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Vol. 13, No. 23 Week of June 08, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

Kvisle defends TransCanada

CEO says company has financial strength, experience needed for gas line

Kristen Nelson

Petroleum News

TransCanada has the experience and the financial strength to build a natural gas pipeline from Alaska’s North Slope to market connections in Alberta, and the ability to create a commercial proposal for the line attractive to BP, ConocoPhillips and ExxonMobil, majority leaseholders in known gas accumulations at Prudhoe Bay and elsewhere on the North Slope.

That was the message delivered by Hal Kvisle, president and CEO of TransCanada Corp., in Anchorage May 29, where he met with Alaska Gov. Sarah Palin and attended part of the governor’s Alaska Gasline Inducement Act public forum.

The forum included presentations by Palin and administration officials and discussions by consultants on why the administration is recommending to the Legislature that TransCanada receive a license under AGIA. The license would commit the state to match up to $500 million in project expenses in return for commitments including low tariffs, an open-access gas pipeline and completion of the process through certification by the Federal Energy Regulatory Commission.

Long TransCanada involvement

At a press conference during the forum Kvisle noted that TransCanada has “been in pursuit of a solution for the Alaska gas pipeline project for many, many years.” The company was involved in the original project in the 1980s, he said, when the project died “for reasons of reservoir management but also due to gas markets.”

(The price of gas tumbled in the 1980s after the U.S. deregulated the natural gas market and gas exploration in the Lower 48 — and discoveries in Canada — made large quantities of gas available at prices too low to justify the cost of a pipeline from the North Slope. Natural gas at Prudhoe Bay has been re-injected to maintain reservoir pressure, resulting in the production of far more crude oil than originally expected.)

Kvisle said TransCanada resumed work on an Alaska project in 2000, 2001.

“It was quite clear from our work that supply-demand fundamentals for natural gas in North America were moving in a direction where there would be a scarcity of natural gas,” and the company focused on Alaska and the Mackenzie Valley as “projects that could bring significant gas to a market that we felt was going to increasingly need it.”

Today’s gas prices, he said, indicate a demand for Alaska North Slope natural gas.

Why TransCanada?

Kvisle argued the case for TransCanada as the company to bring ANS natural gas to market.

TransCanada is “the largest pipeline company in North America by a wide margin, by any measure.”

“We’re the only company that has ever built transmission projects of this scale, this length, this magnitude, before.”

“TransCanada operates a very significant amount of 48-inch-diameter pipe (the diameter proposed for the North Slope to Alberta line) in our Canadian system,” he said. The company “more than doubled” its Canadian pipeline network in the 1990s, much of that expansion with 48-inch pipe.

He said TransCanada has “developed the largest and most effective gas compression stations that exist today in North America; we’ve led the industry in developing that.”

Other areas in which TransCanada had led the industry include development of high-strength steel pipe and automated welding.

“All of these are productivity improvements that are very important when building something like the Alaska pipeline system,” he said.

TransCanada’s largest project today is the Keystone crude oil pipeline system, which will carry Alberta oil sands production to Wood River, “which is a refining center near St. Louis, Missouri, and secondly, down to Cushing, Oklahoma, a large crude oil trading hub … and thirdly from Cushing down to the Houston, Texas, area.” Once the line is completed, TransCanada plans to put in a 36-inch-diameter loop to more than double capacity.

Phase I, at $5.2 billion, will carry some 500,000 barrels per day; Phase II, at $7.5 billion, will carry an additional 750,000 bpd, Kvisle said. Keystone is much longer than the Alaska Highway project, although a smaller diameter pipe, so “the total tonnage of steel would be comparable and the number of parties that we deal with are comparable and interestingly the customers that will be major shippers on that pipeline are in some cases the same as customers we look forward to serving on the Alaska project.”

Kvisle says TransCanada can get financing for Alaska project

On the financial side of the issue, Kvisle said “people have raised issues: Can a little company like TransCanada come up with the financing necessary to build this project?”

“And I assure you that we can,” he said.

