Providing coverage of Alaska and northern Canada's oil and gas industry
March 2006

Vol. 11, No. 11 Week of March 12, 2006

Alaskans hear from TransCanada exec

Kristen Nelson

Petroleum News

The Alaska Legislature’s Republican caucus continued its open meeting on the Alaska gas pipeline project March 2 with a presentation by Tony Palmer, vice president of Alaska business development for TransCanada Corp., who reviewed the company’s history and answered legislators’ questions, including a defense of the company’s right to build the Canadian segment of the line.

Palmer said TransCanada is the primary natural gas pipeline company in Canada, moving two-thirds of Canadian gas. No other party, he said, moves more than 10 percent of Canadian gas. The company’s volumes are about 11 billion cubic feet a day to markets in Canada and the United States. The first of the company’s 30,000 miles of big-inch pipe was built some 50 years ago.

Through its Foothills subsidiary TransCanada has been involved in plans to build an Alaska gas pipeline for 30 years, he said, winning that right in competitive hearings before the Federal Energy Regulatory Board in the United States and the National Energy Board in Canada.

Foothills holds the National Energy Board certificate for the project in Canada, he said, a certificate granted 27 years ago that has no sunset date. The government of Canada also passed the Northern Pipeline Act specifically granting Foothills the right to build the line through Canada, and the U.S. and Canadian governments signed a treaty.

Palmer said it is “very rare in the world” that one country moves gas through another producing country back into its own territory.

Changing circumstances in gas market

The line from the North Slope was not built because of changing circumstances in the natural gas market in North America, Palmer said, but the southern portions were built in 1981-82 under the Northern Pipeline Act and today move about 3 bcf a day of gas. The act was also used for five expansions, most recently in 1998, he said.

Palmer said TransCanada holds the right of way for a line through the Yukon, a “property right we’ve held for some 20 years.” There are eight different First Nations along that right of way, he said, and TransCanada has a property right which has been recognized in all lands claims in the Yukon.

TransCanada also has assets in Alaska, he said, and has said it would make them available to other parties within Alaska. The company has held the federal right of way in Alaska for some 20 years. It has also done all of the work and held hearings in Alaska for a state right of way. Palmer said it is “in the state’s hands” whether that right of way is granted or not.

TransCanada also has significant engineering and other information it is prepared to convey to a third party constructing the Alaska portion of the line.

There is one condition, he said, “that they connect with us at the border.”

Palmer said the company constructed 7,000 miles of pipe in the 1990s, a thousand miles of pipe in many years. “We did that year after year in the 1990s,” he said, completing construction on schedule and within 0.5 percent of budget. He said TransCanada “will match our expertise with anyone in North America,” not only for construction but for permitting, environmental and First Nations’ issues.

The company is also “a technological leader,” he said, at the forefront of all technological advances in pipelines including high-strength steel and major compressors.

The company has also put pipe in the ground without hydro-testing — running water through to test the pipe. TransCanada has done that with the approval of regulators in Alberta and will do it on another piece of pipe in Canada this year, he said, producing a significant cost savings.

Palmer: proud of record

Rep. Ralph Samuels, R-Anchorage, asked Palmer about statements by the producers that a third-party pipeline builder would have no incentive to keep costs down.

Palmer said he couldn’t speak to the producers’ “motivations and rationale,” but said TransCanada was proud of its record, has spent 50 years building its reputation and intends to hold up that reputation. The company is also regulated for “prudency on cost,” he said, and the original project included penalties for cost overruns.

Rep. Mike Chenault, R-Kenai, asked Palmer to define “big-inch” pipe.

Palmer said big inch is larger than 24-inch diameter. The company has some 1,800 miles of 48-inch pipe in the ground, pioneered X80 strength steel pipe in the ground in 1995 and has some 350 miles of that pipe, mostly 42- and 48-inch pipe. The company put the world’s first X100 pipe in the ground two years ago, he said, and is confident X100 will be used on this project. Higher-strength allows a thinner wall, reducing the cost of steel for the project.

Asked by Rep. Bob Lynn, R-Anchorage, how long it would take TransCanada to build a line, Palmer said TransCanada would have a line in service seven years after a commercial arrangement was in place.

Rep. Bill Stoltze, R-Chugiak/Mat-Su, asked about the attitude of the new Canadian government and Palmer said the new government, which took office in January, has not made any statement one way or the other and is not expected to in the short term.

FERC report wrong

Sen. Gene Therriault, R-North Pole, asked Palmer about FERC’s assertion that two field seasons would be required for National Environmental Policy Act requirements and Palmer said the process would be different in Canada, where TransCanada has an environmental approval. The company would have to meet environmental requirements of the day, he said, just as it has on projects from 1981 through 1998. TransCanada has “significant advantages” because it has been working the project for 30 years and has borehole information along the route. That information doesn’t change, or doesn’t change very much, Palmer said, adding that the company also has “significant assets” of that type along the Alaska route.

Are there environmental or geotechnical issues in Alaska and the Yukon that are new? Therriault asked. Palmer said Canada is traditional pipelining territory. Alaska, he said, has a more challenging route over a mountain range, but he noted that TransCanada has crossed the Rockies going south, and that range is more challenging in terms of rock and steepness.

