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Getting the Gas

The search for supply goes global, for better or worse.

Fortnightly Magazine - May 2006

and have formed the Aboriginal Pipeline Group (APG), which hopes to gain a 30 percent equity interest in the pipeline, supported by governmental and producer funding.

The Deh Cho First Nation wants to link approval to ownership of mineral rights still subject to an existing land claim. The Canadian government also has rejected their claim to collect property taxes from the pipeline.

Further complicating matters, Northwest Territories is pursuing its decades-old bid to collect its own resource royalties rather than have them transferred through the federal government, and to gain greater control over resource development. The federal government has offered C$500 million in socio-economic funds to aboriginal communities along the planned pipeline route, but its allocation to aboriginal communities is still undefined. It will take a lot of work to remove the 1977 moratorium.

A second and much larger pipeline could deliver natural-gas supplies first, if a deal is not reached on the Mackenzie pipeline soon. Completion of the Alaskan natural-gas pipeline project could potentially supply 4.5 Bcf/d. It would be a mammoth project, with an estimated price tag in the $20 billion range. To achieve financing, the sponsors received in October 2004 government support in the form of loan guarantees and tax incentives. The Energy Policy Act of 2005 gave no support to this pipeline project. However, it does state that the Federal Energy Regulatory Commission is responsible for any future studies to be carried out for this project (in the United States), rate design, and impact on the environment. The current agreement before the legislature for approval involves the state of Alaska converting its royalty interest in gas production into a 20 percent equity interest in the pipeline, with linkage to a new 20 percent tax rate on oil production and a 20 percent credit rate on exploration and production spending.

The online date also could be affected by progress on the Mackenzie pipeline project, and the timing of incremental LNG regasification capacity, as well as its total marginal cost upstream of the takeaway pipelines. Currently, the estimates and projections for the LNG are that it would come in at a lower total into pipeline cost than the Alaskan gas delivered to either AECO or Joliet, and that LNG (including liquefaction capacity) has a shorter construction period than the 8 to 10 years estimated for the Alaskan pipeline. Also, controversy surrounds future producer access to the pipeline, other than the key sponsors (BP, ConocoPhillips, and Exxon/Mobil) who will build the Canadian portion of the system (TransCanada or Enbridge) and intra-Alaskan shipments using lateral lines. Also, in February 2006, the governor of Alaska introduced a bill affecting the fiscal rules for the three major sponsors of this project.

The bill would replace the state’s production-based tax on oil with a tax tied to producer profits. Producers would pay a 20 percent tax rate and receive a 20 percent tradable tax credit. Tax revenues would be lower when initial capital investments would be made and, consequently, higher as production increases. Once the oil tax changes are approved, the governor, in a separate