BP, Conoco Halt $35 Billion Alaska Gas-Pipeline Project

BP Plc and ConocoPhillips dropped plans for a $35 billion Alaska natural-gas pipeline, once proposed to be the largest private construction project in U.S. history, because they didn’t get enough customer interest.

The companies will withdraw an application seeking federal approval to build a pipeline to bring gas from Alaska’s North Slope to U.S. and Canadian markets, according to a statement today. More than $165 million has been spent on the Denali project and the decision to end it comes amid changing North American markets including the rise of unconventional gas supplies, the companies said.

The project, estimated to cost $35 billion in April 2010, would’ve stretched 1,750 miles (2,800 kilometers) from Prudhoe Bay to Alberta and been in service in 2020. Halting Denali leaves one competing pipeline proposal, backed by TransCanada Corp. and Exxon Mobil Corp., to bring 4.5 billion cubic feet of gas a day from Alaska’s North Slope.

“We cannot spend the billions of dollars necessary to advance the project unless we have binding agreements with shippers,” Bud Fackrell, Denali’s president, said in the statement. “Although we have been in discussions with potential shippers for nearly a year and a half, we have been unable to secure financial commitments necessary to advance the project.”

Exxon and TransCanada said in January 2010 that their pipeline would cost $32 billion to $41 billion. TransCanada, based in Calgary, won state government support for its pipeline in 2008 and Irving, Texas-based Exxon later agreed to help finance and build the pipeline in exchange for a minority stake.

‘Significant Interest’

The companies plan to file an application seeking permission from the Federal Energy Regulatory Commission to build the pipeline in October 2012, said Tony Palmer, vice president for Alaska business at TransCanada.

“We have had significant interest from customers, but you never know how many customers you’ll get until the end of the day,” Palmer said.

New techniques to get gas from shale-rock formations in the lower-48 states have boosted U.S. reserves and caused the price of the fuel to fall from a high of $15.378 per million British thermal units in 2005 to $4.182 on the New York Mercantile Exchange today.

The economics make the Alaska pipeline a difficult project, said Mark Gilman, an analyst at the Benchmark Co. in New York.

Not ‘Financially Feasible’

“A pipeline to move North Slope gas to the lower-48 states -- I don’t care who the sponsor is, given the new realities of the natural-gas market -- is not likely to be financially feasible anytime in the foreseeable future,” said Gilman, who doesn’t rate TransCanada, has “sell” ratings on ConocoPhillips and Exxon and a “buy” rating on BP’s American depositary receipts. Gilman doesn’t own any of the companies’ shares.

Larry Persily, the U.S. government’s federal coordinator for Alaska gas transportation projects, said in a statement that he hopes BP and ConocoPhillips can someday work with Exxon and TransCanada on a pipeline project.

“There could be a place in the market for North Slope gas in the 2020s and beyond, and the gas line is too important to Alaska’s economy not to keep trying,” Persily said.

The two pipeline projects are not the only ways to sell North Slope gas, said Steve Rinehart, a spokesman for BP Alaska. Other options include liquefying the gas for transport to other markets by tanker, he said.

“There’s a lot of gas and the market is evolving and we’re going to keep a very close eye on that,” Rinehart said in a telephone interview today.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE