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Canada’s pipeline rivals pull
out stops in lobbying campaign
Gary Park
The lines are hardening as Canada’s rivals in the race to carry Arctic natural gas to market go all-out to win over politicians and producers, in anticipation of key decisions this year.
Yukon Premier Pat Duncan spent a week in Ottawa at the end of January, pitching her case for the Alaska Highway route to Prime Minister Jean Chretien, cabinet ministers, federal politicians and national newspapers.
Houston-based Arctic Resources, backer of the “over-the-top” proposal to carry Prudhoe Bay and Mackenzie Delta gas in a single line down the Mackenzie Valley, appealed for Alaska to take a closer look at the economics of the two schemes. Used California as leverage Both used growing U.S. consumer concern about rising energy costs and security of supply, heightened by the California power crisis to underpin their lobbying efforts.
Duncan was emphatic that California has now become a crucial player in persuading the U.S. and Canadian governments of the need to get quick approval for the Alaska Highway pipeline.
Giving added weight to Duncan’s argument are strong indications that the new U.S. administration views a pipeline as part of a continental energy policy to lessen U.S. dependence on foreign oil.
She said Canada’s opposition to drilling in the Arctic National Wildlife Refuge should not stand in the way of prompt action on a pipeline.
In her meetings, she reiterated her case that Prudhoe gas is “pipeline-ready ... the market desperately wants that gas and it’s economical. But there’s no way to transport it.”
Duncan said that although a Mackenzie Valley pipeline will eventually be built to ship Delta gas to market, talk of an “over-the-top” route doesn’t stand up to scrutiny, once costs and regulatory delays are weighed.
If the pipeline is viewed “as a matter of international trade,” the Alaska Highway route has a clear edge because of a 1977 treaty between the U.S. and Canada. In addition, the Mackenzie Valley system faces major obstacles, including environmental assessments and various aboriginal claims.
“Yukon and the Northwest Territories are not in competition — both these pipelines could and should be built. Industry is saying the same thing,” she said.
But some of Duncan’s claims were vigorously challenged by Harvie Andre, president of Arctigas Resources Canada, the Canadian arm of Arctic Resources, who insisted an “over-the-top” route offers “very significant advantages to the U.S. consumer with lower toll costs and greater reserves. The cheapest line maximizes the value of reserves as well as returns to the U.S. producers.”
He said that with given Washington’s consumer-driven motivations “it’s just as important to the Americans to open up access to the Canadian Arctic as to the Alaskan Arctic.”
Andre flatly rejected Duncan’s argument that an Alaska Highway pipeline, carrying 4 billion cubic feet per day, won’t deter construction of a separate Mackenzie Valley system.
“We won’t have two pipelines in parallel,” he said. “The first one will dominate the market and dominate it for a significant period of time.” The over-the-top route is the only one that will provide an equal opportunity for Canadian gas.”
With end users prepared to sign long-term contracts for pipeline capacity, Arctic Resources can reduce the supply and market risk by financing the line with 100 percent debt, removing the high cost of equity capital, he said.
“In our view, the economic argument is overwhelmingly in favor of our line,” said Andre, claiming the Alaska Highway project would cost $10 billion compared with $5.8 billion for the Arctic Resources line.
Conscious that Duncan carries the endorsement of Alaska Gov. Tony Knowles, he conceded Arctic Resources faces a tough fight to win the political argument in Alaska.
But he insisted there is a case to be made that tolls would be higher on the Alaska Highway route — a point Duncan disagrees with — and could cost the state $200 million a year in lost royalties, while producers would receive up to $700 million less at the wellhead.
If gas prices fell because of the high tariff, netbacks would be “very low,” cutting into exploration budgets. “We think if a full-life economic assessment is made, Alaskans will find the over-the-top route is the most economically beneficial for them, too,” Andre said.
As well, Andre insisted that changes to environmental laws since the 1970s means it is no longer valid to assume the Alaska Highway project has no environmental issues, adding that “trenching the Beaufort offshore is more benign than any alternative,” including the highway route.
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