By Bob Shively, Enerdynamics’ President and Lead Instructor

Just a few years ago, Americans thought domestic natural gas supply could not keep up with growing demand.  Forecasts indicated that the U.S. would need gas supply from Alaska, Arctic Canada, and from other regions of the world via Liquefied Natural Gas (LNG) to supply consumers.

But that picture has changed.  New capabilities to exploit shale gas in the lower 48 states and western Canada have led to common belief that supplies are robust.  And many owners of LNG terminals or proposed terminals are now working to change their strategy to gas export, not import.

What does this mean for the two long-discussed projects – the MacKenzie Gas Project in northern Canada and the Alaskan Natural Gas Pipeline?  Well, while their proponents may not be ready to admit it, it appears these projects have moved to the back burner.  Shell announced July 15, 2011, that it plans to sell its share of the MacKenzie project as well as its other assets in the region.

This is a big blow to the project since Shell has long been a key partner.  And this comes mere months after the National Energy Board of Canada issued a certificate for construction of the project.  The remaining partners (Imperial Oil, ConocoPhillips and ExxonMobil) have said no decision will be made on whether to move forward until at least the end of 2013.

Meanwhile in Alaska, one of two competing pipeline projects – the Denali Pipeline (owned by subsidiaries of BP and ConocoPhillips) – announced on March 17, 2011, that the project was terminated due to lack of sufficient customer commitments.

The other project – the Alaskan Pipeline Project (owned by TransCanada and ExxonMobil) – states that it is “currently assessing open seasons bids submitted by multiple shippers and conducting ongoing negotiations to secure signed Precedent Agreements.” At its earliest, this project could begin the regulatory approval process in late 2012.  More likely, it too will be delayed further.

The problem in one word: costs.  These projects require from $16 to $35 billion to construct.  When producers look at the cost to transport gas to markets plus the costs to develop supplies in unfriendly arctic environments, they just can’t see getting gas to market and competing with shale gas that is being produced and sold at prices around $4.50/MMBtu.

It is possible a smaller pipeline will be developed to deliver Alaskan supplies to markets within the State of Alaska, but most likely remote Canadian and Alaskan supplies will stay underground waiting for a future change in the supply/demand situation.