A 2003 bet of C$80-100 million (US$60-75 million) that TransCanada PipeLines’ entry will win the northern pipeline race is starting to make the nation’s top natural gas transporter nervous.

While TransCanada continues to maintain officially that the Alaska and Mackenzie Valley projects will both be needed and the smaller development in the Northwest Territories is the logical contender to be built first, president Hal Kvisle is starting to wonder.

He revived an old, fundamental question among Canadian gas producers and pipelines during a telephone conference call with reporters and financial analysts: Will economic reason ever be allowed to prevail in the Canadian North?

For TransCanada, the question is not academic. A year ago, the company made a bet the answer will turn out to be yes in a deal with the Aboriginal Pipeline Group, a coalition of territorial communities that holds a one-third interest in the proposed C$3 billion (US$2.25 billion) Mackenzie Valley Pipeline. TransCanada agreed to finance the group’s share in engineering and regulatory work expected to cost at least C$80 million (US$60 million) and possibly up to C$100 million (US$75 million).

The arrangement, nominally a loan to be repaid out of the aboriginal group’s share in future pipeline toll revenues, provides that the money will be written off if the project fails to make it into construction. The aboriginal group also hired as its president a retired senior TransCanada executive and project specialist, Bob Reid. As late as last spring, he was still highly optimistic.

When asked in an interview how he rated TransCanada’s chances of recovering its money, Reid said: “The odds are very high.” As of mid-summer, TransCanada’s president was not giving odds. Instead, Kvisle warned Canada is starting to face the same disconnect he has encountered in the United States as 2004 chairman of the Interstate Natural Gas Association of America. Energy policy encouraging supply development is headed in the opposite direction from environmental and social regulation. The NIMBY — not in my backyard — attitude increasingly prevails in both countries as communities affected by projects repeatedly mount successful campaigns to delay or halt them, Kvisle observed.

Irritated peers in the Canadian industry have also coined a stronger term for the phenomenon — BANANA, build absolutely nothing anywhere near anything. In northern Canada, skepticism of industry is compounded by overlapping federal and territorial jurisdiction, conflicts between the two and especially by aboriginal politics.

Kvisle warned that a “glacial pace” set by aboriginal land claims negotiations and “ponderous” regulation threaten to halt the Mackenzie Gas Project, a C$5-billion (US$3.75-billion) package including a C$2-billion (US$1.5-billion) production development on the Mackenzie Delta by Imperial Oil, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada. “We would not like to see the Mackenzie project go onto the back burner for another 25 years,” Kvisle said.

But natural gas markets could stop the Arctic pipeline plan again by changing faster than natives and the federal government approve it, he warned. “I continue to be frustrated,” Kvisle said. “The time to build a pipeline is a small fraction of the time for the ponderous regulatory and approval process,” the TransCanada president said. “We could have the pipeline built in 18 months from the day we get the green light.” But five years after rising gas demand and prices prompted the revival of the 1970s northern gas project, Kvisle said the industry sponsors can still only hope they will be allowed to build it by 2009.

The official completion target is already too distant, without factoring in prospects of further delays, for the industry to predict the Mackenzie project will be needed for sure. “People shouldn’t assume a voracious gas market will support it,” Kvisle said. Demand for gas from the Mackenzie Delta could evaporate if faster progress is made on the Alaska pipeline proposal and projects to import tanker cargoes of liquefied natural gas on the coasts of Canada and the U.S., Kvisle said.

TransCanada is working on Alaskan and LNG projects as natural extensions to its role as the nation’s main gas transporter and heir, as owner of Foothills Pipe Lines, to 1970s international approvals of plans to tap Prudhoe Bay reserves, Kvisle said. TransCanada remains willing to hand over ownership of the Alaskan leg of the pipeline to the Prudhoe Bay gas producers but continues to maintain historic priority rights to build and own the Canadian stretch.

He indicated TransCanada has been encouraged by the responses in its talks with the producers, state authorities and prospective Alaskan aboriginal participants in the project. But Kvisle said there is little significant movement in the divided Northwest Territories, where three of four aboriginal communities that started the pipeline group have formally become shareholders but enthusiasm varies over time and depending on location.

The northern-most aboriginal communities with the most to gain, the Inuvialuit and Gwich’n, continue to support the Mackenzie project. Pipeline right-of-way access issues are still unresolved with the Sahtu in the central Mackenzie Valley, and there is no sign of a land claim settlement with the southern Deh Cho. The Sahtu signed on as pipeline group shareholders early this summer but have a recent history of denying pipeline planners access to the proposed right-of-way and of divisions within the community.

The Deh Cho have also denied access to surveyors and the community exhibits splits, with political leaders saying they are willing to hold up the pipeline if that is what it takes to get the land claim settlement they want while aboriginal business chiefs create contracting companies to participate in construction and maintenance. “That project is not going to go ahead until we can clarify some of these things,” Kvisle said. “It’s a vacuum at the federal policy level.”

Government and aboriginal leaders need to find a way to separate the pipeline approval process from land claims negotiations, the TransCanada president said. “We can do nothing, other than encourage the federal government to treat the problem seriously.”

Kvisle also urged the Aboriginal Pipeline Group, an alliance of the Inuvialuit, Gwich’n and Sahtu that has a one-third share in the proposed Mackenzie line to work on converting the Deh Cho into supporters. Delaying gas supply projects will only prolong upward pressure on consumers’ energy bills across Canada and the U.S., Kvisle said.

But he doubted pipeline development will speed up because there seems to be no way to persuade communities in the path of projects to accept some industrial activity in trade for improved energy supplies. “It’s going to take longer rather than shorter. Commodity prices are probably going to be higher rather than lower,” Kvisle predicted.

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