Many hurdles ahead for TransCanada's US$26 billion Alaska pipeline
August 2008 // The Energy News
CALGARY _ There are still numerous hurdles TransCanada Corp. (TSX:TRP) must clear before it can break ground on its proposed US$26-billion Alaska pipeline, not the least of which is getting shipping commitments from natural gas producers in the region, an analyst said Wednesday.
The Calgary-based pipeline builder got the green light from Alaska's state House of Representatives late Tuesday to embark on a costly process of pursuing a federal certificate. The state's Senate is set to hold its vote Aug. 2.
That means TransCanada is still a long way from beginning construction on the 2,760-kilometre pipeline that would carry up to 4.5 billion cubic feet of natural gas daily from Prudhoe Bay in Alaska into U.S. markets.
However, a state licence would mean the company gets US$500 million in seed money.
After the Senate vote, TransCanada ``can really get down to business, which is finding a way to bridge the gap with the key shippers of natural gas,'' said Desjardins Securities analyst Daniel Shteyn.
BP PLC (NYSE:BP) and ConocoPhillips (NYSE:COP), two of the three major Alaska natural gas producers, have proposed a competing pipeline, called Denali, which has not been endorsed by the Alaska government.
``I think they're the biggest factor of all,'' Shteyn said. ``Ultimately only one of those two rival projects can really go ahead.''
The third potential shipper, ExxonMobil Corp. (NYSE:XOM), has not committed to either project yet.
An open season for shippers to jump on board with the TransCanada project is expected to conclude in two years.
In the meantime, there will likely be some tough negotiations ahead between the BP-ConocoPhillips camp and TransCanada, Shteyn said.
``What would really make sense is a meeting of the minds between all of the rival parties who would then back one project,'' he said.
``But that's where the rubber hits the road and that's what the negotiation is about. Who will be setting the terms for that meeting of the minds?''
TransCanada, for its part, is willing to co-operate with the builders of the Denali project, said the company's vice-president of Alaska operations.
``We've indicated in our proposal that if shippers commit their gas in the initial open season they'll have the opportunity to become our equity partners, not an obligation but and opportunity,'' Tony Palmer said Wednesday.
``We'll work hard to achieve that if that's what customers want to have.''
TransCanada is involved in another major Arctic pipeline project, the Mackenzie Gas Project.
The most recent cost estimate of that project from March of last year was C$16.2 billion, though analysts have said it could now be as high as $20 billion.
Its expected startup date is 2014, with the Alaska project following in 2019.
TransCanada shares were down slightly to C$38.90 in midday trading on the Toronto Stock Exchange.
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© 2008 The Canadian Press
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