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'Over-the-top' backers get chilly reception from governments, producers
Gary Park PNA Canadian Correspondent
Texas promoter Forrest Hoglund got widespread support for one remark he made during his Jan. 16 pitch for an "over-the-top" gas pipeline: He conceded the scheme has no support from northern governments in Canada and the United States, or from North Slope and Mackenzie Delta producers.
We feel our approach is so attractive and advantageous to them, they'll eventually come onboard, he told a Calgary news conference. "If you have Alaska and the Northwest Territories in the same line you eliminate the conflict between the two countries."
He had barely uttered the words when the depth of opposition became apparent.
Northwest Territories Premier Stephen Kakfwi said Hoglund's Arctic Resources Co., backed by unnamed investors, is supported by only a few individuals.
"They have no relationship whatsoever or rapport with the producers in the Delta or the Alaskan producers ... It is distracting for our people."
Financing questioned A spokesman for the Mackenzie Delta Producers Group, which is pursuing a C$4 billion (US$2.5-bil) stand-alone project, said his group does not think the financing plan for the Northern Route proposal is practical.
"Any pipeline development requires the support of producers in addition to northerners and we're not aware of any producers that are supporting the ARC proposal. The four producers involved in the Mackenzie Delta opportunity do not support them," he said.
The spokesman said the guarantees required from producers to finance the Northern Route pipeline with 100 percent debt would make the project unprofitable for them.
Brian Prokop, an analyst with Peters & Co. in Calgary, said linking both the North Slope and Delta fields would be a "very, very tough sell."
William Lacey, an analyst with FirstEnergy Capital Corp. in Calgary, suggested Delta and North Slope producers would be more likely to team up with an established pipeline operator, such as Calgary-based Enbridge Inc., than ARC's Canadian affiliate ArctiGas Resources Corp., which has no track record.
Given the uncertain financing and aboriginal support, "I'd say it has a very slim chance," he said.
Kakfwi said he basically likes the concept of a single 'over-the-top' system. But he expressed concern that the ARC plan, which proposed 100 percent aboriginal ownership without putting up any cash, would not be in the best interests of the Native community.
"Some people have bought the notion that you could borrow billions of dollars and you could own the pipeline and assume 100 percent of the debt and yet have zero liability," he said. "Sometimes things sound too good to be true.
"I don't want people to be had ... we don't want to be embarrassed nationally and internationally," Kakfwi said. "One things is certain: Nobody gets a dollar for nothing in any business."
Some backing for plan The only declared backing has come from the aboriginal-owned Northern Route Gas Pipeline Corp., representing landowners in the central Northwest Territories who have refused to join the Aboriginal Pipeline Corp. in signing a memorandum of understanding for the Delta producers for a possible one-third interest in the Mackenzie Valley line.
Northern Route Gas Pipeline, which has entered into a program agreement with ArctiGas Resources to engineer, finance, build and operate the pipeline, has "worked very hard on the project ... it is a very significant step for our people," said president Larry Tourangeau.
"We are not selling our land and we are getting something out of this. The beauty is the aboriginal people don't have to take a high risk and borrow for a pile of money and be responsible for that," he said.
The only other glimmer came from Enbridge, which has been talking with North Slope and Delta producers. Without commenting on the feasibility of the Northern Route, an Enbridge spokesman said his company agrees that going 'over-the-top' is feasible and a phased construction makes sense.
Consortium would run project Hoglund's concept involves a consortium to run the project consisting of stakeholders, including producers, explorers, shippers, gas buyers, aboriginal for-profit groups and the founders.
While declining to identify his investors -- beyond earlier claims that Wall Street financiers are interested -- he said they are individuals with connections to the oil and gas industry.
Hoglund said Northern Route would use 100 percent debt financing in the form of investment-grade revenue bonds commonly used to finance municipal infrastructure.
He said that would be possible because of the solid reserves in Alaska, which lower the project risk.
He said producers and other shippers would sign throughput agreements for the line at approved tolls, just as would occur with any other pipeline system.
ArctiGas chairman Harvie Andre said he is confident that tolls would be even lower than those forecast in a Canadian Energy Research Institute study, which calculated C$0.53 per gigajoule for a combined North Slope-Delta route and C$0.88 for a standalone Mackenzie Valley line.
Linking an attractive tariff with an open access pipeline would be extra incentive for exploration companies to step up their northern activities and build the reserves needed to make Arctic development successful, he said.
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