Alaska governor wants big switch in gas pipe plan

ANCHORAGE, Alaska Thu Oct 27, 2011 8:31pm EDT

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ANCHORAGE, Alaska (Reuters) - Alaska Governor Sean Parnell said on Thursday that a plan to build a massive natural gas pipeline from Alaska through Canada should be dumped in favor of a liquefied natural gas (LNG) project that would ship gas to the Pacific Rim.

TransCanada Corp and partner Exxon Mobil Corp have been unable to win customers for the 1,700-mile natural gas pipeline they propose to build from Alaska's North Slope to Alberta.

The companies' plan, which has a price tag of up to $41 billion, is doomed by a major shift in natural-gas markets, said Parnell.

Booming shale gas production in the mainland United States is glutting markets there, while the Japan tsunami and other factors have created supply crunches in Asia, Parnell said, at an Alaska Oil and Gas Association conference in Anchorage.

"If market demand for gas has truly shifted from the Lower 48 to Pacific Rim markets, then the state of Alaska should be ready to shift along with that," said Parnell.

He said his call for a different pipeline plan -- a departure from the state's official position since the late 1990s -- reflects frustration with lack of progress.

"I don't think people in Alaska are going to wait forever to determine if the Lower 48 is going to generate demand for a pipeline," Parnell told reporters after his speech.

TransCanada in 2008 won an exclusive state license for the pipeline under the Alaska Gasline Inducement Act, legislation championed by former Governor Sarah Palin. The license grants TransCanada up to $500 million in state subsidies to help plan the line.

Exxon Mobil, one of the three major North Slope oil producers, joined the TransCanada project in 2009; the two companies proposed a line that would deliver about 4.5 billion cubic feet a day to Lower 48 markets.

A 90-day open season that TransCanada and Exxon ended in July of 2010 failed to attract any shipping commitments for yet-to-be-built gas pipeline.

BP and ConocoPhillips, the two other major North Slope oil producers, in May abandoned a rival natural-gas proposal for a similar route and similar delivery volumes after their 2010 open season also failed to attract shipping commitments.

Alaska's oil-rich North Slope holds known reserves of about 35 trillion cubic feet of natural gas, a resource stranded for lack of any system to deliver it to any market. Plans for a North Slope natural gas pipeline have been discussed for three decades, but economics has precluded any project.

The idea of exporting North Slope natural gas in LNG form has long been popular in Alaska. It envisions an 800-mile gas pipeline paralleling the existing Trans Alaska Pipeline that shipped North Slope oil since 1977, with LNG tanker vessels loading up at a liquefaction plant at the port of Valdez, to take it to Asia.

But an LNG project faces the same kind of economic challenges that have so far stymied a more conventional overland pipeline, said Matt Berman, a University of Alaska Anchorage economist. The Pacific Rim market is no more supportive of an Alaska project in the long run, Berman said.

"It's subject to the same uncertainties. Right now it's better, but that can change over the next five years as much as it changed in the Lower 48," he said.

(Editing by Bill Rigby; Editing by Gary Hill)

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