Wednesday, October 28, 2009

Alaska Pipeline: EIA Casts Further Doubts

I've written before about the great uncertainty surrounding the proposed Alaskan natural gas pipeline to the Lower 48 that is to be partially funded by $500 million from the state government through the Alaska Gasline Inducement Act. Last week, the Energy Information Administration published a report on Arctic oil and gas potential (not just Alaska) and cast further doubt on the viability of the pipeline.

The report concluded that while the Arctic region holds approximately 22% of the world's undiscovered conventional oil and gas reserves, the downside for the area is 1) it is mostly natural gas, which is hard to transport, 2) development be more costly, difficult and time consuming, 3) there are Arctic sovereignty claims that likely will delay development and 4) protecting the natural environment will be expensive. The report notes that perhaps the biggest issue impeding Arctic natural gas development is the emergence of enormous quantities of shale gas in the Lower 48 and other parts of the world.

An article yesterday from the Alaska Dispatch cited the report and the potential negative impact on the AGIA pipeline. It also had an interesting discussion of the impact of rising natural gas prices, suggesting that a spot market price over $6 might cause domestic producers to flood the market with pent-up supply, causing another price drop. Ultimately, it looks like the price of gas will stay relatively low for a few years to come until a significant upward shift in demand occurs.

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