In discussions with the Bush administration, members of Congress and industry representatives in Washington, DC, Tuesday, Canadian Natural Resources Minister Herb Dhaliwal reiterated Canada’s desire that any provisions in the energy bill dealing with a northern natural gas pipeline be “route neutral” with no subsidies. The private sector should determine the route, he said.

The private sector so far has been reluctant to move forward on an Alaskan pipeline because of its daunting cost and the volatility of natural gas prices. Exxon Mobil Chairman Lee R. Raymond said in March that he remained pessimistic about the development of a pipeline through Alaska (see Daily GPI, March 6). “It’s going to be tough,” he said. “I think all of the estimates of cost to get [the pipe] to the upper Midwest are…running in the high teens in billions of dollars…which is a rather sizeable investment for a pipeline. Even if you’ve got that nailed down, I think there is a concern on the part of the producers as to whether or not we can see the sustainable gas price in the Lower 48 that would have to be in the mid to high $3 [range].”

The Senate version of the energy bill contains provisions that would guarantee Alaskan producers a certain netback price for their gas once a pipeline is constructed along the Alaska Highway. However, the Bush administration recently rejected the tax subsidies that the Senate has offered as “carrots” to get the proposed line up and running and serving the Lower 48 gas markets within the next decade (see Daily GPI, July 2).

Dhaliwal said Rep. Billy Tauzin (R-LA) and Jeff Bingaman (D-NM) also now share his concerns about market distortions caused by proposed subsidies. “Should [the Bush] administration’s position change as a result of the final energy bill, Canada will re-examine its position and will have strong views given the fact that two-thirds of the pipeline will have to go through Canada, which will require Canadian permits, etc.” said Dhaliwal. “Should subsidies be included in final energy bill, will Canadian permits be withheld?” The minister said it is too early to say since details of final bill are still unknown. Canada also believes that the proposed loan guarantees in the Senate energy bill are a subsidy and should not be included in final energy bill.

Dhaliwal also noted that Imperial Oil and other Mackenzie Valley producers already are moving forward with plans to build pipeline down the Mackenzie River in Canada. The producer held an open season in June to gauge interest in the gas pipeline. Following the results of the open season, which are expected to be made public soon, Imperial, Shell Canada Ltd., ConocoPhillips and Exxon Mobil Corp. would pledge between C$200-$250 million to secure all of the required regulatory approvals within three years, and have set an in-service date of “no later” than 2010 (see Daily GPI, June 18).

The Mackenzie Valley producers want to move ahead quickly, according to Imperial Oil’s K.C. Williams, to secure some of the estimated 1.5 Bcf/d of spare capacity on TransCanada PipeLines Ltd.’s system — something they might not have if a proposed Alaska pipe is completed first. Producers believe a proposed 4-6 Bcf/d Alaska pipe would take up TransCanada’s excess capacity. If that happens, the Mackenzie Delta’s smaller reserves could remain untapped for 20 or 30 years, they warned. The producers group estimates the Canadian pipe would cost about C$3 billion and would ship about 1 Bcf/d from the Mackenzie Valley south to pipeline connections in northwestern Alberta.

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