An ally stepped forward north of the border, adding international support to the campaign for financial aid in the United States for the Alaska natural gas project.

TransCanada PipeLines Ltd. president Harold Kvisle parted company with most Canadian industry and government leaders by supporting the Alaska project’s appeals for aid from the U.S. government. At a Calgary conference held by Ziff Energy Group, Kvisle called the assistance scheme “volatility dampening” rather than a subsidy liable to disrupt the gas trade by giving Alaskan production any unfair competitive advantage.

ConocoPhillips Alaska president Kevin Meyers said the aid proposal has been crafted as an insurance plan against lows on gas markets that are expected to remain open to wide price swings. Meyers said two of the three Alaska project sponsors — BP as well as ConocoPhillips, although still not ExxonMobil — want assurance that they will effectively receive a reliable minimum of US$1.75/MMBtu for their gas at their Prudhoe Bay wellheads. With pipeline tolls forecast to be on the order of US$2.40/MMBtu, the compensating tax benefit would kick in when prices at the market end of the Alaska pipeline drop below about US$4.15/Mcf.

Meyers said the current target for completing the line in 2013 — and likely the entire project — depends on the fate of the financial aid provision incorporated into omnibus energy legislation before the U.S. Congress. “If we don’t get that energy bill, this whole timeline begins to slide…if we don’t get the tax credit we won’t be able to move the project forward.” Meyers added that “it’s anybody’s guess what we’re going to see come out of Washington.”

Meyers agreed with an assessment by Alberta Energy Minister Murray Smith that the bill has about 30 days to succeed before 2004 election-year distractions push it off the top of the Washington political agenda.

Smith, confident that Canada’s Mackenzie Valley entry has won the northern pipeline race, refrained from repeating widespread Canadian opposition to U.S. government help for Alaska. Canadian envoys repeatedly relayed the message to Washington since the revival of arctic pipeline projects began four years ago. The minister said Alberta expects to become a province-sized, international-scale trading “hub” for gas from across the north as well as western Canada. “We never met a pipeline we didn’t like,” Smith said.

Kvisle said TransCanada agrees that the high delivery costs for Alaskan gas make special help necessary. He predicted that even if long-range averages stay acceptably high, seasonal market cycles could easily cut the value of Alaskan gas to its producers to zero or even minus quantities for substantial periods while prices stay acceptable for other sources closer to consumers.

TransCanada forecasts the continental gas market — Canada, the U.S. and Mexico — will need the 4-5 Bcf/d to be tapped in Alaska on top of the one to two billion expected from the Mackenzie Delta. The forecasts also show that by the time both projects can be built, TransCanada will have vacant space to relay most of their output to U.S. markets from northern Alberta or British Columbia due to natural declines in the productivity of western Canadian gas fields.

Meyers said the Alaskan consortium hopes it can save about half the total cost or C$5 billion (US$3.8 billion) by relying on TransCanada and dropping plans for a parallel “bullet line” to U.S. markets. But he indicated that strong assurances will be required. The project is so costly that the sponsors have to be able to produce consistently at full capacity, he said.

Although less shaky than the Alaska schedule, the 2009 start-up target for the C$5 billion (without the bullet line) Mackenzie project remains anything but a sure bet. Shell Canada vice-president Dave Collyer said “there are a lot more things that could slow down that schedule than speed it up.”

Kvisle predicted, “If the Mackenzie Valley project does not go ahead the only reason would be regulatory delays or some kind of flare-up on the aboriginal front.” He said that thanks to decades of expansions of the TransCanada system the Mackenzie gas link is two-thirds built, compared to its first incarnation in the 1970s, when the plan required construction all the way to the middle-western United States.

Collyer described smooth functioning of an infamously complicated northern Canadian regulatory process as “extremely important.” The schedule allows three years for construction following approval in just two years after the formal project application is filed with 13 national, territorial and aboriginal agencies in 2004.

The regulatory process and aboriginal support in the predominantly native Northwest Territories are not the only time-consuming issues faced by the Mackenzie project. Decisions still remain to be made on critical engineering aspects of the project application, including the size and design of the pipeline. The Mackenzie sponsor group — Shell, Imperial Oil, ConocoPhillips and ExxonMobil — is being pressed to modify the initial plan unveiled during the summer by an Arctic exploration consortium.

The sponsoring gas producer group is out to tap discoveries with pedigrees dating back to the 1970s. The second consortium – the Arctic Explorer Group of Anadarko, Apache, BP, Burlington, ChevronTexaco, Devon, EnCana and Petro-Canada — wants a pipeline sized and laid out to accommodate new finds to be made by forthcoming drilling campaigns.

Devon Canada vice-president Michel Scott said the explorers have made proposals to raise the Mackenzie pipeline’s eventual capacity by about one-third to 2 Bcf/d and for the built-in ability to add “on-ramps.” Shell’s Collyer urged the explorers to talk to the Aboriginal Pipeline Group, which will own about one-third of the system’s capacity and needs to fill it. Scott said discussions with the native partners are only starting because they focused to date on issues of community ownership rather than on commercial matters of drumming up traffic for their share of the line.

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