TransCanada Corp. has come out fighting for support for its historical rights to build the Canadian leg in the Alaska gas project, saying Alberta will lose C$10 billion (US$8 billion) in excess tolls and petrochemical industry growth if the government in Ottawa refuses to honor its claims.

An escalating battle over rights to build the Canadian half of the project is creating a great risk of ending up with construction of a new bypass around the Alberta pipeline grid as a direct route to American energy markets, TransCanada president Hal Kvisle said.

He sounded the warning and the appeal for Canadian backing during a telephone conference call with financial analysts and media, which he held to respond to rival Enbridge Inc. Blaming TransCanada’s previous silence on a need to avoid jeopardizing confidential, complex negotiations with American and Canadian governments and industry interests, he launched a barrage on fronts ranging from private meetings with gas production companies to advocacy advertising in national newspapers.

Kvisle’s move countered a campaign by Enbridge that included a meeting March 24 in Ottawa with a northern development committee of the federal cabinet (see Daily GPI, March 28).

The Liberal government and Enbridge disclosed no results, and Kvisle said TransCanada has seen no sign yet of a federal decision. TransCanada insists it has inherited exclusive rights to build the Canadian leg in the Alaskan mega-project along the Alaska Highway under the 1978 Northern Pipeline Act, a 1970s co-operation treaty between Ottawa and Washington, and approvals of the old plan by the National Energy Board.

Enbridge, calling the old legislation obsolete, seeks federal assurances that the 1970s rules no longer apply and there will be competition to build the Canadian part of the Alaska line under up-to-date rules of the NEB and the Canadian Environmental Assessment Agency.

As primarily an oil pipeline company, Enbridge has a limited role to date in transporting about 8% of western Canadian gas production through interests in the five-year-old Alliance Pipeline to Chicago from northern Alberta and British Columbia. TransCanada has been a mainstay of gas shipping since the 1950s and delivers a majority of western Canadian output via numerous subsidiaries, Kvisle pointed out.

Petrochemical complexes in the Alberta’s Industrial Heartland district northeast of Edmonton and at Joffre near Red Deer will regain all the liquid byproducts of gas they need to revive expansion plans if TransCanada wins the Alaskan pipeline contest, Kvisle predicted.

The petrochemical issue is a major and touchy point in Alberta, where economic diversification beyond exporting raw gas and oil is a long-standing matter of provincial policy. Shrinking supplies and rising prices of raw materials have stalled growth plans and prompted feasibility studies of building a C$5-billion (US$4-billion) plant to tap oilsands products for gas liquids near Edmonton in the Fort Saskatchewan area. The studies continue by a “hydrocarbons task force” of petrochemical industry and Alberta government experts.

Alaskan gas will be “wet” or rich in vapors which are raw materials for petrochemicals such as ethane and propane, Kvisle said. Provided Alaskan production flows across the established pipeline grid as planned by TransCanada, it will be easily tapped by under-used liquids extraction plants at Empress in southeastern Alberta and Cochrane near Calgary, he predicted.

Construction of Alliance Pipeline was unsuccessfully resisted by the petrochemical sector in the 1990s because it exports liquids-rich natural gas directly to an extraction plant near Chicago.

An additional direct route to Chicago for Alaskan gas would cost Alberta gas producers heavily in the form of increased tolls on the TransCanada pipeline system, Kvisle said.

The new bypass would cause increasing amounts of empty space to open up on the TransCanada grid when Alberta production starts a widely forecast decline after 2010 while industrial gas users, led by oilsands projects, increase consumption in the province, he predicted.

Regulated tolls set by the NEB and the Alberta Energy and Utilities Board would continue to make producers cover fixed costs of the established pipeline system. Over a 15-year period the excess tolls for disused shipping capacity would add up to C$10 billion (US$8 billion), the TransCanada president predicted.

Spare capacity on TransCanada’s Nova gas-gathering grid in Alberta is already about 3 Bcf/d or 20% of its maximum 14 Bcf/d, Kvisle said. On the TransCanada mainline from Alberta to central Canada and the Middle Western and Northeastern United States, excess capacity is currently about 1.5 Bcf/d or 20% of the system’s maximum 7 Bcf/d, Kvisle reported.

At best, excluding surprises such as an unanticipated large-scale surge in new coalbed methane supplies that Kvisle admitted are always possible, TransCanada gas supply projections show that western Canadian production will hold up at current levels until about 2010 then slip into gradual decline.

But the old international regulatory apparatus, assembled for the dormant Alaska Natural Gas Transportation System, is as alive as ever, Kvisle insisted. The structure still defines the Foothills Pipe Lines system, which carries about 30% of Canadian gas exports to the U.S., as the southern “prebuild” of ANGTS, he emphasized. Foothills has been expanded five times since its construction in 1982 under the ANGTS regulatory umbrella, most recently in 1998, Kvisle pointed out. About half of the system’s construction costs, exceeding C$2 billion (US$1.6 billion), have yet to be recovered through tolls, he added.

TransCanada’s version of the Alaska project would cost in the range of US$15 billion as opposed to the estimates of US$20-$25 billion frequently heard for rival plans that include a new “bullet line” across Canada rather than integrating northern gas into the established grid, Kvisle predicted.

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