Make pipe decision

Peter Morton
Washington Bureau Chief
National Post
22-Jun-2005

WASHINGTON - The Alaska government is growing impatient with Ottawa over the delay in making a decision on the Canadian leg of the massive US$20-billion Alaska natural gas pipeline, the state governor said yesterday.

And Alaska is keen on taking an ownership stake in the Canadian leg through British Columbia and Alberta, Gov. Frank Murkowski told the Financial Post in an exclusive interview in Washington.

Mr. Murkowski revealed that if TransCanada Corp. gets the approval to build the entire 5,600-kilometre pipeline, it might be eligible for US$18-billion in U.S. government loan guarantees.

"It's a quid-pro-quo thing," Mr. Murkowski said, adding that TransCanada has not said whether Alaska would be offered an equity interest in the longer Canadian portion of the pipeline.

Mr. Murkowski said he was promised by Prime Minister Paul Martin in February the government would make up its mind "in a week to 10 days" but he is still waiting. "We urged them to make a decision," he said.

The outspoken governor made it clear he believes it would be simpler for Mr. Martin to give TransCanada the rights for the Canadian pipeline portion because regulatory permits were issued 25 years ago. "It appears there is considerable advantage to the value of those grandfathered [rights]," he said.

As a result, Mr. Murkowski said the regulatory process would be streamlined, avoiding the process disputes and aboriginal claims that have bogged down the $7-billion Mackenzie Valley gas pipeline.

He was referring to the 25-year-old Northern Pipeline Act that gives the rights and the corridor for the Canadian leg of the Alaskan pipeline to Calgary-based TransCanada.

The governor said Jean Chretien, the former prime minister, "forcefully" said in a letter to TransCanada that those rights would be honoured by the current Canadian government.

Mr. Murkowski went to Ottawa in February to press the federal government to make a decision on whether Ottawa would give the regulatory authority for the Canadian leg to the agency responsible for the Northern Pipeline Act or the National Energy Board.

Enbridge Inc., TransCanada's rival in the proposed pipeline, and the owners of the Alaska North Slope gas -- ExxonMobil Corp., BP PLC and ConocoPhillips -- want to see a more open process to allow for competitive bids.

The Alaska government is concerned there would not be enough material or labour to handle both the Mackenzie Valley project and the Alaska pipeline, billed as the largest construction project in North America.

"You can't have both projects hitting the market at the same time," he said.

The state government is negotiating with TransCanada and the producers over the Alaskan leg of the pipeline. The state has agreed to take an equity stake if the producers own the Alaskan leg in exchange for giving up gas royalties.

It is not clear whether the North Slope producers would guarantee TransCanada gets the rights to ship their gas if it gets the nod to build the pipeline.

"We have always said that there is some flexibility on the Alaska side, but today we have not negotiated any other ownership structure for the Canadian side, where we own 100% of the rights" said Kurt Kadatz, a spokesman for TransCanada. "Obviously, this is a very large, complex deal and we have been in constant communication with the state of Alaska as well as Alaska producers. If the governmet wants to talk to us about flexible arrangements, we would listen to what they has to say."

Mr. Murkowski said the three producers would prefer to own at least the Alaskan leg of the pipeline to maintain control but have yet to sort out among themselves which would be the managing or leading partner.

The North Slope contains at least 36 trillion cubic feet of gas and could have as much as 200 trillion. The 4.5-billion-cubic-foot-a-day pipeline could provide as much as 10% of U.S. demand when it kicks in in about 10 years.

The Alaskan pipeline is part of a much broader corridor Mr. Murkowski would like to see built through the state and the Yukon. He would the rail lines from northern British Columbia extended into his state as well as the creation of a fibre-optics communications corridor.

Pat Daniel, chief executive of Enbridge Inc., Canada's second-largest pipeline company, which is also vying to participate in building the pipeline, said last week a decision from Ottawa was imminent.