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Canadians accuse U.S. Senate of meddling in North American gas market Fear Arctic exploration and Mackenzie Valley pipeline could be undermined if loan guarantees, tax credits are implemented; industry leaders to meet U.S. officials Gary Park PNA Canadian Correspondent
U.S. Senate moves to inject financial incentives into an Alaska Highway gas pipeline have been widely decried by industry and political leaders in Canada.
The Canadian Association of Petroleum Producers said it is “troubled” by the Senate bill and plans to make its concerns known to the Canadian and U.S. governments.
CAPP president Pierre Alvarez said that although “it’s early days yet,” the Canadian industry is unhappy about any signs that governments want to interfere in the marketplace.
He said CAPP believes the market should determine the “nature, scale and pace of projects” and that position will be delivered to governments on both sides of the border.
CAPP Vice President Greg Stringham said the legislation passed by the Senate — offering North Slope producers $10 billion in loan guarantees and potentially billions of dollars more in tax incentives — could skew the North American market by making other gas players less competitive. Price indexed to inflation Under the Senate bill, tax credits would kick in when average monthly gas prices fall below $3.25 per million British thermal units at the AECO hub in Alberta, while producers would repay the full amount of the credit if the AECO price exceeded $4.85.
Gas industry leaders and analysts in Canada have noted that the price of gas has historically been less than $3.25 and has averaged about $2 over the last decade.
Stringham also said the “real catch” is that the price is indexed to inflation and, assuming an annual inflation rate of 2 percent a year, that tax credit protected price could be close to $4 within 10 years.
He suggested the tax credit could “very easily” have an impact on Canadian producers, especially if the Alberta price was lower than the price set by the Senate some producers in North America would be getting a higher return than others.
Stringham said CAPP officials hope to meet with Sen. Frank Murkowski in Washington early this month to see where the Senate bill stands once it goes to conference with a bill from the House of Representatives.
He noted that the Bush administration has repeatedly assured CAPP that it is “route neutral” on pipelines from the North Slope or Mackenzie Delta.
Appeal filed for protection of Canada’s interest Northwest Territories Premier Stephen Kakfwi said he views the Senate bill as evidence the U.S. is “gearing up to underwrite a pipeline project that is uneconomic,” by offering a financial safety net.
He has appealed to Prime Minister Jean Chretien to respond to U.S. moves towards subsidies by taking similar measures to protect Canada’s interest.
Otherwise, he has warned, the viability of North American gas markets and the need for a Mackenzie Valley pipeline could be undermined and exploration in the Delta region could be shut down. “How can unsubsidized gas compete with Alaska gas?” he asked.
Kakfwi argued in a news release that there is no reason for U.S. taxpayers and gas consumers to inject subsidies into profitable companies when Canada offers a “cheaper, faster and equally effective answer to North America’s energy needs.
“The government of Canada has got to evaluate the impact of these measures in relation to Canadian interests. Action is required at the highest level to ensure fairness and balance consistent with U.S.-Canada energy trade relations.”
Kakfwi said subsidies would be in direct contradiction to President George W. Bush’s move towards a North American energy policy. “This is a pretty pathetic way of starting (that discussion),” he said. Focus on project definition A spokesman for Imperial Oil Ltd., the lead partner in the Mackenzie Delta producers Group, said the partners won’t be immediately requesting the Canadian government to match U.S. offers because the Senate bill isn’t yet law.
He said the group’s focus continues to be on the “project definition” phase of the C$3 billion plan to start shipping Delta gas south.
However, Tim Hearn, president and newly-appointed chairman and chief executive officer of Imperial — which is 69.6 percent owned by Exxon Mobil Corp. — told his company’s annual meeting April 23 the Delta reserves offer a significant opportunity for Imperial, nearly tripling the company’s gas reserves.
Tim Faithfull, president and chief executive officer of Shell Canada Ltd. — a 17 percent partner in the Delta group — told reporters at his company’s annual meeting April 25 that subsidized Alaska gas could hurt the Delta project.
“Clearly the development of Mackenzie has to take into account what could happen with the Alaska project, because it is a larger amount of gas that would be available and you have to think about the impact that it could have on the market.” Credits value at $40-$60 billion A spokesman for Arctic Resources Co., the Houston-based company promoting the “northern route” pipeline, estimated the Senate-initiated tax credits could be worth $40 billion to $60 billion over 15 years to producers, effectively killing exploration in Canada’s Arctic.
He said the bill is “bad news” because it promises Alaska producers a “guaranteed floor price and guaranteed profits.”
Harvie Andre, chairman of ArctiGas Resources LP, the Canadian arm of ARC, said that because the Senate amendment sets no volume limit on gas production, Alaska producers could immediately ramp up production once the proposed 4 billion cubic feet per day pipeline came on stream.
The likely result would be an enforced cutback in Canadian production, with the Northwest territories taking an especially hard hit.
Andre also said Alaska producers would have an added incentive to keep flooding the market, because continued low prices would mean they would never have to repay the tax credits. Both lines needed One of the few voices of optimism in Canada was Yukon Energy, Mines and Resources Minister Scott Kent, who reaffirmed his government’s position that pipelines will be needed from the North Slope and the Delta, regardless of any U.S. tax measures.
“The Yukon has always maintained that in the long run, the North American natural gas market will support both the Alaska Highway project and a standalone Mackenzie Valley pipeline,” he said.
Kent said most analysts agree that North America will need 17 billion cubic feet per day of new supply by 2010 and as much as 30 billion cubic feet per day by 2020.
“That’s an amount of gas six times greater than the total volume being considered for both of these lines and three times greater than Canada’s total current exports,” he said.
Kent said the Northwest Territories government has made its case for Canadian government loan guarantees for a Mackenzie Valley pipeline, including millions of dollars for new infrastructure, but is “raising an alarm” about U.S. backing for Alaska gas.
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