TransCanada Chief Executive Officer Hal Kvisle called the news media together in person and by phone on April 7 to tell them that talk of a fight between his firm and Enbridge over who will build the Canadian leg of an Alaska Highway gas pipeline was largely of their own making.
“It has been important to me that we not get drawn into a sparring match with Enbridge,” he insisted.
But, during a two-hour conference, Kvisle pointedly remarked that Enbridge was “not a critical player” in the project and later brusquely dismissed any thought of burying the hatchet and teaming up with Enbridge.
Apologizing to reporters for not being more available as the campaign with Enbridge to win hearts and sway minds has gathered momentum, Kvisle took the rare step of allowing reporters to ask their questions before analysts and gave them close to an hour of his time.
He said TransCanada had not previously been available because of its focus on “very complicated” discussions with six governments (the United States, Canada, Alaska, Alberta, British Columbia and the Yukon), three regulators (U.S. Federal Energy Regulatory Commission, National Energy Board and Northern Pipeline Agency) and the North Slope producers (ExxonMobil, BP and ConocoPhillips) as it tried to “pull together the elements” of one of North America’s most significant gas pipeline projects.
But TransCanada’s objective of “setting the record straight” and dampening the row with Enbridge might have missed the mark.
Headlines in Canadian newspapers on April 8 blared anything but a “peace in our times” message: “Alaska fight takes off — tug of war over Alaska pipeline;” “TransCanada turns up pipeline heat — jostles with Enbridge for Alaskan project;” “Pipeline battle escalates;” and “Pipeline builder battle heats up.”
If burnishing the corporate image was the purpose that too was sidetracked, through no fault of TransCanada.
The story was smothered by two much larger events — the funeral of Pope John Paul II and an ever-widening Canadian scandal over a diversion of public money to the federal Liberal Party that could doom the current government of Prime Minister Paul Martin.
Producers can have Alaska
Asked if there was any chance of TransCanada agreeing on some partnership role with Enbridge, he had a one word answer: “Why?”
At the same time, he said TransCanada was ready to let the producers’ apply their knowledge and expertise in Alaska pipelines by building the pipeline inside Alaska “the way they want or with other parties.”
Kvisle said TransCanada is “quite flexible” on how that portion would be built and owned. “We’re willing to talk about any arrangement,” he said.
While TransCanada has drawn some criticism for being inaccessible, Enbridge has stepped up its public relations effort, including full page advertisements in major Canadian newspapers and lobbying the Canadian government to reopen competition for the Canadian portion of the pipeline.
In the process, there are indications that Enbridge has caused second thoughts in the federal cabinet over the legal standing of the Northern Pipeline Act, despite Kvisle’s insistence that the 1978 legislation is “Canadian law … has no expiry date and there is no reason it should be set aside.”
Kvisle said the act, reinforced by a subsequent Canada-U.S. treaty, provides a “clear and certain regulatory framework.”
Still no decision from Canadian government
Canada’s Natural Resources Minister John Efford initially promised a government decision by early 2005. The deadline then moved to the end of March. Now government spokesmen will only say “sooner rather than later.”
With the government apparently stalled at the crossroads, and industry speculation building that Enbridge is on better terms with the North Slope producers than TransCanada, Kvisle decided the time had come to speak out.
In addition to the April 7 conference, which gave reporters rather than analysts the first chance to ask questions, TransCanada also entered the dueling newspaper ads with its own full-page spreads in national publications on April 8.
Through visual presentations and extensive briefing material, he laid out TransCanada’s 50-year record of building North America’s “largest, most sophisticated gas transmission company” that moves two-thirds of gas from the Western Canada Sedimentary Basin and stretches across Canada, with major links to the U.S. Midwest and California.
“It would be different if we were some wing-nut company from Oklahoma” suddenly offering a proposal to build a pipeline from Alaska, he said.
Enbridge, predominantly a crude oil carrier, entered the Alaska picture only three years ago, drawing an indirect comment from Kvisle that his company is no “Johnny come lately that has just shown up and decided to throw out a proposal for a pipeline down the Alaska Highway. We have been at this diligently for 25 years.”
Kvisle: Canadian tolls would be reduced
Kvisle repeatedly based his argument on the Northern Pipeline Act, which he said was based on a competitive hearing in the late 1970s.
The act has been used by the Canadian government to approve construction of pipeline legs from Alberta to the U.S. Midwest and California on the understanding that they would eventually carry Alaska gas and to approve five expansions, he said.
In the process, Kvisle said TransCanada and companies it has acquired have spent more than C$2 billion — including hundreds of millions of dollars on technical work in Alaska — developing the “pre-build.”
“We reject the suggestion that the pre-build is anything other than a pre-build” leading to a full-scale Alaska Highway line, he said.
In its pitch to the industry, TransCanada estimates that Canadian gas producers would save C$10 billion in tolls over 15 years if 4.5 billion cubic feet per day of Alaska gas can keep its pipelines operating at capacity.
If gas from Canada and the United States can be flowed into a single system, TransCanada can deliver economies of scale benefits to Canadian producers along with offering the cheapest structure to get North Slope gas to Lower 48 markets, Kvisle said.
“If we move more gas, everybody’s toll is less,” he said.
What has increasingly worried TransCanada is the certainty that supplies from existing Western Canadian sources will start to decline within three to five years, eroding current production of 16.5 bcf per day (already 1.5 bcf short of capacity).
But persuading the North Slope producers to stick with TransCanada has become a formidable task.
Kvisle openly admitted it was “frustrating to us not to be able to present a deal” with the producers, despite three years of discussions.
He said the three companies are all concerned that a flood of liquefied natural gas into North America or a move away from gas by the power generation sector could “see a fairly rapid correction in gas prices to (with a return to $2 per thousand cubic feet) … that’s the central hang up.”
While the uncertainty persists, Kvisle said the risk is that the United States could choose what he described as a “sub-optimal project” to ship LNG from the North Slope through Valdez.
He said there is no way under the Northern Pipeline Act that the producers could build their own “top to bottom” pipeline.
Enbridge, producers want a different project
Meanwhile, the producers and Enbridge stepped up their argument for a fresh start and a new round of regulatory hearings before the National Energy Board and Canadian Environmental Protection Agency.
Steve Wuori, Enbridge’s chief financial officer, and Ken MacDonald, vice president, Alaska-Canada gas lines at BP Canada, said the project they favor is completely different from what was approved under the act.
Wuori said the certificates granted in 1978 required the project to be completed by 1985, implying that there was a sunset clause.
Kvisle is just as emphatic that the legislation “has no expiry date,” while the law remains valid despite changes to the design and size of the pipeline.
Nowhere is it stated that the “act shall be trashed in the event that all (of the original) conditions are not met exactly,” he said.
“The fundamental project remains the same.”
While waiting for the Canadian government to make its decision, Kvisle said Ottawa “absolutely has the right” to order new hearings, but added: “I don’t know why they would do that” given the clear benefits contained in the Northern Pipeline Act.
Kvisle downplayed any suggestion that the producers are more aligned with Enbridge than TransCanada.
“We do get significant support here in Calgary” from companies that “clearly understand the logic of what we are proposing.”
