TransCanada PipeLines Ltd. is warning that the revival of the international Alaskan natural gas pipeline project has only taken its first step with the emergence of a new sponsor in the United States.

TransCanada president Hal Kvisle said in a Calgary interview “the big challenge is, what is the contractual commercial arrangement under which gas flows? The big issue is somebody has still got to figure out how to ship the gas,” and, “we’re working on that.” He said TransCanada is urging legislators and regulators to reconsider an aspect of gas deregulation, a tleast when it comes to the Alaskan project as a result of its sheer size.

The TransCanada president said the authorities have to think about encouraging a “market-pull solution,” meaning a way for the buying side of the market to make long commitments to transportation capacity on the Alaskan system.

He urged U.S. authorities to rethink the aspect of gas deregulation that discourages or even bans local distribution companies from the practice that made construction of most North American pipelines possible in the first place. That was signing long term transportation commitments on the understanding that distributors would be able to pass on the costs of being connected to supplies in their franchise areas as the price of establishing secure access to gas supplies.

“They acted on behalf of consumers,” Kvisle recalled. He said TransCanada is finding that LDCs are once again becoming interested in long term contracts as markets tighten to the point where U.S. and Canadian authorities predict both countries will have to scramble for supplies,including vastly increased tanker imports of liquefied natural gas.

But deregulation policies developed during the 1980s gas glut, designed to prod suppliers into price-cutting competition, stand in the way, he warned. Kvisle said TransCanada is willing to do much for the Alaskan project — including dropping prior claims to rights to build the U.S. as well as the Canadian leg.

TransCanada is heir to the Alaska Natural Gas Transportation System as owner, through subsidiary Foothills Pipe Lines, of Alaska Northwest Natural Gas Transportation Co. Originally just one partner in ANGTS and the sponsoring consortium in the 1970s, TransCanada-Foothills inherited the entire structure as the U.S. partners dropped out during the years of gas surpluses across North America.

Attempts were made in the late 1990s to lure back the American partners. Kvisle noted that they included an element of the new proposal for construction across Alaska: the Northern Natural Gas Pipeline arm of Nebraska tycoon Warren Buffett’s gas and power interests, held through his Berkshire Hathaway’s control of MidAmerican Energy Holdings. Kvisle said TransCanada will be glad to work with MidAmerican’s MEHC Alaska Gas Transmission Co. on its efforts to breathe life into the northern gas project.”If they want us there in Alaska we’ll be there. If there’s an Alaskan solution within the state we’ll be as helpful as we can.”

TransCanada is offering to build the Canadian share in the project, across the Yukon Territory to northern Alberta, for US$5-$6 billion. Within the established Canadian delivery grid, Kvisle said there are multiple options for moving Alaskan gas to the Lower-48 U.S. states without building an entirely new pipeline. By the time Alaskan gas reaches mainstream markets, Kvisle predicted the opportunities will be greater.

There is already 1.5-2 Bcf of spare capacity on TransCanada’s Nova system in Alberta and its eastbound mainline. The vacancy rate is liable to rise as western Canadian gas fields enter their forecast decline stage while Canadian domestic industrial demand rises especially for oil sands and power generation projects, Kvisle said.

He also pointed to possibilities to expand the Northern Border route to Chicago and the Foothills route to southern California, both of which were constructed 20 years ago as a “prebuild” of the original ANGTS.

He said Alaskan gas could also be added to the five-year-old Alliance Pipeline, connecting Chicago to northern Alberta and British Columbia. Within Alberta, Kvisle said TransCanada has an abundance of options for handling Alaskan gas on its Nova gathering grid, which has capacity for more than 12 Bcf/d and multiple lines running in all directions across the province.

The one large addition to the system rated as possibly necessary is a link across the top of Alberta between northwestern gas fields and the oil sands region in the northeast. He sketched out an array of options, with the strategies varying depending on outlooks for gas drilling, industrial consumption and the timing of the big Alaskan project. He acknowledged the eventual outcome depends on imponderables such as whether the oil sands development wave will, as looks likely now, eat up all the 1-1.5 Bcf/d currently projected to arrive in 2009 via the proposed Mackenzie Valley Pipeline from the Canadian Arctic.

“It’s all very fuzzy but there’s a lot of options on how you can do it,”Kvisle said. “There’s a ton of flexibility as to how you could accommodate Alaskan gas.”

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