This record is a partial extract of the original cable. The full text of the original cable is not available.

111242Z Feb 05

UNCLAS SECTION 01 OF 02 OTTAWA 000429 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CAN AND EB/ESC/IEC 
DOE FOR IA: PUMPHREY, DEVITO, DEUTSCH 
DOE ALSO FOR OFFICE OF OIL AND GAS GLOBAL SECURITY: KORNFELD 
STATE PASS USTR: CHANDLER 
STATE PASS FERC: LONGENECKER 
 
E.O. 12958: N/A 
TAGS: ENRG ETRD EPET CA
SUBJECT: A DARK HORSE, A STALKING HORSE: ENBRIDGE INC. AND 
THE ALASKA GAS PROJECT 
 
REF: A. OTTAWA 0134 
 
     ¶B. 04 OTTAWA 3414 
 
¶1.  (U) Sensitive but unclassified.  Not for distribution 
outside USG channels. 
 
¶2.  (SBU) Summary:  As wrangling continues over who has 
rights to build the Canada portion of the Alaska Gas 
Pipeline, Calgary-based Enbridge Pipelines Inc. has 
persistently signaled its capabilities and interest in the 
project.  Enbridge does not have an ownership stake in the 
gas, nor does it possess "certificates of public convenience" 
to build the pipeline, as does archrival TransCanada 
Pipelines Ltd.  However, Enbridge appears to be the only 
Canadian company other than TransCanada that is capable of 
building and operating a 1,300 mile natural gas pipeline from 
the Alaska/Yukon border to southern Alberta.  With the Alaska 
gas producers (notably BP and Conoco-Phillips) reluctant to 
be locked into doing business solely with TransCanada on the 
basis of its 25-year old "exclusive" certificates under the 
Northern Pipeline Act (NPA), Enbridge is both a stalking 
horse, providing the producers with a plausible alternative 
to TransCanada, and a dark horse, in that wresting control of 
the project away from TransCanada would be a formidable task. 
 Nevertheless, as a signal of its intent to pursue a role in 
the Alaska project, Enbridge filed a proposal in April 2004 
under Alaska's Stranded Gas Act to build the entire 2,100 
mile pipeline.  End Summary. 
 
Alaska's Gas, Canada's Laws 
--------------------------- 
 
¶3.  (SBU) In a meeting February 8 with DCM and ESTOFFs, 
Enbridge Vice President for Public and Government Affairs 
D'arcy Levesque emphasized Enbridge's position that an 
alternative regulatory framework for construction of the 
Alaska pipeline already exists in Canada, obviating reliance 
on the NPA.  The issue of whether authorities other than the 
NPA may be used for permitting construction of the Canadian 
portion of the Alaska pipeline is crucial: TransCanada 
insists that the NPA is the only valid legislation pertaining 
to the project, giving it exclusive construction rights.  To 
bolster its claims, TransCanada has repeatedly cited a 2003 
letter from then-Prime Minister Chretien to CEO Hal Kvisle 
expressing a preference to work within the framework of the 
NPA. 
 
¶4.  (SBU) According to Levesque, the NPA is irrelevant 
because Canada's National Energy Board (roughly equivalent to 
the U.S. Federal Energy Regulatory Commission) already has 
the power to approve any gas pipeline project in Canada which 
crosses Canada's national or inter-provincial boundaries. 
Further, he said, existing environmental legislation under 
the Canadian Environmental Assessment Act (CEAA), as 
administered by the Canadian Environmental Assessment Agency, 
will allow for an Environmental Impact Statement that will 
cover the pipeline's environmental implications better than 
the "antiquated" NPA.  The NEB and CEAA, Levesque said, 
furnish the regulatory neutrality and transparency for the 
project to proceed, and also provide better recognition of 
aboriginal rights along the pipeline's proposed route. 
 
¶5.  (SBU) Levesque said that although the 1977 Northern 
Pipeline Act was originally intended to create certainty, its 
effect in today's changed situation is the exact opposite. 
Levesque said that TransCanada's claim that its NPA 
certificates are still valid has hampered GOC efforts to take 
a neutral position on the pipeline's regulatory authority, 
but acknowledged that the GOC is sensitive to the fact that 
TransCanada has spent millions of dollars to maintain the 
validity of its NPA certificates (ref B).  Levesque noted, 
however, that most of TransCanada's expenses went into 
constructing the "pre-build" pipeline from southern Alberta 
to the United States, a pipeline which is currently in use 
and has since recovered its construction costs. 
 
Enbridge vs. TransCanada 
------------------------ 
 
¶6.  (SBU) Enbridge, Levesque said, is particularly well 
suited to construct the Canadian portion of the pipeline 
because of its extensive experience with oil lines in 
Canada's north.  For example, he noted that the company has 
considerable expertise in building and operating a pipeline 
in permafrost.  Unlike TransCanada, Enbridge has not taken a 
stance on whether a 48-inch or 52-inch diameter pipeline 
would be best (ref A), but Levesque said that ultimately the 
market will determine the best configuration for the line. 
 
¶7.  (SBU) Enbridge owns and operates 8,500 miles of pipeline 
in North America, with a combined throughput of more than two 
million barrels per day of crude oil and petroleum liquids. 
Enbridge also owns and operates Canada's largest natural gas 
distribution company, with customers in Ontario, Quebec, and 
New York State.  The company reported earnings of C$645 
million (about 495 million USD) in 2004.  Although Enbridge 
primarily focuses on petroleum liquids and TransCanada on 
natural gas, the two companies increasingly compete in both 
areas: TransCanada recently announced a 1.7 billion USD 
proposal to build a crude oil pipeline from the Alberta 
oilsands to southern Illinois, a distance of 3,000 
kilometers. 
 
¶8.  (SBU) Comment:  Although Enbridge claims not to be in 
direct negotiation with producers BP and Conoco-Phillips 
regarding the Alaska Gas Pipeline, there is clearly a 
convergence of interests among the companies.  They are all 
opposed to the notion that only the NPA provides Canadian 
regulatory authority for the pipeline's construction, and are 
therefore dismissive of TransCanada's claim to exclusive 
construction rights.  All the companies nevertheless appear 
concerned that the GOC will support TransCanada simply in 
order to avoid a lengthy legal challenge to the NPA. 
Ironically, the sheer magnitude of the proposed project -- 
2,100 miles of steel pipeline from Alaska to Alberta -- means 
that when and if the line is built, there will likely be 
ample work not only for TransCanada and Enbridge, but a host 
of other contractors as well.  End comment. 
 
Visit Canada's Classified Web Site at 
http://www.state.sgov.gov/p/wha/ottawa 
 
CELLUCCI