Denali Pipeline Killed by Lack of Customers, Shale Gas Emergence
Without solid commitments from potential customers and the emergence of North American shale gas as a price-competitive energy source, the proposed $35-billion Denali pipeline in Alaska, owned by subsidiaries of BP and ConocoPhillips, has called it quits.
“As far as Denali is concerned, we are finished,” says Scott Jepsen, vice president of business services for Denali – The Alaska Gas Pipeline LLC. “The focus of Denali has always been to move natural gas from the North Slope. Our work here is over."
Denali will also withdraw its Federal Energy Regulatory Commission (FERC) pre-file application and, over the next few months, close out all operations. Jepsen says Denali resources won’t switch to any other project.
The move to end Denali’s run comes on the heels of an unsuccessful open season effort—a time that allows companies to negotiate with potential shippers to form binding agreements on carrying gas through the pipeline before construction begins. “We are a market-driven company, so we are dependent on support from our customers,” Jepsen says. “We had been negotiating since the close of open season in October of last year and have not been able to get financial commitments.”
Denali couldn’t get a sufficient number of leaseholders in place, possibly because of the uncertainty surrounding the emergence of shale gas.
“Shale gas has become a big player in the North American marketplace,” Jepsen says. “It has really grown in volumes and there is a lot of uncertainty right now in how big shale gas will be in coming decades. It makes it really hard for our potential customers to sign up for this project.”
Denali had already spent over $165 million and invested more than 760,000 man-hours into the project that would have sent 4.5 billion cubic feet per day of gas through a 1,750-mile pipeline (730 miles in the U.S. and 1,020 in Canada) from the Alaska North Slope to Alberta, Canada, and connected to existing pipeline infrastructure. The owners brought San Francisco-based Bechtel on board to perform the engineering.
Bud Fackrell, Denali president, says he is disappointed in the final results, but proud they were able to get the project as far along as they did since Denali’s 2008 inception.
