The Globe & Mail: TransCanada ups Mackenzie role

By SHAWN MCCARTHY
GLOBAL ENERGY REPORTER

Thursday, December 13, 2007 Page B9
 
TransCanada Corp. is asserting a new leadership role in the long-stalled, $16-billion Mackenzie Valley Pipeline project, arguing the federal government needs to support the “nation-building” Arctic energy development.

In an interview yesterday, TransCanada CEO Hal Kvisle said he expects a new ownership structure for the pipeline project to be announced soon, but that talks are continuing between his company and the current owners, the major oil companies that have gas reserves in the Arctic.

Imperial Oil Ltd., which has been leading the consortium, announced last winter that the projected cost had mushroomed to $16.2-billion from $7-billion, and indicated it would be impossible to proceed without significant federal assistance.

However, Industry Minister Jim Prentice – who has responsibility for the northern pipeline – said last summer the pipeline project would have to be “reinvented.”

Mr. Prentice is due in Calgary tomorrow for talks with the various project participants.

Industry sources say TransCanada is expected to take a majority equity stake in the pipeline project, while the Aboriginal Pipeline Group, representing northern native bands, would have between one-third and 40 per cent of the equity. Producers may still take an equity stake in the pipeline, though it would be a small one, the sources said.

But TransCanada would only finance the main transmission line, which is expected to cost about $8-billion. The oil companies – Imperial, Royal Dutch Shell PLC and ConocoPhillips Co. – would be responsible for bringing the fields on-stream and building the gathering system to get the gas to the main pipeline, which together would account for another $8-billion.

TransCanada, which also has submitted a proposal to build an Alaska natural gas pipeline, has long been waiting in the wings to assume control of the Mackenzie project. It stepped in when it was clear Ottawa and Imperial Oil had reached an impasse earlier this year.

“TransCanada has been very involved in developing a couple of ways that the project can move forward,” Mr. Kvisle said. “And we will be in discussion with the federal government over the acceptability of those new proposals.”

He compared the construction of the pipeline – which would open the Arctic to increased exploration and development – to the building of the Canadian Pacific railroad, or TransCanada’s west-to-east pipeline in the late 1950s.

“In both of those cases, there was very significant involvement of the government of Canada,” he said. “And I would underscore that the Mackenzie Valley Pipeline is equal in scope and challenge to the building of the TransCanada pipeline or the CPR.”

He said producers may continue to take an ownership stake in the pipeline, but would in any case finance development of the gas fields – nearly a quarter of the total costs – and make long-term shipping commitments, enabling TransCanada to finance the project.

Industry participants were said to be seeking several billion dollars worth of loan guarantees and tax incentives in order to proceed. Mr. Kvisle would not discuss the sought-after financial package, saying it has yet to be submitted to Ottawa.

He did say the partners would be looking for assurances from Mr. Prentice that the federal government would help streamline the regulatory process to ensure there are no unanticipated delays, including those related to unresolved land claims in the North.

Critics argue the Mackenzie Valley Pipeline is being built merely to feed the voracious appetite for natural gas among oil sands producers.

TransCanada recently filed an application to build a natural gas pipeline from northwest Alberta to the Fort McMurray area. In addition to handling new supplies of gas from that region of Alberta and British Columbia, that corridor line would tie in with the Mackenzie Valley Pipeline.

But Mr. Kvisle said the Mackenzie gas, along with volumes to be delivered from the planned Alaska gas pipeline, will be sorely needed in the North American market when it comes on-stream 10 years from now. He said oil sands producers are expected to increase their demand for natural gas, though firms are aggressively developing alternatives to gas, which may be in short supply – and increasingly expensive – in coming years.

Mackenzie is expected to deliver 1.2 billion cubic feet a day into the Alberta market.

http://www.theglobeandmail.com/servlet/ArticleNews/freeheadlines/LAC/20071213/RMACKENZIE13/business/ROB

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