February 2009 Update

In the news...

• Denali Group to Build Gas Treatment Plant (2/15/2009) The Denali pipeline group (owned by ConocoPhilips and BP) has awarded an engineering contract for a $2 billion gas treatment plant in Prudhoe Bay, Alaska to Fluor WorleyParsons Arctic Solutions. The engineering firm, a joint venture between Fluor and WorleyParsons, has retained CH2M Hill as its subcontractor for Alaskan support services during the design phase of the project. The size of the contract is confidential, but according to Denali spokesman, Dave MacDowell, "It is in the range of several million dollars." Technical studies for the plant will include cost estimates, execution planning, project design and anything else needed to move the project forward, MacDowell said. The plant will be a part of the planned $30 billion Alaska natural gas pipeline project that will run from Alaska's North Slope to Alberta, Canada. If built the gas treatment plant will be the largest of its kind in the world and be responsible for removing hydrogen sulfide, carbon dioxide and other impurities as well chill and compress natural gas before being sent to the pipeline. [More here]

• Enbridge Has Plans for Big Gas Pipelines (2/14/2009) ... As a result of a number of oil pipeline projects being delayed or set aside, Enbridge Inc. is now considering large-scale natural gas pipeline projects to fill the void. The company has already delayed its plans to build the Fort Hills oil pipeline. "It is fair to say we will see some delay and push-out beyond ... our long-range plans on some of the oil projects, and some gas projects to fill it in," said Pat Daniel, Enbridge's chief executive. "We're very active on the gas side already in developing alternate opportunities." Projects such a proposed Rockies Alliance Pipeline that would connect Chicago with the natural gas fields in the Colorado Rockies could take a more significant role in the company's plans after 2012. [More here]

• State Agency OKs New Pipeline Rules After Calls from Residents, Officials in Barnett Shale (2/14/2009) ............. In response to citizen's concerns about the Barnett Shale field, the Texas Railroad Commission has approved a set of new rules for natural gas pipelines in the state of Texas. The state commission, which oversees gas, oil and pipeline industries, has approved new rules that state safety regulations for low-pressure production and flow lines that connect gathering lines that run through heavily populated areas. Previously, the pipelines were virtually unregulated and were only inspected after a complaint or problem was noticed during inspections of a well or lease. Inspections will take place on an annual basis. In addition, gas distribution systems will now have to report any leaks and any unrepaired lines to the commission every six months instead of just writing reports without submitting them. Funding has been requested by the commission for 13 more pipeline inspectors and 21 more gas and oil well inspectors. [More here]

• Obama Will Discuss Proposed Alaskan Gas Pipeline with Canadian Leaders (2/12/2009) President Barack Obama promised to discuss Alaska's proposed gas pipeline with Canadian leaders during his trip to Ottawa on February 19. "It's a project of great potential and something I'm very interested in... as I mentioned during the campaign, I actually think that for us to move forward on the natural gas pipeline as part of a comprehensive energy strategy - that includes both more production as well as greater efficiency - makes a lot of sense," Obama said. "As it happens, Prime Minister Harper, as well as President Calderón of Mexico, have a great interest in energy. Obviously, Canada is one of the biggest energy players in the world. They share an interest in not only the production side, of the economic benefits, but I think they're also interested in a broader conversation about efficiency and how it relates to issues like climate change." Alaskan Gov. Sarah Palin wrote a letter to Pres. Obama earlier in the month requesting he discuss the pipeline with Prime Minister Stephen Harper during his visit. The Alaska legislature granted a Canadian company, TransCanada, an exclusive state license to build the pipeline last year. [More here]

