ENERGY- Alaska Goofs It Again
Exxon key to Alaska pipeline
August 4, 2008
VANCOUVER -- TransCanada Corp. has won support from Alaska to build a $26-billion natural gas pipeline, but ground won't be broken until Exxon Mobil Corp. signs on, says TransCanada chief executive officer Hal Kvisle.
Calgary-based TransCanada, which secured Alaska's official backing Friday, is in competition with BP PLC and ConocoPhillips Co. to build a pipeline that would connect large untapped gas reserves on the north slope of the state to consumers in the continental United States.
But Exxon, the company that controls the most gas in Alaska, hasn't yet backed either of the competing proposals, though it has an active Alaska team monitoring the pipeline race.
"Nothing goes ahead until Exxon is happy with it," Mr. Kvisle said in an interview yesterday.
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For TransCanada to proceed, it will also need to attract the shipping business of rivals BP and Conoco, which control part of the natural gas.
"This is not about TransCanada dreaming up the project we think will work, it's about the five key parties getting together and crafting something here," Mr. Kvisle said.
That presents some big challenges. All of the companies would likely seek a longer-term deal with Alaska on such issues as taxes before deciding to make a long-term commitment to a pipeline.
Reaching such a deal could be an uphill battle because the relationship between the firms and Alaska is frayed after a previous pipeline proposal fell through two years ago. Further, while it looks like it's BP-Conoco versus TransCanada in Alaska, the relationships are much more tangled.
London-based BP is TransCanada's largest customer on its sprawling gas pipeline network, and Conoco, based in Houston, and TransCanada are partners on a major new oil sands pipeline.
In this foggy and seemingly fractured picture, Calgary-based TransCanada is positioning itself in the role of intermediary, hoping to own part of the pipeline while getting closely involved in its design and construction by pitching its pipeline expertise as an important card.
An ownership stake in any pipeline is something the producers want if they are to sign long-term contracts, Mr. Kvisle said.
But TransCanada also has the right, under federal Canadian legislation from the late 1970s, to build the Canadian portion of the line, the company says.
Mr. Kvisle said he thinks TransCanada can figure out a deal that will work for everyone and offer advantages such as savings amounting to several hundred million dollars with technology that eliminates the need for pressure-testing the pipeline.
Late Friday, the Alaska Senate approved a licence for TransCanada to start preliminary work with $500-million from the state - but also a long list of requirements to ensure that the line benefits Alaskans. The licence was issued under the Alaska Gasline Inducement Act, a process that Exxon, BP and Conoco rejected as unreasonable, and led BP and Conoco to independently propose a $30-billion pipeline called Denali.
TransCanada's new pipeline licence does not affect Denali, said Bud Fackrell, a BP executive who is now president of the venture, in an interview with Bloomberg News on Friday.
Mr. Fackrell added that an open season for contracts to ship gas on Denali will be conducted in 2010. It's the same year that TransCanada plans to do the same, as required by its licence, but Mr. Kvisle said it's unlikely two open seasons will be conducted.
While Alaska inches ahead, the proposed $16-billion Mackenzie Valley pipeline - whose lead backer is Exxon - in the Northwest Territories is much further along and is nearing the end of a long regulatory review.
Mr. Kvisle doesn't think the two ventures are in competition and said construction on Mackenzie could begin in 2010 while Alaska likely won't break ground before 2015.
And in Alaska, Exxon remains the deciding factor.
"Things aren't always as they seem," Mr. Kvisle said. "Exxon is not the front-and-centre party in the press but I know for a fact that they've got very hard work going." Rean More