Despite the drop in natural gas prices, the global recession and energy security issues, Canadian and Alaskan officials — on the governing side anyway — remain optimistic that an Arctic natural gas pipeline is in the offing. But — and there are several buts — officials on both sides still have come to no agreement as to what route the pipe should take and whether there should be one pipe or two. About the only agreement that could be had at the Arctic Gas Symposium in Houston Thursday was that an over-the-top route across the Beaufort Sea may be out of the picture.

Representatives from Alberta, the Yukon Territorial Government and the Northwest Territories, as well as an official from the Alaska Oil and Gas Association (AOGA), offered their take on the massive opportunity that exists in the region to exploit natural gas resources there. They also attempted to predict which route producers from both the U.S. side and those in Canada, would finally choose, if they move forward at all.

Referring to a Houston energy meeting 11 months ago — when gas prices were still high and the recession merely a possibility — AOGA’s Judy Brady acknowledged that in January, “it was a lot more fun then.” Brady reminded the attendees that a producers group then was enthusiastically preparing a $100 million study to decide which route would be the best to bring natural gas from the North Slope of Alaska to the Lower 48 — along the Alaska Highway or over-the-top across the Beaufort Sea into the Mackenzie Delta. Either of those routes would eventually bring the pipe into Alberta.

Another group of producers also continued their work on the Canadian side only, preparing studies and picking up endorsements from the diverse aboriginal groups and governments, which would lead to construction of a smaller pipe from the Mackenzie Delta into Alberta.

The Alaska producers’ feasibility study was expected to be completed by the end of this year, but Brady now does not expect that to happen. This week, she said she had heard that the producers had decided that neither of the two routes were economic at this point and were now awaiting U.S. Congressional or Alaska legislative action on possible tax incentives that could dictate which route to take.

“We’ve been through this before,” she said, referring to a natural gas pipeline dream that has been on the drawing board since the 1970s.. “Now things are very different, with the Sept. 11 tragedy, prices down and a worldwide recession… January was more fun, but November is more real.” However, she believes that producers will soon pinpoint which route is more economic, and a pipe plan will move forward. Whatever the scenario, the region is on the verge of commercializing a world class project, she said.

Scott Kent, minister of economic development for the Yukon Territorial Government, noted that it was “rather ironic to think that the bull energy market of last year may have contributed to current economic conditions and weakened demand for natural gas. In other words, the industry is oddly a victim of its own success.” However, he pointed out that natural gas demand remains high, and will remain high into the foreseeable future. For that reason alone, he said pressing forward on a pipe was paramount so that there would be a pipe in place by 2008.

“The time for action is now, while the window for developing northern gas is still open,” said Kent. The Yukon has long endorsed the Alaska Highway route, and Kent said it made the most sense, for several reasons.

“The wells have already been drilled and are producing natural gas, which is largely re-injected into the ground,” said Kent. “The rights-of-way have already been secured by Foothills (Ltd.) in the Yukon and parts of Alaska..,.permits have been issued. The project requires no new transportation corridors, no new construction of access highways, no LNG (liquefied natural gas) plans, and construction can begin simultaneously from 20 or more facings along the existing highway.”

In the long run, however, Kent admitted there should be two pipes — which Yukon supports — one from the North Slope and a second smaller line from the Mackenzie Delta. “Yukon has never accepted the suggestion that northerners had to choose a single project.”

Pushing for that smaller, stand-alone line from the Mackenzie Delta was Jim Antoine, deputy premier for the Northwest Territories. Although “interested in the movement of Alaskan gas to market,” Antoine said that Yukon has “consistently maintained that the decision as to the best route for moving this gas should be based on commercial, not political, considerations. As the gas farthest from market, Alaskan gas carries the highest price risk, and as, we have seen recently, prices can go down as fast as they go up. We simply encourage the Alaskan producers to consider the long-term economic efficiencies associated with combining Alaskan gas flow with the Mackenzie Delta gas, for the benefit of all parties.”

Noting that Alaska Gov. Tony Knowles had a “10-point plan for the Alaska Highway route that includes tax breaks,” Antoine said, “our government’s one-point plan is to promote a Mackenzie Valley gas pipeline, which has the lowest price tag for transporting Arctic natural gas to market.”

If the Alaska Highway route is chosen as the route from the North Slope — as opposed to the over-the-top route quickly losing favor — support may be swayed by an engineering study commissioned by the Yukon government. Laying pipe along the floor of the Beaufort Sea between Prudhoe Bay and the Mackenzie Delta would put risks before North American industry that it has never faced, with costs of nearly $2 billion.

Yukon engineers identified risks from short and unpredictable open-water construction seasons to novel hazards such as “strudel scour,” or powerful flows of half-frozen fresh water streams into the Beaufort from its coastline. The Canadian study estimates that the Alaska Highway version of the northern gas megaproject would cost US$8.97 billion: $4.22 billion for 1,256 miles of pipe in Alaska and the Yukon; $1.12 billion for 447 miles in the Northwest Territories and British Columbia; $1.7 billion for 1,012 miles in Alberta and Saskatchewan; and $1.93 billion for 890 miles across the U.S. Midwest to Chicago.

The over-the-top route is projected to cost US$10.87 billion: $4.41 billion for 368 miles of offshore pipe along the Beaufort coastline of Alaska and the Northwest Territories; $2.89 billion for 1,149 miles on land in the NWT and BC; $1.63 billion for 972 miles in Alberta and Saskatchewan; and $1.93 billion in the Lower 48.

According to the report, “there are many unresolved and complex technical issues when considering the design, construction and operation of a northern offshore pipeline. These issues will translate into long construction delays, substantial cost overruns and significant reliability and environmental risks.”

The report, released before the Arctic Gas Symposium, did not worry the engineer and former Conservative member of Parliament Harvie Andre, who represents over-the-top’s sponsors, the Arctigas consortium. Andre urges the critics to fold up their Mercator-projection maps and look at globes, which show a nearly straight line south from Prudhoe Bay along the Alaskan and territorial coast then through the Mackenzie Valley to Alberta. Andre maintains every independent analysis of cost shows that the direct line is the lowest cost route. He also dismissed criticism of the proposal from the Yukon as politically inspired, from a government hungry for economic activity in its jurisdiction.

The Yukon report warned that “for some of the technical issues, there are no known solutions yet…for other technical issues, the solutions will be prohibitively expensive.” The prediction is based on results of work done by the Geological Survey of Canada and incorporated, at the request of the U.S. Fish and Wildlife Service, into a review of a BP Exploration Alaska proposal titled the Liberty Pipeline for a six-mile stretch of offshore pipe near Prudhoe Bay. The Canadian engineers say that “to solve the ice scour problem, a pipeline company may have to resort to innovative solutions such as pipe-in-pipe or twin pipelines. While this is realistic for smaller, near-shore projects, it will prove to be economically unacceptable for a large-diameter, long-distance pipeline.”

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