U.S. firms get in on Alaska pipeline
Lily Nguyen
00:00 EST Friday, November 16, 2001
CALGARY -- Six powerhouse U.S. players
are joining TransCanada PipeLines Ltd. and
Westcoast Energy Inc. in an attempt to inject
new momentum into a bid to build a
multibillion-dollar pipeline from Alaska.
The partnership, which includes energy services
and transportation giants Williams Cos., Duke
Energy Corp., Enron Corp., as well as major
utilities El Paso Corp., PG&E Corp. and
Sempra Energy Utilities Ventures,have
agreed to work together with TransCanada and
Westcoast to put a proposal before the Alaska
gas producers before the end of the year. The
group, which laid out its intentions in a
memorandum of understanding signed
yesterday, said they believe a gas pipeline running along the Alaska Highway can be built by 2008.
Murray Birch, senior vice-president of Westcoast, said the partners lend expertise, deep pockets
and scale to the mammoth project, which is estimated to cost well over $10-billion (U.S.).
"It's in our best interest to involve them. This project is a large project, and certainly Westcoast and
TransCanada would have been stretched to do it by ourselves," said Mr. Birch, who is also the
co-chief executive officer of Foothills Pipe Lines Ltd. a joint venture co-owned by Westcoast and
TransCanada. Foothills holds the regulatory permits to the proposed Alaska Highway pipeline.
Mr. Birch said the equity position of each company in the project is still to be worked out. Rocco
Cianco, a Foothills spokesman, said that is in part because some of the companies are in a state of
flux. Westcoast is in the process of being taken over by Duke, while Houston-based Enron is in the
process of being bought by hometown rival Dynegy Corp.
The partnership brings back to the table all nine of the original participants in a similar pipeline
project that was proposed in the 1970s and shelved because of weakening commodity prices and
native opposition.
Mr. Birch noted that it also removes a legal question hanging over the pipeline project, of whether
the six U.S. companies had any claim on the project based on their capital investment in the 1970s
project. They withdrew from that project on the understanding that if it was to restart, they would
be able to recover that initial investment, which some have pegged at up to $4-billion including
interest, he said. In getting back on board, the six companies have agreed to waive that claim, he
said.
Scott Kent, the Minister of Economic Development for Yukon, a vocal proponent of the proposed
pipeline, said the removal of the legal question lifts a huge barrier to the project.
"There was a chance this could have ended up in a lengthy court battle that would have significantly
hampered" the project, he said. "It's certainly very good news."
Winfried Fruehauf, an analyst at National Bank Financial in Toronto, said the six U.S. companies as
well as Westcoast, TransCanada and Foothills are trying to make sure they're first in line to move
the gas from burgeoning Alaskan fields to market.
"Everybody and his and her uncle wants to be in this pipeline, there's so many 'me toos' that they
just want to position themselves," he said.
The market understanding is that the Alaska producers, which include Exxon Mobil Corp.,
Phillips Petroleum Co., BP Amoco PLC and Chevron Corp., will ultimately decide who will
build and operate a pipeline because the cost of such a project would be recovered from them in
the form of pipeline tolls.
Gina Taylor, a spokeswoman for Enron, said the partners got together with an eye on approaching
producers to get an answer from them on whether the project can go ahead.
"Marketplace approval is key to us moving forward with this," she said.
"That's why we put the [memorandum] in place, so we could go out and revisit with the producers."
But Curtis Thayer, a spokesman for the Alaska producers, said it is too early to talk about who will
build or operate the pipeline, because his group has not even decided to proceed with one yet.
He noted that a preliminary analysis done as part of a $100-million study the group has undertaken
indicates a pipeline couldn't pay for itself at current commodity prices.
However, no decision has been made, he insisted.
Some of the other options floated include building a pipeline off the north shore of Alaska and
Yukon to gas fields in the Northwest Territories, then down the Mackenzie Valley of the NWT, or
a pipeline going over land in Yukon to the NWT. There are various backers for each proposal and
the Alaskan producers have not ruled out undertaking a project themselves.
Joe Handley, the Minister of Finance for the NWT, said news of the partnership is a spur to
participants in the proposed Mackenzie Valley pipeline.
The territory's government has consistently said an NWT pipeline must be built first or risk being
derailed by an Alaska pipeline that would flood the market with product.
"If we don't keep on our toes, [an Alaska pipeline] could pass us and leave us in the bush," he said.
Foothills announced earlier this week that it reached a preliminary agreement with the Kaska
Nation, removing another potential hurdle to the Alaska pipeline proposal.
Copyright © 2001 The Globe and Mail
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