01/06/2012 01:28 EST | Updated 03/07/2012 05:12 EST

LNG option better than Alberta route for Alaska pipeline, consultant says

CALGARY - Shipping Alaska natural gas overseas in liquid form would be more lucrative than feeding it into the North American market, but it's not necessarily what the company proposing to build an Alaska pipeline wants, an energy consultant said Friday.

"Any additional gas that feeds into the North American container is going to keep the price depressed," said AJM Deloitte's Ralph Glass, who is predicting an anemic North American natural gas benchmark price of US$3.80 per 1,000 cubic feet in 2012.

Natural gas fetches much higher prices in Asia than in North America, where huge volumes are flowing out of shale rock formations and soaking the market in supply. An export option for Alaska gas would help in that regard.

But Calgary-based pipeline giant TransCanada Corp. (TSX:TRP) wants to keep its vast North American system full. As low prices cause conventional Western Canadian producers to slow production, TransCanada has said that other sources — Alaska and the Mackenzie Valley in the Northwest Territories among them — are necessary to supplant those volumes in the North American market.

"That's part of the dilemma that TransCanada does have," said Glass.

"They're pushing to get as much gas flowing down into North America to keep their mainline full because there just isn't the volumes needed into ... the TransCanada mainline anymore."

In an interview, company vice-president Tony Palmer said: "TransCanada always seeks to secure additional volumes into all of its pipelines wherever they may be in North America."

But it's up to customers — gas producers that pay to use its system — to decide where they want to send their gas, not TransCanada.

"Our job as a pipeline company is to move it from A to B," said Palmer.

TransCanada floated two options when it proposed to build its Alaska pipeline. One would run south to Alberta and connect with its North American system. The other would end up at the port of Valdez, Alaska, where the gas would be chilled into a liquid state, enabling it to be transported across the Pacific to Asia by tanker.

When TransCanada and partner ExxonMobil Corp. (NYSE:XOM) launched their open season to gauge customer interest two years ago, the cost estimate of the Alberta option was US$32 billion to US$41 billion, and the Valdez option was between US$20 billion and US$26 billion. Both would be in service around 2020.

Palmer said Friday the cost estimates for both have not been updated.

The three major natural gas producers in Alaska — ExxonMobil, ConocoPhillips (NYSE:COP) and BP (NYSE:BP) — met with the state's governor on Thursday where there was talk of LNG exports being the preferable option — to somewhere along Alaska's south coast, but not necessarily Valdez.

TransCanada has been advancing the Alberta route so far. To move forward with the alternative one, producers would need to agree to it and Alaska regulators would have to give the go-ahead, Palmer said.

"At present, there's no question that gas prices in North America are very low, and gas prices in Asia are high. And certainly today the economics of a project to Asia look better than they do to North America," said Palmer.

The gas wouldn't be going to market today, but rather a decade from now, he noted. AJM Deloitte's forecast calls for natural gas prices of US$7 by 2022 — a big improvement from today.

It's up to customers to sort out whether they think that gas prices will be better than what they could get in Asia, said Palmer.

TransCanada has so far not been involved in LNG — proposals to import the fuel into Quebec and New York in recent years didn't pan out — but ConocoPhillips, BP and ExxonMobil have extensive experience building liquefaction terminals around the world.

"I think that we're very good at building, owning and operating pipelines, and the associated facilities at the top end of the pipe as opposed to liquefaction plants," said Palmer.

"If customers decide they want us to participate, that's something we would look at. They're the ones with the skills today to build liquefaction plants."

There are also a number of proposals to build liquefied natural gas terminals on Canada's West Coast to move gas from prolific B.C. shale formations to market.

The furthest along is one planned for Kitimat, B.C., on the northern coast. U.S. producer Apache Corp. (NYSE:APA) would operate it with its partners, Canadian natural gas giant Encana Corp. (TSX:ECA) and U.S. firm EOG Resources Corp. (NYSE:EOG).