and the greater average distance of AGPA sales from major
consuming centers relative to the Chicago pipeline project," the study found.

In addition, the break-even cost for the Chicago pipeline to transport
gas, net of revenue from liquefied petroleum gas, is about $1.85/MMBtu. But
the AGPA project would require a levelized tariff of between $2.76/MMBtu and
$2.88/MMBtu based on cost estimates, the study said. "Either way, the Chicago
pipeline project has a decisive cost advantage," the report concluded.

Officials from AGPA could not immediately be reached for comment.

AGPA has promoted the idea of an LNG export terminal as an alternative to
the $20 billion pipeline proposed by a consortium of North Slope producers,
including BP, ExxonMobil and ConocoPhillips.

Late last year, AGPA filed suit against BP and ExxonMobil, accusing them
of anticompetitive behavior in part by refusing to sell any of their gas to
AGPA.

---Melanie Tatum, melanie_tatum@platts.com

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