Taking the offensive in a never-ending quest to secure a natural gas pipeline for his state, Alaska Gov. Tony Knowles on Wednesday touted the gain from new investments, billions of new revenue and lower gas prices if Canadian leaders lend their support to a proposed U.S. tax credit to spur pipeline construction. The Alberta and the Yukon Territories premiers appear to support the Alaska plan, but Knowles still needs approval of other more wary leaders, including the Northwest Territories, which would rather spurn Alaska altogether.

Knowles, who has lost the formerly strong support for the Alaska pipe from major U.S. energy companies in recent months, acknowledges that he needs to gain the backing of Canada’s business and provincial leaders, and he needs to give assurances that he will support two pipes, with one extending from the Mackenzie Valley, to ensure those Arctic reserves are marketed.

The so-called Alaska Highway natural gas pipeline has become Knowles’ primary initiative as he finishes out his term this year. Meeting with western Canadian leaders in Dawson City in the Yukon Territory on Wednesday, Knowles assured the premiers that an Alaska pipe would reduce gas prices for both U.S. and Canadian consumers. He also clarified that the proposed U.S. tax credit, which passed the Senate in April and is expected to be debated in the House this summer, would be “specific, conditional, subject to payback,” and have a limited life.”

At stake for Canada is a measure in the bill that would grant pipeline investors a tax credit for Alaska gas when prices fall below US$3.25/MMBtu at Alberta’s market hub. The credit would rise in line with inflation over its 15-year life. The proposed tax credit would be paid back if Alberta gas prices exceed US$4.85/MMBtu. Canada and industry officials charge that the credit will deter demand for Canadian gas, and meanwhile, the Northwest Territories’ leaders want to spurn Alaska altogether and push their plan for Mackenzie Delta pipe to the Lower 48.

Knowles is walking a fine line as he woos Canadian critics, because many energy industry officials also are leaning toward a Canadian pipe only at this point. Knowles and his supporters argue that the U.S. credit would reassure private-sector investors of the Alaska plan. An Alaska pipeline, which would run into the Yukon and down into Alberta before reaching U.S. markets, is projected to cost between $15 billion and $20 billion, according to Knowles’ office.

“Opponents of the credit ignore that an Alaska gas pipeline is likely to mean lower natural gas prices to consumers in the U.S. and Canada,” said Knowles. “They also ignore the fact that incentives for development of new resources are widely used in Canada, the U.S. and throughout the world. This tax credit will merely assist the development of an Alaska natural gas pipeline by reducing the consequences of price swings in the natural gas market. It will help open up huge reserves of natural gas on Alaska’s North Slope and provide a new long-term major source of domestic energy. This is clearly in the best interests of both the United States and Canada.”

Before his meeting in the Yukon, Knowles met with Alberta Premier Ralph Klein in Anchorage, and he welcomed the Canadian leader’s support for two Arctic pipelines, one beginning in Alaska, the other extending from the Mackenzie Delta. On Tuesday, they signed an agreement to encourage cooperation and understanding between the two governments and business communities.

“Premier Klein wisely pointed out that North American demand requires Arctic gas from both Alaska and Canada and in fact, much of the gas from the Mackenzie Valley likely will be used to assist in the development of oil sands in Alberta,” Knowles said. “That’s another reason why America and Canada need two pipelines — one to carry Alaska North Slope gas to North American markets and one to tap smaller gas reserves in the Northwest Territories for domestic use.”

At the meeting in Dawson City, which was ostensibly to discuss the Kyoto protocol, Yukon Premier Pat Duncan spoke on behalf of the western leaders and attempted to cool down a growing feud between the Yukon and Northwest Territories over two gas pipeline proposals. Both provinces have pipe plans to ship their gas from Alaska south, but Yukon’s goes through the Yukon along the Alaska Highway; the other extends from the Mackenzie Valley, which is in the Northwest Territories.

Duncan said there is room for both northern pipelines, but Premier Stephen Kakfwi of the Northwest Territories said the much larger, U.S.-subsidized Yukon line would shut out his territories’ Mackenzie Delta gas. “Just to say both can proceed, it’s hogwash really,” Kakfwi said. “Absolutely, it’s about who’s going to go first. If the Alaska pipe goes first, there is no Canadian pipeline.”

Duncan reminded the group that Atlantic Canadians developed two huge oil projects close to each other without adverse effects. “No one asked Nova Scotians to decide between Sable Island and Hibernia,” she said. “No one should be asking northerners to be choosing between territorial projects.”

Before his meeting in Canada, Knowles released a new four-page analysis completed by his Washington, DC office and several energy consultants. The analysis reports that Canada already has in place “widespread use” of incentives, unlike Alaska. Also stressing that a U.S. pipe somehow would be better protected, the analysis notes that an Alaska pipeline would “ship 4 Bcf/d, about 7% of U.S. consumption, all from safe and secure U.S. fields.”

According to Knowles’ analysis, Canada’s “incentives for the domestic oil industry are a common part of the landscape. In their eagerness to advance their own interests, they have ignored the reality that both the national government of Canada and the governments of other Canadian provinces provide special economic support to both developing and established oil interests, including protection against swings in commodity prices.”

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