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Royal Dutch Shell express interest in North Slope work

Houston Chronicle: Firms clamor to get in on pipeline project

Enbridge and Royal Dutch Shell express interest in North Slope work

Copyright 2008 Houston Chronicle
April 9, 2008, 10:46PM

The team effort by BP and ConocoPhillips to build a long-envisioned natural gas pipeline from Alaska’s North Slope has others in the industry wanting to play too.

Enbridge Inc., the No. 2 pipeline company in Canada, said Wednesday it too has discussed joining the 1,700-mile pipeline project, which would carry natural gas to markets in the lower 48 states.

“We want to be full equity partners, in the 10 to 20 percent range would be about right for us,” said Ron Brintnell, director of gas development for Enbridge.

Royal Dutch Shell also may be interested in taking part in the project. The international oil and gas giant has been buying exploration leases in the waters off Alaska’s northern coast in recent years.

“While we have no current financial involvement, we are an interested third party,” said Shell spokesman Curtis Smith in Anchorage. “As a future major producer in Alaska, we are anxious to see the means of conveyance being considered, and we’re interested in seeing how Shell could become involved in using them.”

Enbridge has about $12 billion in new pipeline projects under way and has been operating a natural gas pipeline in the Northwest Territories of Canada for 29 years, so it has a lot to offer the project, Brintnell said.

“We have a really good handle on what it takes to get contractors, order steel, everything,” Brintnell said. “In terms of current pipeline experience no one can touch us.”

TransCanada, the largest pipeline company in Canada, doesn’t see it that way.

The company has the only surviving bid in a pipeline process Alaska Gov. Sarah Palin launched last year under the Alaska Gasline Inducement Act.

Palin started the process after legislators shot down a deal the former governor, Frank Murkowski, negotiated behind closed doors with the North Slope’s main oil and gas producers — BP, ConocoPhillips and Exxon Mobil Corp. Opponents said that deal was too favorable to the companies.

TransCanada also says it has exclusive rights to move Alaskan gas through Canada as part of a 1978 treaty. Enbridge and others say that’s not the case.

The ConocoPhillips-BP pro- ject may well trump the Trans- Canada proposal, said Doug Reynolds, an energy economist at the University of Alaska at Fairbanks.

“A project can’t happen without the cooperation of the producers,” Reynolds said. “I can see them moving forward and essentially forcing the state to drop the process it started with TransCanada and work with them.”

But that doesn’t mean the state’s process was in vain.

“It did push the producers to move forward with some of the planning without fiscal certainty and means they will probably accept terms that are better to the state than they had under the last agreement,” Reynolds said.

It also makes it more likely the pipeline won’t be completely controlled by the producers, as the existing Trans-Alaska Pipeline System is.

“You definitely don’t want the producers being the sole owners of the pipeline, and it appears AGIA is helping to make sure that doesn’t happen, even if it isn’t the AGIA process that is ultimately used,” Reynolds said of the Alaska Gasline Inducement Act.

Another Fairbanks economist, Richard Fineberg, has argued that the Trans-Alaska Pipeline operators charge high tariffs that reduce the value of the oil when it is produced, thus lowering the state’s tax revenue from oil production.

A pipeline to bring the North Slope’s natural gas to the Lower 48 states has been discussed since the oil pipeline began operating in 1977. The U.S. Energy Department says the North Slope has proven gas reserves of 35 trillion cubic feet, but without a gas pipeline, most gas is bypassed or reinjected into the ground to improve oil production.

Building the pipeline won’t be easy, however, regardless of what companies eventually take on the project.

For starters it would be one of the largest construction jobs in North American history, twice the size of the existing 800-mile oil pipeline built in 1977, and passing through some of the harshest climates on the globe.

Gaining rights of way on the Alaskan side shouldn’t be too difficult, since much of the line would run along the existing oil pipeline right of way, Reynolds said. In fact, a federal office was created just to coordinate the many regulatory steps needed to study and build the project.

But once the project hits the Canadian border it could be another story.

The Mackenzie Valley pipeline, a 750-mile project that TransCanada is building in the Northwest Territories, has been hampered by challenges including opposition from environmental groups and native communities.

Some of these have joined the project as partners, but there continue to be holdouts, said Reynolds.

“It should have been in construction by now, and it’s not,” he said.

Shela Shapiro, a Trans- Canada spokeswoman, said other companies working on the Alaskan pipeline “could expect a similar, or more complex, process to to gain right of way through the Yukon since this is non-Yukon and non-Canadian gas.”

TransCanada, by contrast, has owned rights of way in the Yukon for 25 years, which would make the process of permitting and building a pipeline from Alaska through the area easier, she said.

But the new pipeline plan also likely will face challenges from environmental groups.

Jean Langlois, national campaigns director for Sierra Club Canada, said his group likes the idea of new natural gas supplies displacing more-polluting coal as a power plant fuel, but knows a pipeline would also lead to more exploration in regions he believes should be off-limits.

“It’s a potential nightmare for anyone wanting to establish that pipeline,” Langlois said. “But that’s just part of the challenge of trying to make your money putting in pipelines.”

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