Watching Government: Family feuds

May 20, 2002
Canadian government and industry officials visited Washington, DC, earlier this month, shortly after the US Senate finished debating a sweeping energy reform package that could hold major implications for the US's northern neighbor.

Canadian government and industry officials visited Washington, DC, earlier this month, shortly after the US Senate finished debating a sweeping energy reform package that could hold major implications for the US's northern neighbor.

Much of the visit was spent touting the long history of cooperation between the two governments, particularly on energy security and trade. Energy policy is not the overarching reason why the US and Canada are close allies, but it still holds significance given the US's continued reliance on foreign oil.

Trade complications

Canada is and likely will always be a secure foreign energy supplier. Nevertheless, White House support for a Senate proposal mandating the route of a proposed Alaskan gas export pipeline to the Lower 48 is a nagging irritant.

Canadian officials are the first to dismiss the possibility that the issue by itself could spark a major trade war. Still, the dispute over the gas line, along with a controversial US ethanol mandate plan also in the bill, could delay the timetable in which President George W. Bush wants agreement on a proposed free trade zone among the US, Canada, and Mexico, some Canadian officials warn.

The trade pact is a key goal for the administration, which wants it signed before the end of the president's first term.

Canadians object to a Senate provision giving North Slope producers a guaranteed "floor" price for their gas provided there is a pipeline that follows a southern route along the Alaska Highway then via Canada to the Lower 48.

Canadian gas producers also want to ship gas to lucrative Midwest markets but favor an alternative "northern" route beneath the Beaufort Sea and down Canada's Mackenzie Valley.

The House energy bill passed last August does not include tax incentives for a gas line but does mandate a southern pipeline route.

Canadian officials have hinted they may stall or reject pipeline permits unless the US remains route- neutral. Some US policy-makers say that's an empty threat.

But some Canadians politicians argue their US counterparts need the gas line more than they do.

Within Congress there is bipartisan support for a trans-Alaska gas line; it's a given, because a big beneficiary is the Midwest, a region both US political parties need support from before taking control of Congress this November.

Clean fuel woes

Canadian methanol producers are also upset with the Senate clean fuel proposal that phases out methyl tertiary butyl ether while tripling US ethanol demand.

In July 1999, Canadian MTBE producer Methanex Corp. filed a Chapter 11 complaint under North American Free Trade Agreement rules for damages relating to California's decision to ban the chemical because of groundwater contamination worries. That action could be expanded to the US government and if successful, could cost the US potentially billions of dollars. Canada says MTBE bans are political, not scientific.

California has since postponed the MTBE phase-out date until December 2003 citing supply considerations but the NAFTA claim remains.