BP and ConocoPhillips have scrapped plans to build their Denali pipeline to move natural gas from Alaska's North Slope to markets in the US Lower-48, saying Tuesday they were unable to attract enough support from potential shippers to continue with the $40 billion-plus project.
The companies said they will withdraw a pre-application for the project filed with the US Federal Energy Regulatory Commission and cease operations over the next several months.
"Denali is ending its efforts because of lack of customer support. Denali is a market-driven company. As such, we cannot spend the billions of dollars necessary to the project unless we have binding agreements with shippers," Denali President Bud Fackrell said in a statement.
The company also said that since it began its efforts in 2008, "the North American gas market has changed significantly, primarily as a result of the development of shale gas resources. This has created a very difficult environment in which to secure financial commitments from potential customers."
TransCanada and ExxonMobil are continuing to pursue a similar project, which has been promised a $500 million subsidy from the state of Alaska.
BP spokesman Steve Rinehart said his company, one of the major holders of North Slope gas resources rights, is continuing to examine options for commercializing North Slope gas.
"We are where we have been throughout this process, reviewing all possible commercially viable projects and options. Denali made this as a business decision, and it leaves TransCanada and ExxonMobil still in the game. We took a careful look at both of these projects, and we will continue to evaluate the current offers and different options. There is no doubt that shale gas has had a dramatic effect on the market in the last couple of years," Rinehart said.
Harold Heinze, CEO of the Alaska Natural Gas Development Authority, a state corporation, said he is disappointed that Denali has withdrawn because it will remove the competition between Denali and TransCanada to build a pipeline, which has had positive effects.
"We knew that Denali has been in extended discussions with potential shippers for some months, but were still surprised that they have chosen to completely exit from the project," Heinze said.
Denali held an open season for its project in 2010, as did rival TransCanada, but has not released results other than to say it did receive offers from potential gas shippers.
Heinze is also a former Alaska commissioner of natural resources and was president of ARCO Alaska Inc., predecessor to ConocoPhillips in Alaska.
TransCanada vice president Tony Palmer said in an interview Monday that his company and its partner, ExxonMobil, are continuing with work related to an application due to the Federal Energy Regulatory Commission by late 2012.
The pipeline company has not released results from its open season, also conducted in 2010, but is committed to continuing work on the project for the FERC application under a contract with the state of Alaska.
