As the United States faces greater uncertainty from the Middle East in meeting its growing fuel demands, U.S. Ambassador Paul Celluci said that the country will rely even more on Canada to meet its “growing thirst” for oil, natural gas and electricity. Celluci’s comments followed claims this week by Alberta that it is winning more support from the energy industry to serve as a hub for “any” gas pipelines from the Arctic.

Even before the Sept. 11 terrorist attacks, Celluci said the United States already was working to ensure more access to Canada’s energy. Since September, the need to strengthen the ties between the United States and Canada has grown even stronger.

“We see Canadian sources of energy as reliable,” said Celluci. “If there’s a problem in the Middle East, because our economies are already integrated, we don’t worry about those supplies.”

In recent months, some Canadians have stepped up their criticism of the United States’ takeover of more Canadian energy companies, but Greg Stringham of the Canadian Association of Petroleum Producers thinks it only strengthens the market. “Right now, we do have a very open and free border when it comes to the exchange of energy back and forth, on oil and natural gas in particular,” Stringham said.

Celluci noted that a more closely integrated market between the two countries offers advantages for Canada because anything that makes the United States stronger will mean more demand for other Canadian services. Canada now provides about 10% of the U.S. oil supplies and 15% of its natural gas.

The stronger energy ties fit in well with a plan by Alberta to become an even larger hub for any gas pipelines from the Arctic to the Lower 48. Alberta’s energy minister on Tuesday said he had strong support from the energy industry on both sides of the border to push for the plan. Energy Minister Murray Smith noted, however, that low natural gas prices could delay any pipeline from Alaska or the Mackenzie Delta region in the Northwest Territories.

Smith said that Alberta had “developed a series of…compelling commercial reasons to use the Alberta natural gas hub,” noting that there was additional capacity in the pipeline (NOVA), the markets may be switched “any time,” and there are no antitrust problems with the “very liquid trading market.” Alberta now moves more than 18% of North America’s natural gas supply and is a major exporter to the United States.

Currently, a consortium of major energy companies, including ExxonMobil Corp., BP Plc and Phillips Petroleum (soon to merge with Conoco Inc.) are studying an efficient way to carry gas from Alaska’s North Slope to the Lower 48. Meanwhile, another consortium including Imperial Oil Ltd., Shell Canada Ltd., Conoco and ExxonMobil Canada are also reviewing ways to pipe gas to Alberta from the Mackenzie Delta.

In almost any case, a pipe would eventually move through Alberta, said Smith. He is “anxiously” awaiting a decision from the consortiums on their projects’ feasibility. Though the plans were expected before the end of this year, lower prices and the recession delayed the projects. Now, Smith said, both are expected to be released in the first quarter of 2002.

While Smith awaits word on whether one or both projects are feasible, two University of Houston professors believe only one will make it: the Mackenzie Valley corridor route. In their study, “The Imperatives of Arctic Natural Gas Development,” Ronald Oligney and James Longbottom also note that the gas line should be double or triple other proposals — at least 12 Bcf/d — because “America needs the gas.” They suggest a system to carry both Alaskan and Canadian gas, which would be implemented in four phases.

In the first phase, a small Canada-only line would run from the Mackenzie Delta to Alberta. The 1.6 Bcf/d proposed line would require minimal risk because “no international agreement would be required.” In the second phase, a 2.5 Bcf/d northern Alaska tie-in and a Mackenzie loop would be added. In the third phase, a full-length line loop could be constructed to carry 2.5 Bcf/d of Alaskan gas and 1.5 Bcf/d of Canadian gas. In the final phase, another full-length loop would carry 2.5 Bcf/d of Alaskan gas and 1.5 Bcf/d of Canadian gas.

Oligney and Longbottom note that “market imperatives” would “force” the Mackenzie Valley route and predict that a southern line would be “uneconomic even at $3/Mcf.” The northern route would be cheaper and a phased-in development of the line would “provide common ground” for everyone.

Interestingly, the authors also wrote that in the long run, it would not be in Alaska’s best interests to push for the Alaska Highway route. Since any pipe from the North Slope would end up with at least 60% of it in Canada, routing decisions based on Alaska construction jobs “do not serve the state’s long-term financial interests.” The northern route would offer more permanent jobs, they said. Instead, Alaska might consider a Kenai Peninsula gas development or gas-to-liquids project for its own gas needs and to strengthen its economy.

For their study, the authors cited research already done by the Canadian Energy Research Institute, Purvin & Gertz Inc. of Houston and the Interstate Natural Gas Association of America.

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