The House-Senate Energy Conference Committee approved some key provisions last week that pave the way for an Alaskan natural gas pipeline to be built, but one item prohibits a northern pipeline route across the Beaufort Sea and ultimately down the Mackenzie River in Canada. A proposal sponsored by Sen. Frank Murkowski (R-AK) and approved by the committee will require that the pipeline be built along the Alaska Highway south through the Railbelt and the Yukon to reach the lower 48 states.

The committee also voted to include several other Alaska pipeline provisions:

Canadian Natural Resources Minister Herb Dhaliwal reiterated earlier last week Canada’s position that any provisions in the energy bill dealing with a northern pipeline should be “route neutral.” Alaskan and northern Canadian producers believe that a route across the Beaufort Sea and down the Mackenzie River in Canada would be the least expensive.

Speaking in Washington, D.C. last Wednesday to members of Congress, industry representatives and the Bush Administration, Dhaliwal also warned that Canada might withhold permits on any proposed pipeline if the U.S. government does not allow the market to decide which route is best.

Dhaliwal urged Congress to remove any provisions that would give Alaskan producers incentives to produce their gas and transport it down an Alaskan pipeline. 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 offered as “carrots” to get the proposed line up and running and serving the Lower 48 gas markets within the next decade.

“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 a 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 a final energy bill.

The committee put off a decision on including the Senate’s proposed producer incentive package. “The financial terms will come later,” said Joe Brenckle, a Murkowski staff member. “There are dual tracks in this process. One is the enabling legislation, which was taken care of today, and [the second] is the financial incentives, which will probably be dealt with toward the end of the conference as part of a larger tax package.”

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