Bush open to gasline subsidies

U.S. envoy says need for supplies could override president’s opposition

Gary Park

Petroleum News Calgary Correspondent

If the U.S. Congress delivers an energy bill that includes subsidies for an Alaska Highway natural gas pipeline, President George W. Bush will be faced with a tough choice, given the desperate need for new supplies, said Paul Cellucci, the U.S. ambassador to Canada.

Although the Bush administration has expressed opposition to subsidies and remains neutral on pipeline routing from the North Slope, “I can’t predict what the final outcome will be,” he told 300 industry executives in Calgary May 9 for the Canadian Energy Pipeline Association annual meeting.

“We don’t think we need subsidies,” said Cellucci. “We think the market ought to make these determinations.”

But because there are legislators who endorse an “insurance policy, given the volatility and the price of gas,” Bush will have to decide “whether to sign (the energy bill) or not.

“It’s too early to tell what’s going to be in that bill,” he said.

Cellucci noted that the latest draft of the bill makes the case that both the Alaska Highway and Mackenzie Valley pipelines will be needed “and that U.S. federal and state officials should work with their Canadian counterparts to make sure that both projects are mutually beneficial.”

He said the draft legislation suggests that Alaska gas would not displace or reduce the commercial viability of Mackenzie Delta gas which may be used as a fuel source for Alberta oil sands plants.

Cellucci also made a case for stepped up regulatory cooperation among the United States, Canada and Mexico.

Greater emphasis on security

“We want to be less dependent on the Middle East. We want to be more independent right here in North America and we know we have the energy,” he said.

Cellucci said the importance of Canada has recently been recognized by the U.S. Energy Information Administration’s decision to include Alberta’s oil sands deposits as proven petroleum reserves.

In “one stroke” the EIA raised Canadian reserves from 5 billion barrels to 180 billion barrels and moved Canada to second place among the world’s oil reserve holders behind Saudi Arabia, he said, adding: “We know that the potential for that number to grow has a pretty high degree of probability.”

Cellucci said that “in hard numbers, Canada will remain our country’s No. 1 energy partner. Canada is not only our No. 1 supplier of total energy, you are number one by a margin of almost 2.5 to 1 over the next contender, Venezuela.”

But he argued that obstacles still stand in the way of the energy infrastructure and regulation needed to build a continental market.

“You can have all the energy in the world ... if you can’t get it to where it’s needed it doesn’t do anybody any good,” he said.

“Both our governments need to make sure that we have a regulatory climate that encourages the investment, not only in the source of the energy, but in the transmission of the energy. And we have work to do.”

OMB says Bush opposes wellhead credit

Kay Cashman, Petroleum News publisher & manag

In a statement of administration policy issued by the Office of Management and Budget, the administration said it “supports the construction of a commercially viable” Alaska North Slope gas pipeline, but believes “market forces should select the route and timing of the project.”

Specifically, the White House said it is opposed to “the price-floor tax subsidy provision in the Senate Finance Committee bill because it would distort markets and could be very costly.”

The income tax credit, fashioned after existing section 29 production tax credits, kicks in if the wellhead price of gas on the North Slope goes below $1.35 per million British thermal units. It would begin to phase out at field prices above 83 cents a million Btus and would be zero at $1.35 per million Btu and up. If field prices are 83 cents a million Btu or below, there would be a 52 cents per million Btu tax credit.

Says ANWR key to energy policy

Chuck Kleeschulte, communications director for U.S. Sen. Lisa Murkowski, R-Alaska, told Petroleum News May 12 that the OMB statement was “a rather low key comment by the administration on the gasline, but at the same time it’s not likely there will be a lot of definite comments from the Bush administration until the energy bills gets to conference committee,” where the differences will be hammered out.

“We’ll just have to see what their real attitude is. But,” he pointed out, “no one has pre-filed an amendment in the Senate to take out the wellhead credit.”

Kleeschulte said the energy bill went to the Senate floor for initial debate on May 6. He expects the Senate to vote on it after members return from the Memorial Day recess.

“We expect to see it go to conference sometime in June,” he said.