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Competition to market Arctic gas If BP Amoco decides on gas pipeline to Lower 48, route would be picked by mid-2001; ExxonMobil subsidiary proposing Canada-only project Gary Park PNA Canadian Contributing Writer
The Arctic natural gas stage show is in full swing, with BP Amoco rapidly emerging as promoter, producer and star performer.
As the new Giant of the North ponders its options for Prudhoe Bay gas, BP Amoco chief executive Sir John Browne disclosed during the 16th World Petroleum Congress in Calgary in June that discussions are being held with other gas owners and pipelines to determine whether gas demand in the Lower 48 will “hold up” enough to justify a multi-billion dollar Arctic investment.
He also said BP Amoco is ready to take an equity position in a northern pipeline, applying the expertise it has gained as a 50 percent stakeholder in the trans-Alaska pipeline system.
“The issue is partly a cost issue — at what gas price do we think it is the right risk level to take,” Browne said.
BP Exploration president Richard Campbell, at a recent press briefing, reiterated BP Amoco’s position that a gas-to-liquids project, liquefied natural gas exports to Asia or a pure gas line through Canada all remain on the table. “It is still possible to see several applications for gas up there,” he said. “The goal is to commercialize the gas sometime in the 2005-2010 time frame.”
BP Amoco Canada chief executive Tim Holt said the general production target of 2010 requires decisions on a pipeline route by mid-2001.
Canada-only solution floated As debate swirls around the future of Alaska’s gas, a Canada-only solution is also being floated by Imperial Oil, which is 69.6 percent owned by ExxonMobil and is group leader of a Mackenzie Delta feasibility study, expected to be completed next year by Imperial, Gulf Canada, Shell Canada and Mobil Oil Canada.
Imperial Senior Vice President Kenneth Williams hinted that the outcome could be endorsement of a Mackenzie Valley pipeline, eliminating for now the complexities posed by North Slope gas.
“Our concept is unique,” he said. “It’s a Canadian gas development only and it’s more of a phased type of development. It’s a bit smaller than various Alaska proposals and it’s one that potentially could be compatible with a much larger Alaska project one day.”
Williams said a pipeline with capacity of 800 million cubic feet per day could tap the known Delta and Canadian Beaufort reserves of 12 trillion cubic feet and be expanded if discoveries reached the anticipated 60 trillion cubic feet.
For now, the two declared contenders for a pipeline through Canada are:
• Foothills Pipe Lines, a joint venture by TransCanada PipeLines and Westcoast Energy, claims an edge because of a 1977 U.S.-Canada treaty endorsing the Alaska Natural Gas Transmission System. It plans an Alaska Highway route from the North Slope, down Alaska, swinging east through Canada’s Yukon territory and linking up in central Alberta with export systems to the United States. That scheme also offers the Dempster Lateral from the Mackenzie Delta/Beaufort region.
• Its upstart rival, Houston-based Arctic Resources, emerged from obscurity late last year with a C$4 billion proposal for a 48-inch line running from the North Slope under the Beaufort Sea or on a northern overland route to the Mackenzie Delta, where it would head down the Mackenzie Valley into northern Alberta.
Yukon vs. Northwest Territories Caught up in this swirl of events, the Yukon and Northwest Territories governments are sharpening their dueling swords.
The two territories view a pipeline as their economic salvation, especially if they succeed in wresting control over their natural resources from the federal government, which currently collects 95 percent of all their resource revenues. Emerging from a generation of joblessness, frequent alcoholism and tragic suicide rates, the aboriginal communities are also determined to turn Arctic gas development into an economic bonanza.
While their demands are still being shaped, there has been talk of ownership (ranging from 100 percent to 5 percent) and management control of a pipeline; up to 15,000 pipeline construction jobs for Dene, Inuvialuit and Metis; and federal subsidies to match the C$2.8 billion that made Newfoundland’s offshore oil development possible over the last 20 years.
Northwest Territories Premier Stephen Kakfwi, who has presented an agenda to Prime Minister Jean Chretien and Finance Minister Paul Martin, said his region is determined to get an “equitable” share of federal royalties that could total C$1 billion a year by 2010 from a gas pipeline and three diamond mines in the Northwest Territories.
The Northwest Territories has set up a forum with the federal government and aboriginal representatives to resolve jurisdictional and revenue-sharing issues, opening the way to Arctic oil and gas development.
Looming showdown That leads to a looming showdown between the Northwest Territories, with a population of barely 40,000, and Yukon, with its 24,000 residents, over the primary pipeline route.
Newly elected Yukon Premier Pat Duncan is taking a “very proactive” role in lobbying producers and pipelines to support the ANGTS project.
She said the ANGTS not only has the backing of U.S.-Canada regulators, including a right-of-way easement, but Foothills has done extensive environmental and socio-economic studies.
At a July meeting in Calgary with industry leaders, Duncan said the Yukon will fight any attempt to run a pipeline from Prudhoe Bay through her territory’s north, either onshore or offshore.
She pointedly remarked that efforts to portray ANGTS and the Mackenzie project as a “horse race” are misleading because ANGTS has at least a three-year head start with its regulatory approvals.
Whatever advantages the ANGTS may have, they are not conceded by the Northwest Territories or the Arctic Resources consortium.
ANGTS partners not taking sides Even ANGTS partners, TransCanada and Westcoast, are avoiding taking sides by striking an alliance to explore all options in response to a request by Mackenzie Delta gas owners.
Remembering the costs and delays caused by rivalry during the initial round of pipeline debate in the 1970s, they said cooperation is essential to any Arctic pipeline. (Enbridge, Canada’s third major pipeline, is also a contender, pointing to its experience as the operator of Canada’s only oil and gas pipelines in the Northwest Territories).
Westcoast spokesman Bob Foulkes said the link-up with TransCanada is “more than a handshake ... we’re working together and this thing could evolve in a whole bunch of different directions. We think it’s far better if there is only one pipeline proposal.”
That lends weight to Arctic Resources push for a “one-window approach” to a pipeline.
Harvie Andre, a former federal cabinet minister and Canadian consultant to Arctic Resources, said TransCanada and Westcoast have been kept “fully informed on what we are doing because both have very important interests in gas and we hope to have them involved.”
Arctic Resources still a puzzle However, Arctic Resources remains a puzzle to Canadian interests. Eight months after surfacing, it has yet to announce any equity partners in its bid for a $5 billion, 1,200-mile pipeline, although it has recently named Forest Hoglund, former chairman and CEO of Enron Oil & Gas, as its chairman.
Hoglund said the immediate priority is to attract “seven or eight” of the largest gas producers, governments on both sides of the U.S.-Canada border and aboriginal groups to form a consortium and establish “credibility.” He told a Houston news conference in June that without a broad-based consensus any Arctic project is likely doomed.
Arctic Resources President Bob Murphy, an investment banker, said his plan involves 100 percent debt financing — rather than the traditional equity-plus-debt employed for pipeline projects — with $5 billion in bonds issued by aboriginal and government groups to achieve lower tariff structures than conventional financing methods.
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