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Contest to ship Arctic gas heats up Old contender Calgary-based Foothills Pipe Lines faces the new kid on the block, Houston-based Arctic Resources Gary Park PNA Canadian Contributing Correspondent
The weigh-in is over, the gloves are on and the bell is about to sound for North America’s last great heavyweight pipeline contest — the rights to ship natural gas from the U.S. and Canadian Arctic to Lower 48 markets.
The previously undisputed champion has been jolted out of an 18-year slumber by a Houston-based upstart.
In summary, the rivals to control the future of an estimated 150 trillion cubic feet of Canadian and U.S. gas are Calgary-based Foothills Pipe Lines and Houston-based Arctic Resources.
Foothills thinks it has the clear edge in experience, permits and an established pipeline from Canada to the United States.
But Arctic Resources (backed primarily by Municipal Energy Resources of Houston and Texas investment bankers) is wasting no time chasing regulatory approvals, possible partners and aboriginal support.
Preliminary application to be filed in Canada Arctic Resources said this month it plans to file a preliminary application “very shortly” with Canada’s National Energy Board for the Canadian arm of an C$8 billion pipeline it hopes will deliver gas from Prudhoe Bay and the Northwest Territories to the Lower 48 by 2005.
“I’m very hopeful we can make it in time to not lose the summer season for starting environmental work,” said Harvie Andre, a former Canadian cabinet minister who is helping the U.S. group deal with Canada’s regulatory maze.
A regulatory application would officially put Arctic Resources in the ring with Foothills, although the group is still trying to attract financial backers.
To strengthen its chances, Arctic Resources has even begun partnership talks with the dominant Canadian pipelines — TransCanada PipeLines and Enbridge, Andre said.
Aboriginal groups move to pro-development stance It achieved a major breakthrough in late January when prospects of oil and gas development in the Canadian Arctic got an unprecedented lift from aboriginal leaders in the Northwest Territories.
Ending 25 years of opposition to a gas pipeline traversing the Northwest Territories, the Dene and Inuvialuit communities moved to a strongly pro-development stance.
During a two-day meeting at Fort Liard, representatives of community, business and youth organizations set aside their demand for final land claims settlements in favor of an equity stake in any pipeline.
“We have many ways that we can participate, but the bottom line is that we want some ownership in whatever pipelines cross our land,” said Fort Liard Chief Harry Deneron.
Andre said the Arctic Resources project calls for aboriginal ownership of the infrastructure, provided the native communities relinquish any right to collect property taxes on the line.
Arctic Resources surfaced three months ago with plans for a pipeline tapping gas in Canada’s Mackenzie Delta/Beaufort Sea and Alaska’s North Slope, where solution gas is currently being reinjected into the oil reservoir at the rate of 7 billion cubic feet per day.
Andre said that provided a line can be built from the North Slope under the Beaufort Sea, thus bypassing the Arctic National Wildlife Refuge and equally sensitive environmental areas in Canada’s Yukon, 3 billion cubic feet per day could be flowing by 2005.
Trans-Alaska line first proposal He said Municipal Energy Resources was first approached to finance a trans-Alaska line, but concluded that a connection to southern U.S. markets through Canada was more economically viable.
The backers have also been encouraged by a dramatic shift in aboriginal attitudes towards economic development that “ensures a future ... that doesn’t rely on government money.”
Chief Deneron’s Achoe Dene Koe band set a precedent eight years ago when it dropped a land claim in favor of oil and gas exploration in its area.
That opened the way for the federal government to award C$22 million of work commitments in the southern Northwest Territories. The results have been one of the hottest gas plays in North America. Fort Liard-area discoveries have totaled about 1.5 trillion cubic feet in the last 18 months, with the potential to add another 4 trillion cubic feet.
The rapid pace of developments brought Foothills back to life, with an announcement that the economics may now exist to build the US$6-billion link that was approved in 1977 by the U.S. and Canadian governments before Arctic development stalled when gas prices nose dived, interest rates soared and pipeline construction costs escalated.
Foothills engineering and operations vice-president John Ellwood told a pipeline conference in Calgary that provided current gas prices and the forecast growth in U.S. demand can be sustained, a pipeline is viable.
He said talks are under way with the Alaska North Slope LNG Sponsor Group to combine the LNG and natural gas schemes from Prudhoe Bay, both of which have Foothills as a key participant.
Joint right-of-way from Prudhoe to Fairbanks He said Foothills (jointly owned by TransCanada PipeLines and Westcoast Energy) is “actively investigating the synergies that could be achieved” by sharing a pipeline right-of-way from Prudhoe to Fairbanks.
From Fairbanks, the sponsor group line would continue to port at Valdez or Cook Inlet, delivering up to 14-million tons a year for export to Asia.
At the same time, the Foothills-owned Alaska Natural Gas Transmission System would swing east, following the Alaska Highway down Canada’s Yukon Territory and end up at Caroline, in west-central Alberta.
The ANGTS would then feed into Foothills’ long-established pipelines, which export 1.1 billion cubic feet per day to California and the Pacific Northwest and 2.2 billion cubic feet per day to the U.S. Midwest.
The 1,700-mile pipeline from Prudhoe Bay would add another 2 billion cubic feet per day to the existing shipments and could be in service by 2005, Ellwood said.
He said that bringing the LNG sponsor group and ANGTS projects together could save “hundreds of millions of dollars” in capital costs.
Ellwood also argued that ANGTS has a three-year head start on any rival pipeline from the US or Canadian Arctic because of its regulatory approvals and completed environmental impact studies.
Major sponsor group decisions expected this summer A Foothills spokesman said the sponsor group consortium — made up of BP Amoco, ARCO Alaska, Phillips Petroleum, Foothills and Marubeni of Japan — expects to make some major decisions on its plans this summer.
Whatever the chances of a route through Canada, the arrival of Arctic Resources has set off a flurry of discussion on the future of North Slope’s stranded gas, with BP Amoco conceding a pipeline through Canada is again getting some attention after a long absence.
BP Alaska’s business unit leader Tim Holt said before Christmas that there are sufficient reserves to convert gas to LNG for Pacific Rim export, use gas-to-liquids technology to make synthetic crude for delivery down the trans-Alaska pipeline and serve the Lower 48 through Canada.
To underline the importance of Alaska’s gas resources, Richard Flury, BP Amoco’s executive vice president, gas and power, was reported earlier this year as saying that “gas is rapidly catching up with oil in terms of our business priorities.”
Like BP Amoco, a spokesman for Foothills said his company believes both the LNG and the ANGTS line are “compatible.”
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