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Imperial Oil eager to exploit any pipeline uncertainty in Alaska The Mackenzie Delta leader, which is 69.6 percent owned by ExxonMobil, intends to “keep going,” regardless of what decisions are made in Alaska Gary Park PNA Canadian Correspondent
Imperial Oil Ltd., subscribing to the notion that “he who hesitates is lost,” is making an unapologetic attempt to seize an edge over Alaska in the race to develop Arctic gas. (See page 8 story in last week’s PNA.)
“We have a window with Alaskan uncertainty and we’re trying to take advantage of it,” said K.C. Williams, Imperial senior vice president, during a mid-June investment symposium sponsored by the Canadian Association of Petroleum Producers.
To that end, the Mackenzie Delta Producers Group has launched a non-binding open season in an attempt to draw other Delta producers into the larger fold by determining how much gas would be available for shipping on a Mackenzie Valley pipeline.
Williams strongly believes that if Alaska was first to bring Arctic gas on stream it would use up all available space in the pipeline networks from Canada to the Lower 48.
“Then there would not be space available for Mackenzie Delta gas for many years to come — perhaps a decade or two,” Williams said.
Even if Alaska gas did not use space on the TransCanada PipeLines Ltd. links to the United States, it would push down gas prices and eat up available resources to build pipelines.
Engineering, environmental studies under way Williams said the Delta producers — Imperial (69.6 percent owned by Exxon Mobil Corp.), Conoco Canada Ltd., Shell Canada Ltd. and ExxonMobil Canada — can’t afford to make any assumptions about what might happen in Alaska.
“They may get started like they did last year and stop again,” he said. “Wouldn’t we regret it if we laid down our activity? So we’re not going to be haunted by that. We’re going to use it as motivation to keep going.”
That involves spending up to C$250 million over three to four years to conduct engineering and environmental studies to prepare, file and support regulatory applications for field, gas gathering and pipeline facilities.
To strengthen the Delta’s prospects, to producer consortium has opened the door to the Mackenzie Delta Explorers’ Group, which includes a powerful line-up of E&P companies who are committed to spending C$900 million over the next five years on Delta exploration.
Imperial issued notice June 22 of an open season with the objective of designing a pipeline that can handle all of the gas capable of being produced in the region by start-up time, possibly as early as 2010.
While the non-binding process will allow bidders to later drop out without paying a penalty, Williams said the information gathered from both Delta explorers and producers will help his group get a fix on gas composition, resource estimates and gas deliverability from all prospective shippers.
He described the process as “quite high risk (because) the explorers have to rely on their projections of drilling activity.”
Williams said the explorers’ group, consisting of Petro-Canada, Devon Canada Corp., EnCana Corp., Chevron Canada Resources, Anadarko Canada Corp., Burlington Resources Canada Energy Ltd. and BP Canada Energy Co. have all “made substantial commitments and their first priority is to produce gas the day (a pipeline) starts up.”
The potential contribution from the explorers was underlined in April when the partnership of Devon and Petro-Canada reported the Delta’s first major gas discovery in 30 years, estimating the recoverable reserve potential at up to 300 billion cubic feet. Devon Canada president John Richels said the find “firmly establishes Devon and Petro-Canada as legitimate Mackenzie Delta producers with proven reserves” — a claim acknowledged by the producers’ group in announcing its open season and making its first official move to hear from other companies in the region. Focus on U.S. legislation Meanwhile, a considerable amount of Canadian attention remains focused on the future of the U.S. Senate legislation that proposed up to US$10 billion in subsidies for companies contemplating construction of an Alaska Highway pipeline.
The idea continues to come under attack from political and industry leaders in Canada.
Speaking to reporters at the CAPP symposium, Natural Resources Minister Herb Dhaliwal said Canada keeps hammering home the point to Washington that subsidies are unacceptable.
He said Canada will hold the administration of President George W. Bush “accountable” if the subsidy proposal becomes law, emphasizing that the U.S. should co-operate with Canada if it hopes to obtain permission to run a pipeline from Alaska through Canadian territory.
Dhaliwal, who does not believe two pipelines could be viable, said financial incentives would distort the North American gas markets and leave Mackenzie Delta gas assets stranded for an indefinite period. Officials feel Bush might veto legislation Prime Minister Jean Chretien grabbed another opportunity to raise Canada’s concerns June 25 during a private meeting with Bush as part of the summit in Alberta of G8 leaders from the world’s leading industrialized nations.
Chretien later told a news conference that Bush seemed to agree that pipeline decisions should be “market oriented” and not based on subsidies.
Canadian government officials interpreted Bush’s remarks as an indication that he might be prepared to veto the Senate legislation, although not until after the November mid-term elections. EnCana would go to U.S. energy regulators The toughest industry line has been taken by EnCana chief executive officer Gwyn Morgan, who warned that if the United States offered pipeline subsidies his company would take its opposition to Canadian and U.S. energy regulators.
“My view is that this subsidy proposal is so bizarre and ill-conceived that it’s not even going to get to that point,” he said, adding that subsidies would force “Canadian energy provinces and producers to oppose construction of an Alaska pipeline in the regulatory process. It would kill Canadian gas exploration and development.”
But the hard-line stance in Canada took a setback in mid-June when a preliminary probe by Alberta government lawyers found that subsidies do not violate the North American Free Trade Agreement.
Energy Minister Murray Smith said the finding concluded that a pipeline would only move gas from one part of the United States to another “so it wouldn’t be a NAFTA violation.”
He said the opinion is not final because the Senate legislation could undergo changes before it is approved by the U.S. House of Representatives and Bush.
Further lobbying efforts are being made by CAPP against the Senate proposal to set a floor price of US$3.25 per thousand cubic feet for gas being shipped from Alaska.
A spokesman for CAPP said it was not yet clear whether a floor price would violate NAFTA, but at this stage CAPP was “still trying to make lobbying efforts.”
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