Is natural gas the right product for a new pipeline?

The application of fraccing technology to shale formations in the Lower 48 states has led to a future glut of natural gas in the continental United States. Today, the Henry Hub price of natural gas is running in the neighborhood of $2.50/mcf. Additionally, the application of this new technology has happened so quickly that the environmental community was unprepared for it and is now fighting a furious rearguard action to keep it from being applied.

With this much new natural gas already hitting the marketplace in the Lower 48, the Alaska Highway route into the US no longer appears to be economically viable and the Governor is now pushing for a pipeline parallel to that of the TransAlaska Pipeline System from Prudhoe Bay to Valdez. The obvious market for the natural gas will be the Pacific Rim.

But does that market exist? More importantly, who or what will that natural gas be used for?

The two largest customers are Japan and China, with Japan currently paying the most for natural gas. But both nations are also investigating the use of fraccing technology against known deposits of shale. Both nations are coastal nations, with access to methane hydrates. China is building coal-fired and nuclear electrical generation facilities as fast as they can. After an initial step back from nuclear energy for electrical generation following the Sendhai earthquake and tsunami of 2011, Japan appears not to be turning to natural gas for electrical generation. This means that their needs for natural gas will not grow faster than previously anticipated. Add to this the availability of natural gas from other places in the Pacific Rim – Indonesia, for instance – and the market for Alaska’s natural gas may not justify construction of a new pipeline.

There is another energy need that is not being met and is growing throughout the Pacific Rim including the west coast of the United States – that of vehicular fuels. This could be met by Gas to Liquids on the North Slope and shipping product in batches down the existing infrastructure and out of Valdez. This will not be cheap, nor will it be easy. On the other hand, it will meet a potential market unmet today and capital costs for GTL off the Slope may be as little as one third of the cost of a natural gas pipeline to tidewater.

Perhaps we Alaskans ought to consider the opportunities for meeting that marketplace before assuming a solution and committing to construction of a natural gas pipeline.