Prepare for gas pipeline hurdles, consultant warns
SLOW GOING: Similar Canadian project has been tied up for years.
The Associated Press
Published: April 15th, 2008 11:39 PM
Last Modified: April 15th, 2008 11:49 PM
CALGARY, Alberta -- Anyone who thinks an Alaska natural gas pipeline will see fewer hurdles than the long-stagnant Mackenzie Gas Project is sadly mistaken, says the man who used to run the Northwest Territories' natural resources department.
"People have tried to make the story that the Mackenzie gas project is dogged by all kinds of regulatory problems, whereas an Alaskan project will be smooth sailing," said Doug Matthews, a Calgary energy consultant who, before retiring, spent 25 years in the North.
"The sailing might be a lot less smooth than people have let on."
REGULATORY OBSTACLES
Oil and gas giants BP and Conoco Phillips unveiled a proposal last week to build a multibillion-dollar pipeline that would carry natural gas from Alaska's North Slope to Alberta and possibly to the Lower 48. Their proposal, dubbed "Denali," competes with another similar pipeline plan put forward by TransCanada Corp., which is under review for a possible Alaska state license.
Matthews foresees "quite a tussle" between TransCanada's proposal and the Denali pipeline, because of a three-decade-old agreement that essentially gives TransCanada, this country's largest natural gas shipper, first dibs on any project in the Far North.
"The Denali project is going to have a lot of regulatory hurdles to get through. TransCanada has always made much of this treaty that gives them certain rights," said Matthews, who said the legislation does not carry as much weight as TransCanada has let on.
"There might be a competitive fight between TransCanada and the BP-Conoco proposal, which could end up in court to get resolved and that, in turn, could slow down the pace of the Alaska project."
While the competition seems heated now, analysts say there eventually will have to be some sort of collaboration between the producers, the pipeline operator and the State of Alaska.
"What I see happening there is everybody's going to get a piece," said FirstEnergy Capital analyst Stephen Paget, adding an agreement might be a few years off.
"It will be tough for any company that wants to participate to be truly denied a share."
Desjardins Securities analyst Daniel Shteyn said the BP-Conoco announcement is just "gamesmanship" on the part of the two companies, which with Exxon Mobil Corp. are major North Slope natural gas producers.
"They are trying to jockey against the State of Alaska to maximize their negotiating leverage in terms of the fiscal framework," he said.
"Ultimately I believe that what will happen in Alaska will be some sort of a settlement between the three key stakeholder parties."
RISING COSTS
Farther east, the planned 758-mile Mackenzie pipeline project has been mired in regulatory setbacks for decades and has seen its price tag balloon from $7.5 billion to $16.2 billion in about two years. The $16.2 billion estimate was made by Imperial Oil Ltd. 13 months ago, and many observers expect the project could now cost close to $20 billion.
Companies vying for the right to build the Alaska project should brace themselves for similar cost overruns. So far TransCanada has pinned its Alaska proposal at $26 billion and Denali will cost about $30 billion.
"What we're finding now, of course, is that inflation appears to be coming back with a vengeance in the U.S. and in Canada," Matthews said.
"So I would expect that $30 billion is going to get bigger rather than smaller."
Amid grumbling from the government and producers over Mackenzie's soaring cost, there has been talk that control may shift from a consortium led by Imperial, Canada's largest oil producer and the Canadian subsidiary of Exxon Mobil, to TransCanada and the Aboriginal Pipeline Group.
RIVAL PIPELINES
Some have argued that if the Mackenzie project is not built before the Alaska project, it probably will not be built at all.
"If anything, the Mackenzie process will be given a little bit of a boost by what's happening across the border in Alaska because if the Mackenzie project keeps on sitting in deep freeze, then Alaska's going to proceed and Mackenzie's going to be left behind," said Shteyn, the Desjardins analyst.
