Full throttle

Alaska gas line action causes buzz in Canada; Mackenzie line fans wary

Gary Park

Petroleum News Calgary correspondent

The flurry of Alaska gas pipeline activity has generated a sense of urgency among Canadian pipeline companies and gas producers involved in both the Alaska Highway scheme and the Mackenzie Gas Project.

For TransCanada, which has a large foot in both camps, the primary focus is on its role in carrying North Slope gas across Canadian territory, Chief Executive Officer Hal Kvisle told a conference call Jan. 27.

For Imperial Oil, the lead player in the Mackenzie project, the back-to-back pipeline filings in Alaska “remind us very emphatically that time is of the essence,” spokesman Hart Searle told Petroleum News.

Although 100 percent owners of the rights to ship Alaska gas across the state, TransCanada is “very focused on the Canadian side,” Kvisle told analysts.

However, he said his company, the largest gas carrier in Canada, would be willing to participate as a builder or investor in Alaska and was interested in collaborating on an end-to-end project as an owner or non-owner.

Kvisle says economics of LNG, Alaska North Slope gas to Chicago similar

“The big challenge is whose credit will stand behind the project,” given the capital and wellhead price risks, he said.

Asked if Alaska gas could compete with offshore liquefied natural gas in the Chicago market, Kvisle said the economics look similar, with infrastructure costs estimated at about US$2.15 per thousand cubic feet in either case.

But he noted that it is the magnitude of the commitment to the Alaska project, along with the volatility and risk, that “causes some people to favor LNG.”

TransCanada moved decisively into the Alaska picture last spring when it acquired control of Foothills Pipe Lines, paying Duke Energy C$257 million in cash and debt for its 50 percent interest.

Foothills already operates the so-called pre-build portion of the Alaska Highway pipeline, with more than 600 miles of pipelines across Alberta, British Columbia and Saskatchewan that carry 3.3 billion cubic feet per day of Canadian gas to U.S. markets.

Subsidiaries of Foothills and TransCanada hold certificates dating from the 1970s to build the Alaska portion.

Kvisle said TransCanada made an effort five years ago to “get things going” on the Alaska project and tried to reconstitute a partnership with various other pipelines, but that was scuttled when the “major meltdown in the U.S. pipeline sector occurred.”

With the Mackenzie project showing every sign of proceeding first, TransCanada scrambled on board last June, by agreeing to pay C$80 million to fund one-third of the Aboriginal Pipeline Group’s share of the project definition phase and position itself for a 5 percent ownership stake in the pipeline.

TransCanada also agreed to extend its sprawling Alberta gas-gathering network about 45 miles north to connect with the proposed Mackenzie pipeline.

For TransCanada, securing access to either Mackenzie or North Slope gas is vital as it faces the prospect of shrinking gas production in Western Canada and growing capacity on its mainline system to Eastern Canada and the U.S. Midwest.

‘Spare capacity’ essential to Mackenzie economics

Thus the Mackenzie proponents “feel the need to stay abreast of the Alaska pipeline developments,” because Alaska gas “could pose a threat to the commercial viability of our project,” Imperial Oil’s Searle said.

In addition to pipeline access, he said that if both projects proceed there will be pressure on supplies and materials, the availability of experienced contractors and the impact on gas markets.

“We’re working hard to do all we can to improve the economics of our project,” he said, while conceding that “we probably need some luck along the way.”

Meanwhile, Yukon Premier Dennis Fentie, reacting to the MidAmerican Energy Holdings application, said there is “reason to be very optimistic” that a pipeline will cross the Yukon.

But he cautioned that “there’s a lot of work ahead of us,” with the application being just one step.

He told the Whitehorse Star Daily that the agenda includes obtaining assurances from the Canadian government that the Yukon will have an aboriginal pipeline group similar to that involved in the Mackenzie pipeline.

Fentie said the Yukon government is encouraging TransCanada to work closely with the Alaska Highway Aboriginal Pipeline Group, which was formed last fall by Yukon and British Columbia first nations.

He wants all parties to deal with “any regulatory hurdles early on, to do the social-economic impact work ... and, above all, ensure that we can maximize the benefits for Yukoners.”