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35 Trillion Cubic Feet

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35 Trillion Cubic Feet

BP and ConocoPhillips move ahead on plans for Alaskan Natural Gas pipeline despite no agreement with Alaska on taxes and incentives. BP and COP said they planned to spend $600 million over the next three years beginning this summer. This is a drop in the proverbial bucket since the total cost will be something over $30 billion.

The announcement was the first step on a project that has been cussed and discussed for the last 30 years. BP said they will have over 150 people working on the project by year end. The pipeline will eventually transport more than 4 billion cubic feet of gas per day to markets in North America. That equates to 6-8% of daily U.S. consumption. That equates to about $40 million a day in revenue at $10 per Mcf.

The three major firms in Alaska's north slope field, BP, COP and Exxon jointly hold leases containing more than 35 trillion cubic feet of gas worth $350 billion at today's prices. The first gas will not flow for at least 10 years and that value could double before the first cubic foot is injected into that pipeline.

Natural gas demand in the U.S. has been growing at 1.5% per year for the last two decades. Gas production in North America peaked in 2004 despite record levels of drilling that increase each year. Currently U.S. consumption is just over 30 trillion cubic feet per year. There are more than 25,000 gas wells drilled in North America each year in a desperate attempt to outrun the depletion monster.

Current production gas wells are depleting at double the rate of wells drilled just ten years ago. Better drilling techniques and better fracturing combine to extract the gas at twice the rate of older wells. This has produced a first year decline rate of 32% on average. It means you have to drill wells faster than ever to keep up with the decline of existing wells.

Conventional natural gas reserves in North America are rapidly disappearing with the majority of wells drilled today being forced to go deeper and at more expense only to return less gas over a quicker period. The mainstream press has not picked up on this yet but as the situation worsens over the next 2-3 years it will become a major problem. 

Jim Brown

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