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Lining up the Gas: Steaming in the Wrong Direction

By The Maritime Executive 01-07-2011 01:49:59

As domestic enthusiasm for a Trans-Canada gas pipeline from Alaska gathers steam, the RADAR warns of disaster on a constant bearing with rapidly decreasing range. But is anyone still on watch?

Finally, it looks like billions of cubic feet of stranded gas may be on the way down from Alaska's North Slope. From my perspective, the best way to do that is to take it down to Valdez and send it out by ship. On the other hand, the old adage that says that no other means of moving oil in large volumes can compete with a pipeline still rings true. Nevertheless, the longer the trip and the more sources and destinations required, the smaller the chances anyone will build it. Today, there are even a couple of other variables in play, as well. Why anyone (trying to lessen our dependence on foreign oil) would also ignore either one is simply beyond comprehension.

This week’s report that yet another attack on natural gas pipelines has occurred shouldn’t necessarily surprise anyone. That these events are taking place, not in Columbia, but instead in the Canadian Province of British Columbia should. Characterized by Canadian authorities as “domestic terrorism,” at least six bombings of natural gas pipelines in northeastern British Columbia in Canada have been reported since last October. A $500,000 reward in place for information leading to the prosecution of those responsible for bombings of the pipelines has yet to realize any joy and there is little reason to think that the Royal Canadian Mounted Police (RCMP) are any closer to catching the criminals today than they were nine months ago.

Separately and back in Washington, support for a proposed $30 billion pipeline project that will take North Slope natural gas 1,700 miles through Alaska and Canada and then on down to the Midwestern United States is gathering steam. Anything but a done deal, the task will involve market forces, state and national politics and a host of environmental and regulatory hurdles before the project can move forward. Two consortiums each consisting of at least two oil majors are bidding to become the primary contractor for the massive project. Long since forgotten, except for the occasional talk of a “small spurline to Valdez” is the viable option of bringing the gas to market through the established deepwater port of Valdez, AK.

The decision to move U.S. natural resources overland through a foreign country is a curious one. Instead of building a far shorter (800 miles) and far less expensive pipeline alongside the existing Trans-Alaska crude pipeline (TAPS) which moves crude oil from Alaska’s North Slope down to Valdez, the powers-that-be have decided on a project that will take much longer. In Alaska, most of the necessary right-of-way hurdles have already been jumped, whereas – noting the domestic terrorism ongoing in Canada – that task is still very much a work in progress for our northern neighbor. But, there are other, more compelling reasons not to go the overland route.

Oil pipelines also move oil safely and reliably, but not without some drawbacks. High on the list comes an almost complete lack of flexibility. For example, if market conditions change, customers disappear, or the gas wells themselves play out, the fixed pipeline cannot adapt. Indeed. And unlike the Valdez option, where the infrastructure to move this gas via ship to any number of markets already exists, gas moved from the North Slope through Canada can only have one destination – unless of course, the Canadians decide to build their own spurlines to existing Canadian markets.

The dangers inherent in depending on commodities shipped via pipeline overland through a foreign country are many. Just ask the EU about their gas supplies that move westward from the old Soviet block. It doesn’t take much of a political spat to get the valve pinched in or perhaps shut altogether, usually in the dead of winter. And, while no one is suggesting that the Canadians would consider that option the next time the timber dispute comes to a head, questions of security must be answered before laying that first foot of steel cylinder across the border. Today, there are less people living in British Columbia than there are in just a couple of New York City’s boroughs and yet, after the better part of one year, the perpetrators of the violent pipeline crimes have still not been identified. Frankly, I’m more concerned about this than I am about anything else.

Well beyond the issues of national security and keeping firm control of our own natural resources lays the questionable wisdom of spending billions of dollars in Canada when the domestic U.S. economy remains on life support. And, shipping gas through Valdez also has the added punch of possibly reinvigorating a domestic shipbuilding boom. Sure, much of the gas would be exported on foreign bottoms only to return on cargo swaps (also on foreign built vessels) to the United States, but if MARAD can demand that U.S. sailors be employed on foreign flag tonnage to satisfy licensing demands for import facilities in the lower 48, they can exert similar pressures here, as well.

The Colonial Pipeline, a 48-inch clean products line stretching from the Gulf Coast all the way to the U.S. East Coast, does the work of as many as 150 vessels. And, that metric may well be true for an overland gas line, as well. Today, the primary mission for the Office of the U.S. Federal Coordinator is to expedite construction of the gas pipeline that will commercialize North Slope gas and bring it to the Lower 48 domestic markets. That decision has already been made. The most optimistic guess for when all of that could happen is 2018, but in reality, and given the politics of the matter, we’re probably looking at five years beyond that, at the earliest.

Perhaps the best we can hope for in terms of keeping some control over all of that “stranded” domestic gas is a smaller spurline to Valdez. If and when that happens, at least we’ll have the domestic option of effecting some limited cargo swaps so as to send gas to East and Gulf Coast markets when the valve closes between Chicago and the North Slope. And that day will come – assuming that they can ever get the pipeline built in the first place.

It’s taken 30+ years to bully the oil majors into beginning to even consider delivering the stranded gas that they’ve been sitting on in the form of untapped leases. I don’t know why anyone would think that they now have our best interests at heart when it comes to bringing this badly needed domestic energy to market. Bringing the gas overland through Canada is a bad idea. I’ve said it before, more than once and now, the reasons why are even more than self-evident. It is time to shift course and protect our own interests. Along the way, we can reduce our dependence on foreign energy, make a sizable dent in the trade deficit, jumpstart a foundering economy and revitalize the domestic waterfront. Or, we can build a pipeline in Canada. – MarEx.

Click HERE to read our July 10 2008 (almost exactly one year ago) editorial which touches upon some of these same subjects.

Joseph Keefe is the Editor in Chief of THE MARITIME EXECUTIVE. He can be reached with comments on this editorial at jkeefe@maritime-executive.com. Join the Maritime Executive ‘Linked In’ group by clicking http://www.linkedin.com/e/gis/47685>