• TransCanada CEO Downbeat about Mackenzie Line (2/11/2009) Despite years of planning and rising costs, regulatory delays have increased the chances that the Mackenzie natural gas pipeline will not be built according to TransCanada's CEO. "I confess to some pessimism on the Mackenzie project, and it may well not proceed," Harold Kvisle said. The most recent setback came at the end of last year when two regulatory panels said they expected to deliver their reports on the project months later than originally scheduled. TransCanada currently does not have a stake in the pipeline but can acquire 5 percent through the native-owned Aboriginal Pipeline Group, which aims to control a third of the project. In January, the Canadian government offered financial aid for the proposal to cover pre-construction costs, roads and airstrips. "I have great sympathy for the current government of Canada, which is doing everything it can to move the project forward," Kvisle said. "But it inherited a mess that's been building up for a couple of decades." Despite Kvisle negative comments, Canadian Environment Minister, Jim Prentice, told reporters in Ottawa, "I continue to be optimistic about the project. It's a very important project for our country." The proposal, led by Imperial Oil Ltd, calls for the construction of a 760-mile pipeline through the Northwest Territories to Alberta and will be able ship up to 1.9 billion cubic feet of natural gas a day. [More here]

• Massive Gas Release on North Slope Could Have Destroyed Pump Station, Officials Say (2/8/2009) According to investigators, on a January 15, a massive release of Prudhoe Bay natural gas that filtered into Trans-Alaska Pump Station 1, the gas could have destroyed the building and shutdown Alaska's North Slope oil fields. The incident occurred, when a "bullet shaped" cleaning pig (a device used to scrape walls and detect problems) became stuck after workers "lost track of its exact location" along the pipeline. Workers for BP PLC were using pressurized natural gas to move the pig through a corroded 34-inch pipeline. The pig was being to used to swab oil out of the pipeline in preparation for its decommission. After the release, Pump Station 1 (through which all oil from the North Slope must pass) was shut down from 3:06 PM to 3:41 PM. Alyeska Pipeline Service Co., operator of the 800-mile pipeline, said the pipe section was among the major Prudhoe trunk lines found to be severely corroded because of BP's lack of proper maintenance. Alyeska acknowledged an explosion or fire could have jeopardized the safety of over 60 workers at the pump station and caused shutdown of the oil fields. The incident, which alarmed regulators, BP and Alyeska workers, was not reported to the authorities until January 20 - five days after it happened. The U.S. Pipeline and Hazardous Material Safety Administration, the Joint Pipeline Office - an Anchorage umbrella agency for federal and state regulators overseeing Alaskan pipelines and Congressional offices with oversight over energy development and safety are investigating the matter. [More here]

• Lawmaker Sends Note to Hillary Rodham Clinton on Gas Pipeline (2/5/2009) Texas State Rep. Chente Quintanilla has sent a letter to Secretary of State Hillary Rodham Clinton asking her to determine why a presidential permit was granted last October for the construction of a gasoline pipeline from El Paso, Texas to Juárez, Mexico without a proper review of an environmental impact study. Specifically the letter requests she provide answers as to why the interests of PMI Service North America - a U.S. subsidiary of Mexico's national oil company Pemex - had more priority than those of U.S. citizens. "Our arguments were ignored," Quintanilla wrote. "What is worse, those individuals in the State Department who are charged with protecting the interests of U.S. citizens allowed Pemex to use our arguments in making their case against our interests." PMI officials have said the pipeline is a safer way to transport diesel and gas than the trucks they currently use. Work has started on the pipeline and it is expected to be in operation later this year. [More here]

• Butte County Could Host New Natural Gas Pipeline (1/29/2009) American Oil & Gas is seeking to install a new natural gas pipeline along county roads in the north central section of Butte County, South Dakota. According to company engineer, Neal Neumiller, a six-inch diameter steel pipeline would be buried five to six feet underground following the public right of way. The 20-mile line would travel from wells and a compressor located near U.S. Highway 85 west to the Williston Basin Instate pipeline. If the project is approved by the Butte County Commission, an American Oil & Gas land agent said the county will receive a one-time fee of $60,000 for the access. [More here]

