Canada Moves Forward
with Arctic Gas Line

United Press International
Posted June 19, 2003

LOS ANGELES -- Canada upped the ante in the congressional debate over U.S. energy policy this week by taking a major step forward in plans for the Mackenzie Gas Project, a $5 billion natural gas pipeline that would compete with a similar project in Alaska.

Imperial Oil Resources announced they had completed a funding package that would allow them to submit the plan to Canadian regulators, who were expected to give a green light to the ambitious project to link gas reserves in the remote Mackenzie Delta with existing pipelines in Alberta that serve not only southern Canada but large parts of the United States as well.

"This is a very significant step forward for the Mackenzie Gas Project," declared Imperial Oil Resources President K.C. Williams. "The commercial agreements reached are a win for all parties and conclude a lengthy, but constructive, process."

The agreements announced Wednesday by Imperial and its partners, TransCanada PipeLines and the Aboriginal Pipeline Group, will allow the submission of regulatory permit applications next year, and if all goes smoothly, gas could begin to flow from the delta around the end of the decade.

"Natural gas from northern Canada will help meet anticipated increases in demand and will help keep our existing pipeline facilities full, which is good for both shippers and users of natural gas," predicted TransCanada Chief Executive Officer Hal Kvisle.

Senate Energy Committee Chairman Pete Domenici, R-N.M., told reporters this week that he was fairly confident the full Senate would vote before the August recess on the comprehensive energy legislation that contains key financial provisions for the Alaska pipeline proposal. Even if it passes, however, the bill must go through the conference process with the House before being passed and then sent on to President Bush -- maybe by the end of the year.

So, while the Canadian consortium enjoys a head start, the American project will be stuck in neutral as sultry Washington settles into its usual summer slowdown.

The Alaskan pipeline is projected as a $20 billion, 3,600-mile line that will be capable of shipping up to 4.5 billion cubic feet of gas per day by 2012, primarily to the Midwestern United States.

With U.S. gas consumption projected to reach as high as 31 trillion cubic feet per day in 2015, it would seem that a steady stream of gas from both Alaska and northern Canada would be a welcome development.

"We know we have known reserves of gas in Alaska to ease our midterm supply shortages," Sen. Lisa Murkowski, R-Alaska, said recently. "All we need to do is to devise a means to help private enterprise finance the pipeline necessary to get that gas to market."

Building an Alaskan pipeline may now be less attractive to Wall Street if the Mackenzie project is progressing while the Alaska proposal remains tied to energy legislation that by sheer size alone is moving along at a relatively glacial pace.

The energy bill contains a proposal that would guarantee loans to finance up to 80 percent of the construction, and also has a provision for a tax break should the market price for natural gas drop below a certain level.

"All the incentives that are needed to move that gas to American consumers will end up being in the Senate's energy bill," Murkowski pointed out. "We just need to move forward with passing a comprehensive energy plan for this country."

The entire project is on shaky ground in the form of a tax break that would amount to 52 cents per billion British Thermal Units in the event market prices fall below $1.35 per million BTU. Since gas was trading at around $5.50 per million BTU Wednesday on the New York Mercantile Exchange, it would appear that the tax breaks could never be needed.

There is a convincing school of thought within the industry, though, that demand for natural gas in North America will grow enough in the coming years to accommodate both pipelines.

"If we take the most optimistic projections, LNG imports, Alaskan gas, and increased imports from Canada together might cover about half of the 35 billion cubic feet per day future supply gap," Keith Rattie, CEO of the Utah natural gas company Questar, told the House Subcommittee on Energy and Mineral Resources on Thursday.

Murkowski and other pipeline supporters call the tax guarantees a form of insurance that will get the project off the ground and contribute to the future energy needs of the nation -- not to mention the creation of about 12,000 jobs in the 49th state.

However, with Congress coming off a bitter scrap over Bush's tax-cut proposals, and with the Mackenzie pipeline gaining momentum, the Alaska pipeline proposal is increasingly open to accusations the taxpayers are being roped into subsidizing an energy industry project.

United Press International

- Back to News Home -