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Canadians play numbers game with Arctic gas pipeline routes Foothills insists separate Mackenzie and Alaska Highway lines could be built for less than cost of going “over-the-top” Gary Park PNA Canadian Correspondent
A blizzard of numbers is swirling through the Arctic gas pipeline debate in Canada as the two sides make their arguments for the most cost-effective means of getting gas to Lower 48 markets.
Houston-based Arctic Resources argues the “over-the-top” route would be “significantly cheaper” than the Alaska Highway project, thus ensuring everyone — especially the state of Alaska — would derive the greatest value from the resource.
Calgary-based Foothills Pipe Lines, the long-time proponent of the highway route, flatly rejects that claim, insisting separate Mackenzie Valley and Alaska Highway lines could be built for less than the cost of going “over-the-top.”
Foothills vice president of engineering and operations, John Ellwood, said detailed cost estimates commissioned by his company — a joint partnership of TransCanada PipeLines and Westcoast Energy — show an “over-the-top” scheme would cost C$11.6 billion to C$13 billion.
Harvie Andre, president of Arctigas Resources Canada, the Canadian arm of Arctic Resources, said shipping North Slope gas under the Beaufort Sea and down the Mackenzie Valley is the cheapest route to the continental United States.
He estimated the cost of the Alaska Highway project at C$10 billion, referring to Purvin & Gertz and Canadian Energy Research Institute studies which put the final price tag for the Beaufort-Mackenzie pipeline at C$5.7 billion to C$5.9 billion. Cost will impact tolls Andre also suggested all-in tolls on an Arctic Resources line would be about half those of the Alaska Highway route — about 80 cents per thousand cubic feet for gas shipped from the North Slope under the Beaufort and down the Mackenzie Valley to Edmonton and 60 cents for gas shipped from the Mackenzie Delta alone, compared to C$1.55 to C$1.80 for the Alaska line.
The difference, Andre noted, would amount to C$200 million a year in lost royalties for the Alaska government.
Ellwood offered no specific rebuttal beyond saying Foothills would negotiate a “fair value” toll with producers for the carrying costs of permits, rights of way and other work performed over the past 25 years.
Andre said higher tolls would mean a greater economic risk and warned against basing economic projects on bullish gas price forecasts of C$8 to C$10 per thousand cubic feet. “This project has to work at C$2.50, not C$5,” he said.
The greatest benefit to Alaskans would not be from having a pipeline cross the state, but from increased exploration that would result from cheaper tolls, he said.
Andre said the project could be funded with revenue bonds consisting 100 percent of debt, making an equity portion unnecessary.
He referred to that method of financing as “municipalization” which would effectively transfer ownership to Native communities along the pipeline corridor.
Andre also argued that a consortium would eventually be needed to avoid the competition that killed the last attempt to build a Mackenzie Valley pipeline 25 years ago.
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