• Aboriginal Leaders Applaud Mackenzie Delta Pipeline (1/26/2009) Mackenzie Delta aboriginal leaders cheered and celebrated the start of the northern pipeline hearings in Inuvik, North West Territories. "We're ready,'' said Fred Carmichael, president of the Gwich'in Tribal Council and chairman of the Aboriginal Pipeline Group (APG). "We've had 30 years to get ready since (Thomas) Berger,'' he added, in reference to the 1970s commissioner who stopped the first attempt at constructing the pipeline so the northern communities could gain strength to deal with the gas industry. APG owns one-third of the $4.8 billion proposed natural gas pipeline that will run 1,200 kilometers through the Mackenzie Valley to Alberta. National Energy Board (NEB) chairman Ken Vollman called the $7 billion Mackenzie Gas Project "an historic undertaking" that is the largest proposal to seek NEB's approval. Project manager Randy Ottenbreit said, "The Mackenzie Gas Project needs all the components in order to succeed," including the approval of a $2.2 billion Mackenzie Delta production facility or nothing will go ahead. In an area with unemployment approaching 40 percent Mackenzie Delta residents seek jobs that require 12-hour days in -40 degrees F winter weather. "The biggest challenge is to get our people off dependence on government,'' Carmichael said. "That creates a terrible society. The only way out I see is to become self-sufficient.'' Despite most residents' enthusiasm for the project several groups oppose it including the Sierra Club of Canada and the Deh Cho - a lone aboriginal holdout who is not participating in ownership of the pipeline. The environmentalists claim protecting the northern boreal forest from destructive development will preserve the value of the forest they estimate to be around $93.2 billion a year or more than double the expected $37.8 billion net revenue generated from resource extraction. [More here]

• BP Official: Alaska Natural Gas Pipeline Prospects Dim (1/23/2009) The overall economic collapse, declining energy prices and the emergence of unconventional energy sources has dimmed prospects for constructing a pipeline from Alaska's North Slope according to a senior BP executive. "It's not a pretty story right now in terms of North American natural gas markets," said Brian Frank, president of BP Energy Co and BP's North America Gas and Power at an annual industry conference in Anchorage, Alaska. BP and ConocoPhillips - two of the three major North Slope oil producers - are competing with their Denali proposal against TransCanada to build a pipeline around 1,700 miles long from the North Slope to Alberta. Although TransCanada, which has an exclusive license for the project from the state of Alaska, estimates the project will cost $26 billion, Frank thinks the cost will be in the $30 to $40 billion range. "It's very difficult to find the financing and funding for projects and infrastructure," he said. In fact economic conditions are so bad that each week several major customers for BP's natural gas are filing for bankruptcy and others are now on prepayment plans "because they are not credit worthy," he said. The project also faces competition from shale gas produced in the Rocky Mountain and Midwest states. Despite the adverse conditions, Frank believes the project can move forward but only if there is a "stakeholder aignment" that includes regulatory and fiscal "reliability" from the state of Alaska. "How do you know the economics for your project if you don't know what you're going to pay in taxes?" he said. Both the Denali and TransCanada proposals would seek a license from the Federal Regulatory Energy Commission in 2014 and then financing for the project assuming economic conditions have recovered by that time. [More here]

• Scientist: New Fault Could Mean Major Arkansas Temblor (1/21/2009) A recently discovered fault near Marianna in eastern Arkansas could trigger a magnitude 7 earthquake with an epicenter located near a major natural gas pipeline. According to Haydar Al-Shukri, director of the Arkansas Earthquake Center at the University of Arkansas at Little Rock, the fault is separate from the New Madrid fault responsible for several quakes in 1811-12 that caused the Mississippi River to flow backwards. The fault is thought to have formed in the last 5,000 years and already experienced at least one magnitude 7 earthquake. "This is a very, very dangerous (area) at risk of earthquake," Al-Shukri said. "When you talk about (magnitude) 7 and plus, this is going to be a major disaster." Al-Shurkri did not say when a quake may happen though he did predict it would affect Little Rock, Tennessee and Mississippi. Although he declined to name an owner of the pipeline, an Arkansas Public Service Commission map of the area indicates Arkla Energy Resources has a pipeline in the area. Rebecca Virden, spokeswoman for CenterPoint Energy Inc. which owns Arkla, said pipes are "all over the place... We, CenterPoint Energy, or someone else has a pipeline everywhere." Several quakes occur each year in Arkansas near the New Madrid Seismic Zone but so far none of the temblors have been connected with the Marianna fault according to Al-Shukri. [More here]