WASHINGTON, July 14 /PRNewswire/ --

The escalating price tag for the proposed Alaska natural gas pipeline is the biggest obstacle facing the massive project, the top US official coordinating permitting said here on Monday.

Appearing at the latest Platts Energy Podium event in Washington, Federal Coordinator of the Alaska Natural Gas Transportation Projects Drue Pearce said competing project proposals to ship gas from Alaska's North Slope to major US markets are navigating treacherous political, financial and logistical terrain, but progress has been made on all fronts. The best-case scenario for completion of a project is around 2018, Pearce said, adding that "a more realistic first-gas date, but still optimistic, is probably 2019."

But as steel prices continue rising, permitting and construction delays will increase the price tag for one of the largest energy infrastructure projects in US history. The greatest risks are cost overruns and how that might impact the cost of shipping about 4 billion cubic feet per day (Bcf/day) of gas from Alaska to Chicago.

"Those delays will be very, very costly if they happen," said Pearce, who has been federal coordinator since late 2006. Once a project is permitted by state and federal agencies, a single-season construction delay could add "hundreds of millions, if not billions of dollars," she warned, adding that "once we get through licensing, then the financial markets will have to make the decision" on whether to go ahead with the project.

Asked to describe her level of certainty that the long-delayed project will be built within the next 10 to 15 years, Pearce said she was "very optimistic" it will happen. "I see full glasses, not empty glasses. I do believe we're closer than we've been in 30 years, and I believe it's time for the gas to come to market. The Lower-48 states are going to need the gas delivered in a pipeline at a stable price, a stable delivery, so I'm very optimistic that now is the time to get it built."

The project is moving along on two tracks. North Slope oil and gas producers BP and ConocoPhillips have jumped ahead of TransCanada in the effort to secure a permit from the US Federal Energy Regulatory Commission. FERC has agreed to begin the "pre-filing process" for the producers' proposed Denali Pipeline, which means the producers can begin some field work this summer. BP and ConocoPhillips bypassed a formal process for getting a state endorsement from Alaska, saying the conditions were too prescriptive and did not address outstanding tax issues.

Denali would be sited along the Alaska Highway. Canadian affiliates would then transport the gas from the Alaska border into Alberta. BP and ConocoPhillips told FERC the pipeline would connect either to existing Canada-to-US pipelines, or the sponsors would build a pipeline southeast from Alberta to the US border and, perhaps, across parts of North Dakota, Minnesota, Iowa and Illinois to the Chicago area.

Denali is the producers' alternative to a proposal by TransCanada that awaits approval from the Alaska Legislature. Alaska Governor Sarah Palin's administration has supported the TransCanada project because it met most of the requirements of the Alaska Gasline Inducement Act, which establishes the conditions for developers to obtain a state endorsement and a US$500 million financial incentive.

State officials have encouraged the companies to merge the two projects into one, both to gain momentum as a single initiative and because projected gas production would not fill two pipelines, Pearce said. However, she said, the companies do not appear to be heeding this advice.

Sponsored by Platts, a division of The McGraw-Hill Companies, Platts Energy Podium provides an ongoing forum for prominent newsmakers and the press to address important energy and environmental issues. Members of the media may receive complementary registration for Energy Podium events by contacting Nancy Covey at +1-202-942-8719, Nancy_Covey@platts.com. A recording of the Drue Pearce session is available via podcast at http://platts.com/energypodium/index.xml/.

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