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Canada hardens resistance to prospect of U.S. gasline subsidies Industry, political leaders keep watchful eye on outcome of U.S. energy bill; urge legislators to give priority to market-based decisions Gary Park PNA Canadian Corespondent
How resolutely the Canadian and U.S. governments cling to their avowed “route neutral” positions on the shipment of Arctic gas will become more apparent in the next few weeks, but pending the outcome industry and political leaders in Canada are actively denouncing any moves by the United States to subsidize an Alaska Highway pipeline.
In the past couple of weeks the temperature has climbed, with Canadian Natural Resources Minister Herb Dhaliwal declaring on two occasions that Canada will drop its neutrality on the choice of routes if the U.S. government approves legislation offering loan guarantees and tax credits to line from the North Slope.
His warnings were issued regardless of assurances to a Canadian Association of Petroleum Producers delegation to Washington, D.C., that the administration of President George W. Bush wants to let the market decide which pipelines should be built and where.
But as the politicking intensifies, CAPP is uneasy about the outcome when Senate and House of Representatives energy bills go to conference, a process that is “going to be a significant trade off process ... we will be watching it closely,” said Greg Stringham, CAPP’s vice president of markets and fiscal policy. Dhaliwal message blunt On a separate trip to Washington, Dhaliwal delivered a blunt message to U.S. legislators, Alaska Sen. Frank Murkowski and Texas Rep. Joe Barton.
“If the American government position changes as a result of (Senate) amendments and a result of the final legislation, Canada’s position on being route neutral and having this decision be market driven, we would have to reconsider our position,” he said May 15.
“We need to ensure, first of all, that our gas (in the Mackenzie Delta) is not stranded.
“We also have to evaluate the effect, in terms of distortion of the market, when you subsidize one gas field over another because it is no longer a level playing field,” Dhaliwal said.
He also reproached Congress for attempting to meddle in private sector decisions about what route a pipeline should follow.
Northwest Territories Premier Stephen Kakfwi has been the most outspoken critic of U.S. actions and what he alleges is Canadian inaction.
He fears the volume of subsidized Alaska gas would remove any reason for continued gas exploration on the Mackenzie Delta. “We are just going to shut down the industry in the NWT,” he said. Some argue slow demand growth Peter Eglington, a former chief economist with Canada’s National Energy Board, is in no doubt that setting a floor price for Alaska gas would even undermine exports from Alberta and British Columbia.
He argued there is no demand for more than 2.5 billion to 3 billion cubic feet per day of northern gas by 2020 and less than 2 billion by 2010.
If Alaska producers ever pushed ahead with their most ambitious schemes to ship 4 billion to 6 billion cubic feet per day, there would be sharp downward pressure on prices and no immediate future for Mackenzie Delta gas, Eglington said.
Roland George, with the consulting firm Purvin & Gertz Inc. said that annual volumes of 2 trillion cubic feet from Alaska would see U.S. taxpayers potentially paying US$1 billion a year in subsidies for 30 years.
The resulting collapse in prices would see the long-term destruction of currently economic non-Alaska gas and those producers pulled back from investing in new production, he said.
The Texas Independent Producers and Royalty Owners Association believes subsidies would divert capital to Alaska from other regions of the U.S. or Canada and that consumers would eventually pay the price.
“The point is that supply and demand are in exceedingly delicate balance for this most volatile of all commodities,” the group wrote to U.S. Senate Majority Leader Tom Daschle. “Sudden government action that skews investment decisions among regions could be disastrous.”
That concern is widely echoed in the industry on both sides of the border, with Petro-Canada chief executive officer Ron Brenneman insisting that subsidized Alaska gas would interfere with two decades of free market trading in gas.
Opposing view sees fast demand build Amid such tensions, J. Bennett Johnston, a former U.S. Senator from Louisiana and now a consultant and board member of ChevronTexaco Corp., sees no reason for irreparable harm to Canada-U.S. relations even if the Senate energy bill gets passed in some form.
He said competition and some irritation have occasionally marked energy trade issues, but the two sides always find a way to work out their differences.
Johnston holds the view that gas demand is building so fast in the U.S. that that both the North Slope and Mackenzie Delta basins will find a market.
By the time an Alaska Highway pipeline is built, he is certain gas will be well above the US$3.25 per thousand cubic feet floor price , below which tax credits would be offered under the Senate plan.
Within a decade, the U.S. will need an extra 10 billion cubic feet per day of supplies, removing any suggestion that one source of Arctic gas could displace another, Johnston suggested.
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