Pipe diameters up to 52 inches have been discussed for the project and Therriault asked Palmer about the larger diameter pipe. Palmer said TransCanada has looked at that issue carefully based on an initial 4.5 bcf a day with growth up to 6 bcf a day. He said TransCanada looked at 42-inch, 48-inch and 52-inch pipe; 48-inch pipe is the “right diameter for that volume,” he said, noting that TransCanada does traditional pipelining — it doesn’t “build with new technologies.” The compressors that the company would use for an Alaska project line are on our system and operating today, he said.

As for minimum capacity for such a line, Palmer told Therriault that you get superior economics at 4.5 bcf a day compared to 4 bcf to 3.5 bcf a day. At 3.5 bcf a day tolls would increase, but the project “may still be economic.” Below 3.5 bcf the economics make the line “very challenging to construct.”

Therriault also asked about a recent FERC report which said TransCanada had filed an application under the Stranded Gas Development Act but that there were no active negotiations.

“Clearly that is not true,” Palmer said, and TransCanada has contacted FERC to correct that in the agency’s next report.

Could participate in Alaska

Asked by Rep. Paul Seaton, R-Homer, about the splitting of construction of the Alaska and Canada segments of the line, Palmer said TransCanada has put forward alternatives for Alaska to consider. “We intend to build the Canadian portion” and could also participate in the Alaska portion of the pipeline. (In spring 2005 TransCanada and administration officials reached a conceptual agreement on a pipeline proposal from the North Slope to Lower 48 markets.)

It has been typical in projects going from Canada into the United States that companies from the country usually build that section. In addition to some 800 miles within Alaska, there are a thousand miles to the Boundary Lake on the British Columbia-Alberta border. Beyond that there is currently spare capacity in the Canadian system going south — perhaps enough spare capacity that no additional capacity would have to be built out of Alberta, Palmer said.

TransCanada owns about two-thirds of the pipe leaving western Canada, he said, and the cost of the existing pipe is spread over the volumes of gas flowing on the pipe.

Palmer said once Alaska gas reaches the existing system it can be traded: some 11 bcf of physical gas flows through the Nova inventory transfer each day, the volume of financial transactions is 30-50 bcf, so gas is traded and re-traded three and four times a day.

Mackenzie first?

Rep. Norm Rokeberg, R-Anchorage, asked Palmer how the Mackenzie line is going and if TransCanada has solved issues with First Nations along its route.

Palmer said the previous federal Canadian government wanted the Mackenzie line to go first and he didn’t think that had changed, although he said the new government hadn’t expressed themselves on the issue. The concern has been that if the Alaska line goes first it would crowd out the 800 million to 1 bcf per day of Mackenzie gas, but he said TransCanada does not share that view.

TransCanada thinks it is appropriate that the Mackenzie line go first because it is smaller and doesn’t have the complexities, he said. Hearings are under way for the Mackenzie line with expectations of a decision in the latter half of 2007, which could put the line in service by 2011, Palmer said.

The First Nations’ issues are access — right of way — and benefits, which include jobs, training and entrepreneurial opportunities.

TransCanada has right of way in the Yukon and has been negotiating benefits for some 20 years, Palmer said.

Rokeberg asked about the Enbridge challenge to TransCanada and asked for information on the policy call from the Canadian government. Enbridge wants a shot at building the Canadian line, and has said a new application should be made under the National Energy Board.

Palmer said TransCanada believes it has “exclusive right to build under Canadian law” and doesn’t think there is a policy call. It did not oppose U.S. enabling legislation because it wants to build the Canadian section. If the Canadian government said that other applications would be accepted by the NEB for the Canadian portion, that wouldn’t be the end of it, he said.

Stoltze asked about the potential of litigation, noting “we’ve got enough lawsuits pending on our side.”

Palmer said TransCanada “seeks to resolve this issue commercially — that is our preference.” But while it does not seek litigation, it would pursue litigation. He said TransCanada is trying to expedite the process, not stop the process.

“Do we believe that we have a property right? Yes we do.”

Different regulatory environments

Samuels asked about the impact of different regulatory environments between FERC and the National Energy Board for expansion and different tariff methodologies. How, he asked Palmer, do conflicts get decided now?

Palmer said there is generally good alignment between the countries, and thought it would be rare that FERC would deny expansion while NEB approved it. There are different tolling methodologies, he said, but close alignment on construction. Even though both are sovereign nations, the agencies understand the need for good coordination, he said.

Samuels asked about a loan guarantee from the Canadian government, and Palmer said the U.S. loan guarantee applies to the entire project, both sides of the border.

He said he wouldn’t expect the Canadian government to assist the United States in getting Alaskan gas to U.S. markets. Some, he said, even view Alaskan gas as competition to Canadian gas.

Editor’s note: TransCanada told Petroleum News that in addition to the federal right of way it also holds a final certificate of public convenience and necessity issued by FERC under section 7 of the Natural Gas Act which is subject to conditions similar to those for all other section 7 certificates, e.g. environmental, tariffs, etc. TransCanada also holds current and valid federal Clean Water Act wetland fill permits from the U.S. Army Corps of Engineers and the accompanying state approvals (DEC 401 Certificate and Alaska Coastal Management Program Consistency Determination) as well as an extensive collection of technical data including soil borings and geotechnical data necessary for detailed pipeline engineering.

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