Duke: Both arctic pipelines likely to be built, starting with Mackenzie Valley line

Both the Alaska natural gas pipeline and the Mackenzie Valley pipeline will be built, with the Mackenzie line likely to go first, says a senior Canadian pipeline executive.

Jim Stott
Special correspondent-Calgary

CALGARY, Oct. 30 -- Both the Alaska natural gas pipeline and the Mackenzie Valley pipeline will be built, with the Mackenzie line likely to go first, says a senior Canadian pipeline executive.

Bob Reid, president of Duke Energy Gas Transmission's (DEGT) Canadian unit, told a Ziff Energy Group conference in Calgary Tuesday that the demand for new supply will drive pipeline projects. DEGT is a unit of Duke Energy Corp., Charlotte, NC.

Reid said the marketplace will decide on the scheduling and sequencing, but both projects will require support from the US market.The DEGT executive said an ownership position in Foothills Pipelines Ltd. and a partnership with TransCanada PipeLines Ltd. will lead to Duke being a contributor to both pipeline projects.

Reid said pipeline companies must deal with a number of new realities, including the need for legitimate participation in projects by First Nations groups and recognition that pipelines involve First Nations lands.He said a major question is who will underwrite the cost of the pipelines.

Reid said demand for electricity in North America will grow and new supplies of gas will be needed from a number of areas, including the US Gulf Coast, the Arctic, Western Canada, and the Canadian East Coast. He said Duke sees opportunities to expand its assets in Western Canada, Ontario, and the East Coast with the Maritimes & Northeast pipeline.

Reid said all big energy providers are currently going through "tough waters" after Enron Corp.'s implosion and related crises. He said his company currently plans to focus on the fundamentals, including safety, its customers, maintaining its A1 credit rating, and a lower trajectory for growth and capital spending. He said there are no plans to sell any major assets.

TransCanada view
Steve Becker, vice-president of gas strategy for TransCanada PipeLines Ltd., Calgary, said 2003 is likely to be a key year for decisions on arctic pipeline projects. He also said that at some point in the future unconventional gas sources such as coalbed methane and tight gas will become part of the supply picture.

Becker also expects to see development of a number of broader regional hubs for gas distribution in North America, such as the Dawn storage facility in Ontario. These will level out pricing over larger areas and provide liquidity in the market, he added.

The TransCanada executive said producers will make a lot of key capital spending decisions in 2003 on arctic projects, and these decisions will also drive increased exploration activity.

Arctic pipelines
Becker said TransCanada sees four integrated projects in the arctic when it looks at pipeline development:

-- A Mackenzie Valley pipeline from the Mackenzie Delta to connect with a TransCanada system at the Alberta-Northwest Territories border.

-- The Alaskan portion of the Alaska pipeline project.

-- The Yukon-British Columbia portion of the Alaska pipeline.

-- Integration of the arctic pipeline projects into the Alberta pipeline system and into the continental pipeline grid. The Alberta portion would involve Foothills Pipeline with Duke Energy.

Becker said that arctic pipeline development will likely require joint ventures by companies.

Route options
Becker and Reid agreed that an "over-the-top" pipeline project from Alaska across the Beaufort Sea to the Mackenzie Valley is not a realistic option.

Becker said Trans-Canada has never seen the Beaufort Sea option as viable in the first place because of problems such as ice scouring or bypass areas where development is restricted.

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