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Canada ready to react if United States implements subsidies for Alaska gasline Dhaliwal warns Abraham that two-thirds of Alaska Highway route crosses Canadian territory; Abraham offers assurances that Bush remains ‘route neutral’ Gary Park PNA Canadian Correspondent
If President George W. Bush does the unthinkable and signs into law U.S. energy legislation that puts Canadian natural gas at risk, Canada will be ready to scuttle its free-market approach to Arctic gaslines and put a Mackenzie Valley project on an equal footing, Natural Resources Minister Herb Dhaliwal said.
While stopping short of pledging to introduce matching subsidies for the Mackenzie project, he told U.S. Energy Secretary Spencer Abraham at a May 2 meeting of energy ministers from the Group of Eight industrial powers that Canada may have to reconsider its “route-neutral” position on shipping Arctic gas to market.
“We have an agreement which said both countries will be route neutral,” he said. “If (the Americans) move away from that we will have to reconsider our position to make sure we don’t allow our gas to be stranded. If that means looking at other measures, be assured we will look at them.”
Canadian government officials who attended the G8 session in Detroit said Abraham sought to ease Canadian fears by stating the Bush administration is firmly opposed to subsidies.
Abraham also told a news conference that Washington is unchanged in its “route neutral” stance on pipeline decisions, favoring a market-based decision. Canadian remains concerned But the officials say Canada remains concerned when so many observers on Capitol Hill believe Bush would be reluctant to veto the long-awaited energy bill because of the pressure on him to develop an energy strategy that boosts domestic production.
In a letter to U.S. Senate Majority Leader Tom Daschle, the Texas Independent Producers and Royalty Owners Association warned that Arctic pipeline subsidies would undermine gas production in other parts of the U.S. and Canada and impose a heavy financial burden on consumers because of the market distortion.
“Supply and demand are in exceedingly delicate balance for this most volatile of all commodities,” the letter said. “Sudden government action that skews investment decisions among regions could be disastrous.”
Dhaliwal described U.S. Senate moves to offer loan guarantees and tax credits to Alaska producers as a violation of bilateral Canada-U.S. energy agreements and the North American Free Trade Agreement. Free trade? “Are they really interested in free trade?” he asked. “They talk about it, but their actions indicate otherwise. Everybody sees this for what it is — it’s a subsidy for ExxonMobil and some of the other major players in Alaska. That’s all it is.”
“I made it pretty clear to the Americans that they can pass all the amendments they want on the energy bill, but two-thirds of the (Alaska Highway) pipeline will go through Canada,” he said, without going as far as threatening to withhold right of way permits.
Before the G8 meeting, Dhaliwal said the Canadian government will closely watch the energy bill as the Senate and House of Representatives attempt to reconcile a number of issues.
Dhaliwal ‘s comments mirrored those of Petro-Canada chief executive officer Ron Brenneman on April 30, who suggested that subsidies for the Alaska Highway route would destroy the free market for North American gas which has evolved over 15 years.
But Brenneman did not share the views of Northwest Territories Premier Stephen Kakfwi that U.S. subsidies would flood the continental market with cheap gas and pummel prices.
“I think the viability of the Mackenzie Valley pipeline stands on its own,” he said. “With or without an Alaska pipeline, we’ll see gas coming out of the Mackenzie Delta probably in 10 years or so.” Some believe supplies slipping Paul Beique, an analyst with Dundee Securities Corp., also sought to soften the rhetoric by suggesting production of gas across North America is slipping faster than new reserves are being discovered, increasing the urgency of bringing both the North Slope and Mackenzie Delta online.
“We can’t bring in gas from the Mackenzie Delta fast enough. We can’t bring in (other supplies) fast enough. North America is going to need it all,” Beique said.
The Canadian Association of Petroleum Producers has registered its unease over the direction of U.S. legislation, but Vice President Greg Stringham cautioned that the Senate bill is “still very preliminary. But Canada has to watch this very closely.”
He said the Canadian government still has ample time and is well-placed to make the case to Washington “that the government’s role isn’t to pick winners and losers.” Others argue need uncertain Other analysts are not so certain about the need for gas in North America, or the market risks of a floor price for Alaska gas.
Roland George, a principal with consultants Purvin & Gertz Inc., who has been retained by the Northwest Territories government to assess the impact of Alaska tax credits, said there would be little reason for Alaska producers to limit output if they did not have to face the usual market risks.
George’s own firm is forecasting a gas price at the AECO-C hub in Alberta of almost US$1 per million British thermal units below the US$3.25 level where tax credits would kick in under the Senate proposal.
He also said that if annual volumes of 2 trillion cubic feet are shipped from Alaska, the subsidies could cost U.S. taxpayers about US$30 billion over 30 years, although that level would fall if gas prices remained strong.
George said the impact of tax credits could spread across North America and if gas prices faltered non-Alaska producers, including those in Texas and Louisiana, would be punished as investment declined.
Later, as the supply-demand equation came back into balance, consumers would face tighter supplies and substantially higher prices. Anger at U.S. trade policies Swirling around the pipeline debate, anger is building in Canada against other U.S. trade polices.
The U.S. International Trade Commission on May 2 upheld 27.2 percent duties on C$10 billion a year of Canadian softwood lumber, despite opposition from U.S.-based lumber producers in Canada and U.S. homebuilders.
Trade Minister Pierre Pettigrew said Canada will still rely on its challenges to the U.S. decision at the World Trade Organization and a North American Free Trade Agreement panel.
On top of that the U.S. Senate passed a farm bill to boost existing subsidies by US$50 billion provoking anger from Canada’s Agriculture Minister Lyle Vanclief, who said U.S. agriculture is not market-driven “it’s mailbox driven,” allowing U.S. farmers to decide what to produce based on subsidy checks from Washington.
With his government prepared to wage trade war on three fronts — energy, lumber and agriculture — Prime Minister Jean Chretien for the third time in nine months said Canada is being forced to use its energy exports as leverage to resolve the disputes.
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