“We have actually invested $18 billion in projects over the last seven years; we will invest more than $6 billion this year alone,” including acquisition of one of the largest power generating utilities serving New York City.

On both the gas pipeline side and its emerging crude oil pipeline business, “TransCanada has the technical capability, the commercial skills and the financial wherewithal to get these projects done.”

Kvisle said that between now and when construction of an Alaska line would start, TransCanada will invest more than $12 billion in pipelines and about half of that in power projects.

Those are examples, he said, of the company’s ability to raise capital and build “very large projects.”

Sequence of projects

Kvisle said construction of Keystone will keep TransCanada busy for the next three or four years.

After that, the company expects to be working on the Mackenzie line and working with the State of Alaska and the producers on expediting the Alaska project. “Our inclination would be to figure out ways to speed this project up and bring it onstream sooner rather than later, but we are realists, we know how long these processes can take,” he said. TransCanada is working with Canadian regulators to speed up the regulatory processes there and will work with FERC to speed up the regulatory process for the Alaska side of the project.

The Keystone project, which will be TransCanada’s “major construction project focus over the next four years,” will be complete by late 2011, early 2012, he said. At the same time, TransCanada will be investing $2 billion in large-diameter gas pipeline additions in Alberta.

Then will come the Mackenzie Valley project, he said.

Over that five to six year period, “we are going to develop a lot of young people with exceptional capabilities in both technical design and also project management, and we think all of that will position us very well — no better way to get ready to build the Alaska pipeline than to build a lot of other pipelines in the meantime.”

TransCanada’s partners in the Mackenzie Valley project are ConocoPhillips, ExxonMobil and Shell.

“And we’re moving that project forward. We haven’t quite resolved all the issues but it’s a much smaller project than the Alaska one.” Mackenzie is 700-plus miles of 30-inch-diameter pipe expected to move some 1 billion cubic feet a day to market, compared to 1,700 miles of 48-inch pipe (North Slope to Alberta) moving 4-4.5 bcf a day for the Alaska Highway gas pipeline.

He said they’ve come up with “a structure for the Mackenzie. While we haven’t got that new structure formally sanctioned yet, we’re optimistic that it will work for both the Mackenzie producers and the government of Canada.”

The issue of gas

In addition to its proposal to the State of Alaska under AGIA, “we’ve worked closely with the Alaskan producers over the past seven or eight years to try to come up with a solution that would enable this gas to get to market.”

Kvisle said he thinks the structure developed under AGIA “is a very solid approach to moving this project forward.”

The next step is legislative approval, and once that is done, TransCanada will move on to finalize commercial elements.

Getting the North Slope gas producers to sign on with TransCanada will require developing “a commercial arrangement that they will find attractive, a commercial arrangement for the shipment of gas through the pipeline that will appeal to the North Slope producers and … we’re committed to doing that,” he said.

Kvisle called it “a collaborative process. We have to be able to offer something that they find appealing, but that’s something I think we’re pretty good at. We didn’t become the largest mover of natural gas in North America without having good relations with our customers,” he said. “That’s important.”

Two of the North Slope producers are partners in the Mackenzie project (ExxonMobil and ConocoPhillips) and ConocoPhillips is TransCanada’s partner in Keystone.

He acknowledged that without customers the line wouldn’t be built, but said he didn’t see that as a likely outcome.

“The much more likely outcome is the outcome that has occurred in all of the other pipelines that we’ve built and that’s as we have support of the state, as we move forward with a good technical design, as we share our cost estimates with the producers, and as we develop a commercial proposition — terms and tariffs and shipping commitments and long-term volumes and all of that — I’m pretty comfortable we’re going to come up with something that they find attractive.

“So that’s the outcome I foresee,” Kvisle said.

All big pipeline projects involve government, “a pipeline company that knows how to get the job done and producers that own the gas — and a marketplace that wants the gas.”

“And as I look at the Alaska project I see all of those elements falling into place, but I don’t understate for a minute it’s a lot of work to get there.”

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