The long-proposed northern natural gas pipeline appears to be a close horse race between the Alaska project and the Canadian Mackenzie Delta project, one long-time observer said Tuesday.
While Mackenzie Delta appears to be on the fast track, with its sponsors “off and running,” with Alaska’s pony trots on a muddier track with poor footing and sponsors in the paddock, neither is a sure bet.
On the final day of Ziff Energy Group’s North American Gas Strategies Conference in Houston, Jerry Farrell, a partner with the Canadian law firm Fraser Milner Casgrain LLP, used the horse race analogy to compare the U.S. and Canadian pipe plans. The Canadian attorney has acted as counsel in more than 130 regulatory proceedings in the past 30 years before the National Energy Board (NEB), the Ontario Energy Board and the Alberta Energy and Utilities Board (AEUB), many of them on natural gas pipeline issues.
By looking at the regulatory and stakeholder issues on both sides, Farrell believes that at this point, the Mackenzie Delta pipe stands the best chance of being built. It already has a regulatory framework and stakeholder support in place. A producer group, including Imperial Oil, ConocoPhillips Canada, Shell Canada and ExxonMobil Canada, is partnered in the project with Aboriginal Pipeline Group (APG), which has backing from TransCanada. It also is expected to move forward with a formal application for a pipe in the next few months — a fact confirmed by Dr. Carmen Dybwad, an NEB board member.
Dybwad, who was in Houston Monday to speak at the Ziff conference, said Mackenzie “applications are anticipated in mid-2004 for 1.2 Bcf/d capacity, and up to 1.9 Bcf/d.” Hearings could begin on the pipe construction later this year, “depending on the date of filing…which would provide the first gas in 2009.”
Once the formal application is made, regulatory review would begin, and following public hearings throughout the Northwest Territories, the next “critical report” will be the Joint Review Panel’s recommendations for acceptance by provincial governments and other authorities, said Farrell. The NEB and local regulators, which so far have appeared to approve preliminary plans, would make decisions reflecting the accepted recommendations.
Up until recently, said Farrell, the American perspective has been that Canada was a “land bridge” to connect Alaska gas to the Lower 48. And the Canadian perspective was that the Alaska Natural Gas Transportation System (ANGTS) “was the means to connect Mackenzie Delta gas to domestic and export markets” via the Dempster Lateral.
ANGTS is sponsored by the Foothills Pipe Lines partnership of TransCanada and Westcoast Energy (see Daily GPI, Oct. 16, 2000). However, he said, the forward momentum of the “Mackenzie Gas Project changes the Canadian perspective.”
Meanwhile, the proposed Alaska plans are “muddier,” said Farrell.
Alaska has a broad plan and regulatory reforms in place. However, its final route option remains questionable. “Alaska has three route options,” said Farrell. “The northern route, or what we call the ‘over-the-top,’ is basically dead. Then there is the south route, which would be the Alaska Highway route. And there also is the ‘south with a detour’ route, which would go into Alberta and connect with the Alliance Pipeline.”
What’s also proving “problematic” is Alaska’s producer support and the “poor fit with [the Aboriginal] First Nation expectations.” There also is “historical baggage” that includes the priority of the shippers on Phase 1 of the project, which was begun in the 1980s, and the recovery/refund deal on preliminary expenditures. Recovery costs put in on the preliminary work would have to be repaid by the shippers once the pipeline is up and running.
However, Alaska could be a dark horse, said Farrell. If stakeholders “groom the track” through a fiscal regime and a regulatory framework “that has certainty, hopefully, they’re off.”
Meanwhile, on Tuesday TransCanada, which is working on deals involving both proposed pipelines, has signed a memorandum of understanding (MOU) with the state of Alaska, in which the pipeline operator will commit to file an application under the state’s Stranded Gas Development Act. With the MOU, Alaska will resume processing TransCanada’s long-pending application for a right-of-way lease for the project.
“TransCanada has championed the development of an Alaska gas pipeline for more than two decades,” said CEO Hal Kvisle. “We look forward to working with the state of Alaska and the Alaska North Slope producers to develop a workable and economic commercial arrangement for the shipment of Alaska gas to the Alberta Hub and on to North American markets.” On Monday, Kvisle indicated he was more pessimistic about the eventual development of the Mackenzie project (see Daily GPI, April 20).
Once the Alaskan right-of-way lease has been issued and commercial arrangements are in place, TransCanada would be prepared to convey the Alaska right-of-way lease to the corporation or partnership that would undertake construction of the project within the state. The project “would be subject to an exclusive interconnection agreement with TransCanada at the Alaska/Yukon border,” it said.
TransCanada said it also would “continue to lead the development of the Canadian portion of the project, and will work with Alaska partners to develop the Alaska portion.” TransCanada has agreed to reimburse the state for actual costs of processing the right-of-way agreement, and to reimburse up to $1.5 million of processing costs related to its Stranded Gas application.
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