“North to Alaska, go north, the rush is on.” The old song byJohnny Horton about the Alaskan gold rush could easily be rewrittentoday — but the attraction would be the huge reserves of naturalgas there. This past week, the rush began to drum up private andpublic support to build a gas pipeline that would transport themassive untapped reserves from the Alaskan North Slope and theCanadian Mackenzie Delta to the Lower 48.

Two major pipeline plans, with different routes and managementmethods, are now actively pursuing support from producers,transporters, U.S. and Canadian regulatory officials and affectedlandowners. Each plan poses benefits and problems, and both areexpensive. However, both expect to succeed where others have failedfor more than 20 years.

Calling it “the most important energy project currently underconstruction” in North America, Arctic Resources Co.’s new chairmanForrest E. Hoglund began a public relations campaign in Houstonlast week to push his company’s Northern Gas Pipeline Project. Thebuzz for Hoglund and his company’s plan was so great, and theinformation so intriguing, that one of the callers in to theteleconference included former U.S. Energy Secretary Federico Pena,who asked for a meeting with the Arctic group in Washington, D.C.”as soon as possible.”

There was no earth-shattering news last week; there is nopipeline yet. It remains a 25-year-old pipe dream, but Hoglund saidthat his group has a new strategy that will work where others havefailed. Hoglund, who retired less than a year ago as chairman ofthe former Enron Oil and Gas (now EOG Resources), currently is thepoint man for Arctic Resources, which is working to build supportfor their version of an Alaskan pipeline.

“In my mind, this is the most critical high profile project I’veever been involved in,” said Hoglund, who at one time worked ondeveloping a natural gas pipeline from Alaska for the former ExxonCorp. “I consider this idea to be on the same concept as buildingthe first railroad to California. It will open new frontiers and anew area.”

A multi-billion dollar project approved by both the Canadian andU.S. governments 25 years ago to pipeline the gas south from Alaskawas mothballed because of high costs and low gas prices. But,Alaskan North Slope gas reserves and new fields in the MackenzieDelta are looking more attractive as demand and prices for naturalgas rise. Nearly all of the 6.5 Bcf/d of gas now produced on theNorth Slope along Prudhoe Bay is reinjected to enhance oilproduction or run oil equipment, but North Slope oil production isdeclining, and Hoglund says Arctic has a better idea. The companyis developing a consortium of producers, pipeline companies,Aboriginal groups and government authorities to make the pipeline areality — something that its main competitor for a pipeline,Foothills Pipe Lines, has so far failed to do.

“I have seen, first hand, the issues that can prevent asuccessful pipeline from being developed in a safe and timelyfashion,” Hoglund said. “To have a pipeline in place by 2005 or2006, when Alaskan gas is projected to be available and when themarkets in the U.S. and Canada will be needing that gas, aconsensus approach is needed.”

To that end, Arctic is wooing what it calls the “seven or eight”largest U.S. and Canadian gas producers and pipeline companies,including BP Amoco, ExxonMobil, Phillips, Imperial, Reliant Energy,Westcoast, Enron, Kinder Morgan and El Paso. “All of them arereviewing the proposals now,” he said.

Arctic’s planned pipeline route includes an offshore pipelinethat would extend eastward from Prudhoe Bay in Alaska and returnonshore in the Mackenzie Delta area in northern Canada. Thepipeline would follow the Mackenzie River south through theNorthwest Territories to interconnect with pipelines in Albertawith access to U.S. markets. A northern route was chosen by Arcticbecause it avoids “costly mountain ranges,” and still providesopportunities for more natural gas exploration and development inAlaska and Canada, including access to gas reserves in the northernYukon.

Following a ramp-up period, Arctic estimates it would transport4 Bcf/d through the high-pressure line. According to Hoglund, theproject has brought on board several “key” international andnorthern/Arctic technical companies that are expected toparticipate, including Cimarron Engineering, SNC-Lavalin, EBAEngineering, Saipem/Snamprogetti, C-Core and Rocksaw Technology.

Construction costs for the 1,200 mile, fully-trenched routewould be $4 billion, and financing and reserves would add another$1-plus billion, Hoglund said. What could make Arctic’s plan moreattractive than an alternative plan is its financial approach,which would coordinate governmental and aboriginal groups in Alaskaand the Northwest Territories.

Arctic’s funding approach centers on using 100% debt financinginstead of a combination of equity and debt used with typicalpipeline projects. Tariff-backed bonds would be issued by specialpurpose entities to be owned by aboriginal and government groups,which could own the pipeline. Hoglund said the 100% debt financingalso would be more attractive to shippers because it would offer amore favorable tariff structure.

Key to the Arctic proposal is what Hoglund said is the “rightcorporate structure.” After he joined the effort, he brought on boardHarvie Andre, a former senior minister with the Canadian government ,who will serve as chair of Arctic’s Canadian affiliate, ArctigasResources Corp. Andre will direct the company’s efforts to coordinateits activities with Canadian federal and provincial governmentdepartments, aboriginal groups and the Canadian producer and operatorcommunity (see NGI, Nov. 8, 1999).

Established ANGTS Plan Still on Track

What of the competitors’ pipeline efforts? TransCanada andWestcoast, two pipelines that Hoglund mentioned as having interestin the Arctic consortium, have revved up plans for a jointcompeting project — ANGTS, which is sponsored by Foothills PipeLines Ltd.

ANGTS, or the Alaska Natural Gas Transportation System, whichhas been on the books more than 20 years with approvals from thechief executives of both nations, would transport North Slope gasfrom Prudhoe Bay south along the Alaskan Highway, across the Yukon,northern British Columbia and Alberta, with a terminus at the U.S.border. Only the northern portion remains to be constructed. Thesouthern portion, from Alberta into the U.S., which includesFoothills, PG&E Gas Transmission Northwest and Northern BorderPipeline, was completed long ago.

Foothills officials are well aware of the Houston-basedupstart’s plans to build a gas pipeline along an alternate route.And there’s no hesitation when asked if Arctic might have a betterplan.

“It puzzles me why people are turning away from a plan that wasdesigned more than 20 years ago,” said Foothills’ John Ellwood,vice president of engineering and operations. “They think it was abad decision. It wasn’t. It was a good decision then, and it’s agood decision now.”

“We continue to be proponents of ANGTS,” said Ellwood. “We willcontinue to work to advance that plan. We know the North Slopeproducers are taking a look at Arctic’s plans, but our work iscontinuing. We believe the ANGTS route has advantages. The reasonsthe ANGTS route was selected are still valid today. The permits arein place, the regulatory work is completed. There’s not a whole lotof sense in doing something different at this point.” The onlything he says the ANGTS route proponents are waiting on at thispoint is a “convergence of interests” to make the project happen.

Among the advantages for the ANGTS route, said Ellwood, is thatit follows an established transportation corridor, despite themountain ranges, and with the transportation corridor, the builderswill be near materials, and as important, will not disturb greenspace.

“We would not be building in an undeveloped area. We’ve got costadvantages and environmental benefits. Those are the mainadvantages,” he said.

And, despite a push for another route, it could take up to threeyears for permits and regulatory approvals to be issued — permitsand approvals that the ANGTS project already has.

“I’m comfortable that we could get this thing built in fiveyears and have natural gas flowing into Chicago,” said Ellwood. “Weknow enough about the route, we’ve got a good operation in Alaskafor a conventional pipeline. We’re confident we could get it donein five years, and maybe even less.”

Carolyn Davis, Houston

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