Nick Snow
Washington Correspondent
WASHINGTON, DC, Sept. 12 -- Recent developments have created uncertainties for proposed natural gas transmission systems from Canada's Mackenzie River Delta and Alaska's North Slope to markets farther south, said Canadian and US government officials. But their potential positive contributions to domestic gas supplies should not be ignored, they added.
"Security and supply are likely to become more, not less, important," said Brendan Bell, minister of industry, tourism, and investment in Canada's Northwest Territories. Displaying a photograph of Venezuelan President Hugo Chavez, he said: "A country that's inclined to change its constitution so its president can stay in office is also likely to change export terms for the energy it produces."
If both pipelines are built, the Mackenzie Valley and ANS pipelines could deliver a combined 8 bcfd of gas to markets in southern Canada and the Lower 48, Bell said Sept 5 during a discussion on the outlook for North American Arctic gas pipelines sponsored by the Center for Strategic and International Studies.
Drue Pearce, US federal coordinator of Alaska gas transportation projects, said Alaska holds 35 tcf of conventional reserves, an estimated 72 tcf of undiscovered unconventional gas resources onshore and 97 tcf offshore, 44 tcf of coalbed methane resources, and 102 tcf of gas hydrates. A proposed 2,100-mile pipeline would track the Alaskan Highway through Canada. "We are finally beginning to see companies come up and look for gas," she said.
Attitude changed
The Alaska state government's attitude toward the project changed in 2006, when the legislature rejected a contract submitted by then-Gov. Frank Murkowski, who lost his re-election bid in a primary soon afterwards. His successor, Sarah Palin, determined that Alaskans wanted a more transparent process for the massive undertaking and developed the Alaska Gasline Inducement Act, Pearce said.
AGIA, which the new legislature adopted in February, is designed to get North Slope gas to US and southern Canadian markets and to provide in-state gas use, reasonable tariff and expansion terms, and jobs for Alaskans for generations. "AGIA kick-starts the construction of a gasline through an open, competitive and reasonable process," Palin's official website says.
Pearce said AGIA calls for potential pipeline developers to compete for a license, which the state would award in exchange for its cooperation and support after conducting due diligence. Applications are scheduled to be made public in mid-December, with the winner to be submitted to the legislature in January.
Enbridge Inc. said it would not apply, but TransCanada Corp. will, Pearce said. BG Group, Repsol-YPF SA, and Chinese companies also may be interested, although they might prefer to build a pipeline to a liquefaction plant and export terminal near Valdez, she said. "Some producers may get together and prepare their own proposal," she added.
Producers were displeased with oil tax reforms Alaska enacted in 2006 when Palin announced on Sept. 4 that she was calling state lawmakers back into special session in October to consider additional oil and gas taxes. Her plan came after the state's revenue department determined that the new Petroleum Profits Tax would produce $800 million less in revenues than Murkowski's administration had predicted.
Palin said the new plan, Alaska's Clear and Equitable Share (ACES) is a hybrid of a gross and net tax system that includes a 10% tax based on gross receipts for the North Slope's legacy fields, with a 25% net tax to encourage new development and reinvestment in existing facilities. ACES also would permit tax credits on future work, restrict capital expense deductions to scheduled maintenance, and implement strong audit and information-sharing provisions, she said.
'2018 or later'
Although federal predictions suggest that gas could flow through an Alaska Highway gas pipeline starting in 2017, Pearce said 2018 or later is more realistic. "It's always been expected that the Mackenzie project would go first. There's not enough steel or labor to proceed with both at the same time," she observed.
Bell said Canada's National Energy Board is reviewing the Mackenzie Valley project. He expects permits to be awarded by spring or late summer of 2008 and for gas to begin flowing in 2013-14, although he conceded that major unanticipated expenses could create setbacks.
Many questions concern who will pay for the proposed gathering system in the Mackenzie Delta, Bell said. The Northwest Territories government suggested that Canada's federal government build it because it could be a facilities investment extending beyond oil and gas, he said.
"All of this gas would go into the Alberta system, which includes oil sands," said Bell. "That segment recognizes that gas prices are high, and it is exploring nuclear and other alternatives to process the bitumen."
Bell, saying, "We're interested in seeing the Alaskan project happen too," maintained that it will be necessary to reduce the cost of shipping gas, to provide clear policy directives with set timeframes, and to develop closer US-Canadian cooperation for both Arctic gas pipelines to be built.
Contact Nick Snow at [email protected].