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Arctic gas lines need help, economist says Low returns from megaprojects justify government intervention Gary Park Petroleum News Calgary Correspondent
While Washington ponders ways to encourage construction of the proposed Alaska natural gas pipeline, the Canadian government should explore its own ways to promote a parallel pipeline from the Mackenzie Delta, suggested Jeff Currie, a senior energy economist with Goldman Sachs & Co.
Given the very low rate of return on such big infrastructure projects “somebody has to step in,” he said in Calgary.
And a Mackenzie Valley pipeline faces the same investment risks as an Alaska Highway system, Currie said.
But he also cautioned that international free trade agreements represent “one of the biggest checks” to outright subsidies.
That view was echoed in a Sept. 10 letter from U.S. Energy Secretary Spencer Abraham to Sen. Pete Domenici, R-N.M., chairman of the House-Senate conference on the energy legislation.
He reiterated that the Bush administration is flatly opposed to the price-floor tax credit provision in the Senate bill to support construction of the Alaska gasline.
However, Abraham said, the administration is ready to support an “appropriately structured 80 percent loan guarantee for the $20 billion project, accelerated depreciation, and an enhanced oil recovery tax credit to support the construction of a pipeline to the nearest economical access point to markets in the continental United States ... that would minimize risk to the taxpayers.” Tax credit likely to undermine Canada's support Abraham cautioned that a tax credit, if Alaska gas fell below $3.25 per thousand cubic feet at key distribution hubs in Alberta would “likely undermine Canada’s support for construction of the pipeline and thus set back broader bilateral energy integration.”
He also again impressed on Congress the importance of market forces selecting the route of the pipeline, while emphasizing that Alaska gas “will provide environmentally friendly energy to America for years to come.”
“The administration recognizes the great importance of Alaska natural gas to our long-term energy security and supports the House and Senate provisions streamlining the permit process for this pipeline,” Abraham said.
For the Canadian government, Abraham’s views represent a rare endorsement of its long-standing objections to any subsidies for the Alaska project, fearing they could accelerate development of the North Slope reserves and stall progress on the Mackenzie Delta project by making it difficult for the Canadian proponents to obtain financing.
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