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The GSX Story

Pipelines to Nowhere

Re: Decision expected on request by TransCanada to alter gas line

Even in the early part of the last decade, when natural gas prices were much higher, before North American shale gas appeared to be as plentiful or as producible as it seems now, the two big proposed Arctic natural gas pipelines – Mackenzie Gas Project, and Alaska Pipeline Project, both of which would bring northern gas to Alberta and into the continental pipeline system – would only get built if massive federal subsidies were made available.

Subsidies did appear and some of that money is still flowing to the pipeline companies. But they were never enough to propel the projects over the edge from speculative ventures to a semblance of viablility. That’s because neither of these projects have ever come close to being economically viable. They cost too much, and the price of natural has has only momentarily come close to what it would need to be to justify their construction. And when gas prices get that high, they drive demand to other fuels and other ways of generating energy and to energy efficiencies.

Nevertheless, the proponents and unfortunately the governments, don’t stop trying. There is a lot of natural gas in the north. In Alaska, where the gas is associated with oil production, they actually have to pump the gas back underground or flare it, because it has no way to get to markets in any quantity. In Canada, it’s still in the ground. The Mackenzie Gas Pipeline, last I looked, had a price tag of $16 to $20 billion. The Alaska to Alberta project may be topping out at $40 billion now. So, no go to either of them, and thank goodness.

However, Alaska’s economy is hugely dependent on oil and gas. And the oil is running out. So the state is doing everything it can to get its gas to markets. What will likely happen will be a decision perhaps as soon as this year, to build a natural gas pipeline from Prudhoe Bay to either Cook Inlet/Anchorage or Prince William Sound/Valdez and build a big LNG facility there with a view to exporting LNG to Asia. (heard this story before? With three proposed LNG export terminals in Kitimat, and two in Oregon, the oil and gas biz is doing what it always does – running in a pack all hoping to capture whatever and wherever high prices prevail, like so many dogs after a bitch in heat.)

Just a wee bit about those subsidies. TransCanada was picked during Sarah Palin’s administration in Alaska to build what is now called the Alaska Pipeline Project. $500 million was set aside to help TransCanada bring the project to start of construction. TransCanada hasn’t had much success so far, and as described in this article, now wants to put the big continental pipeline aside and focus on an all-Alaska LNG project. Undoubtedly by still spending Alaska’s $500 million.

In Canada’s Federal Budget introduced at the end of March, $47 million was earmarked for the Northern Pipeline Agency to grease whatever needs greasing to facilitate the Alaska Pipeline Project. Good taxpayer money thrown after a dead project. Think of it as a linear F-45.

A wee bit more. To induce aboriginal support for the Mackenzie Gas Project, the corporate proponents (led by Exxon Mobil) agreed to sell a third of the project to a consortium of aboriginal groups. To get the ball rolling, TransCanada provided the initial $80 million, and put Robert Reid, a former senior exec at TransCanada in place as President of the Aboriginal Pipeline Group. It worked – much of the aboriginal objection to the pipeline project was muted.

You may have noticed that Enbridge has offered a 10% equity stake in the Northern Gateway Project to First Nations on the pipeline route. Enbridge will even fund the loan. Generous of them, eh?

Natural Gas

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