Exxon joins TransCanada's Alaska pipeline project
Carrie Tait and Claudia Cattaneo, Financial Post
Thursday, June 11, 2009
CALGARY -- The world's largest publicly owned energy company has thrown its weight behind TransCanada Corp.'s effort to build a natural gas pipeline from Alaska North Slope to the rest of the United States, a move which could jam a stake through the heart of a rival pipeline plan and further haunt Canada's stalled Mackenzie Valley pipeline.
Exxon Mobil Corp. and TransCanada (TRP/TSX) Thursday announced an agreement to work together on the 2,700-kilometre, US$26-billion Alaska pipeline project - one that could move four billion cubic feet of gas a day beginning in 2018.
"TransCanada and Exxon will jointly advance all aspects of the project - technical, commercial, regulatory and financial," said Tony Palmer, TransCanada's vice-president of Alaska development, during a conference call with reporters. "TransCanada can progress the project independently, if it so elects, and will have access to all jointly developed assets and information."
Calgary-based TransCanada will hold a majority interest in the project, but neither company would divulge what percentage Exxon now holds. Texas-based Exxon is not obliged to ship its gas on the much-delayed project, but will negotiate for shipping contracts and evaluate tolls just like any other customer.
There are three major leaseholders on Alaska's North Slope - Exxon, ConocoPhillips Inc. and BP PLC. After TransCanada last year won support from Sarah Palin, Alaska's Governor, and the state's legislators to construct the gas line, ConocoPhillips and BP joined forces build their own project, dubbed "Denali - The Alaska Gas Pipeline."
With Exxon now favouring TransCanada, ConocoPhillips and BP may have to ditch their plans and ship their gas on TransCanada's line if they are serious about getting gas out of Alaska's Arctic.
"It has always been our position that it will require, a project of this size, the support of all the producers, the state of Alaska, and TransCanada," said Marty Massey, U.S. joint interest manager for ExxonMobil Production Co. "We will need to work with them."
Producers who decide to ship gas on the pipeline are still welcome to buy interests in TransCanada's project, Mr. Palmer said. Its competition says the same thing, and plans to plough ahead with its plans.
"This hasn't changed anything that we're going to do ... Denali's owners are open to considering a partnership with any company that can add value and reduce risk with Denali," said Scott Jepsen, a spokesperson for Denali. "Denali has not had any conversations with Exxon Mobil."
The North Slope's known reserves ring in at 35 trillion cubic feet and there are an estimated 250 trillion cubic feet of gas that could be economically recoverable, according to the U.S. Geological Survey. The gas find could satisfy between 6% and 8% of America's current demand.
TransCanada plans to conclude its Alaska pipeline open season - a call for binding shipping commitments - by July, 2010. Denali will hold its open season in late 2010.
Pipeline analyst Bob Hastings, senior vice-president at Canaccord Adams, said the decades-delayed Alaska pipeline remains a long way away.
However, "Exxon joining with TransCanada is great, Exxon obviously being the big guys there. But they are still competing with Denali ... and FERC (the Federal Energy Regulatory Commission, which regulates pipelines in the U.S.) has said they only want one pipeline application. So this doesn't resolve that problem."
Bob McLeod, industry minister in the Northwest Territories, said the announcement shows the playing field is changing for the long-stalled Mackenzie gas pipeline, which is seen as competing with the Alaska proposal.
"It points out, even more importantly, that the federal government needs to reach a conclusion of the fiscal arrangements with the proponents [of the Mackenzie pipeline] and also the regulatory process."
While ExxonMobil is now in the driver's seat of both projects - the Mackenzie project is headed by its Canadian subsidiary, Imperial Oil Ltd. - Mr. McLeod said he hopes the Mackenzie project won't be held back so Alaska can proceed.
"I am taking [Exxon] at their word that it doesn't change anything," he said. "They are two independent projects."
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