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

191954Z May 05

UNCLAS SECTION 01 OF 02 OTTAWA 001516 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT FOR WHA/CAN AND EB/ESC/IEC 
DOE FOR IA: PUMPHREY, DEUTSCH 
DOE ALSO FOR OFFICE OF OIL AND GAS GLOBAL SECURITY: KORNFELD 
STATE PASS USTR: CHANDLER 
STATE ALSO PASS FERC 
 
E.O. 12958: N/A 
TAGS: ENRG ETRD EPET CA
SUBJECT: NO NEWS IS GOOD NEWS FOR ALASKA GAS PRODUCERS 
 
REF: A. OTTAWA 695 
 
     ¶B. OTTAWA 603 
     ¶C. OTTAWA 134 
 
¶1.  (SBU) Summary: Representatives of the Alaska North Slope 
natural gas producers now hope that the GOC may be 
reconsidering its options regarding a permitting authority 
for the Alaska Natural Gas Pipeline.  A GOC decision that the 
1,300 mile Canadian portion of the proposed pipeline could be 
permitted under either of two competing provisions of 
Canadian law would be a major victory for the producers, who 
strongly argue that they need flexibility in determining the 
pipeline's route, specifications, and financial terms.  End 
summary. 
 
¶2.  (SBU)  In a meeting with ESTOFFs, officials from 
ExxonMobil, BP and ConocoPhillips said that they believe the 
GOC is re-examining what observers previously believed was an 
imminent decision to declare the Northern Pipeline Act (NPA) 
as the only valid permitting authority for the Canadian 
portion of the Alaska Natural Gas Pipeline.  The 1970's-era 
NPA would give exclusive construction rights for the Canada 
portion of the line to Calgary-based TransCanada Pipelines 
Ltd., a situation which ExxonMobil, BP and ConocoPhillips 
have called unacceptable.  Rather, the producers have argued 
that existing pipeline permitting rules administered by 
Canada's National Energy Board (NEB) are adequate to handle 
the Alaska pipeline, and would offer the flexibility needed 
to minimize risks and maximize efficiencies. 
 
A Decision Delayed 
------------------ 
 
¶3.  (SBU)  In February, Minister of Natural Resources John 
Efford told Alaska Governor Frank Murkowski that a decision 
on a permitting authority would be made "in two or three 
weeks," and strongly hinted that the GOC would favor the NPA 
(ref B).  No such announcement has followed, and the delay 
could be a sign that Natural Resources Canada, which was 
widely seen as strongly favoring the NPA, is losing influence 
on the matter within the GOC.  Representatives of the 
producer companies told us that they have been calling on a 
range of officials within the GOC to advance the case for the 
NEB's flexibility, including the Ministries of Finance and 
Foreign Affairs, the Canadian Environmental Assessment 
Authority, and the Privy Council Office, which reports to the 
Prime Minister. 
 
¶4.  (SBU)  Whatever decision the GOC makes regarding a 
permitting authority, a legal challenge is likely.  If NEB 
rules are declared valid for the Alaska project, TransCanada 
would almost certainly go to court and argue that the project 
can only be permitted under the NPA.  On the other hand, the 
producers and other interested companies may well mount a 
challenge if the GOC does declare that the NPA is the only 
valid permitting mechanism.  According to the representatives 
of the three companies, if the decision goes against 
TransCanada, it would have to limit its challenge to the 
validity of the NEB process, and not actual damages. 
Although TransCanada argues that it has spent C$2 billion in 
"pre-build" for the Alaska line, the producer representatives 
said, most of that has been spent on pipelines which are 
currently in use and are fully costed.  Thus, TransCanada 
would not suffer any real losses from its prior "investments" 
in an NPA-permitted pipeline. 
 
¶5.  (SBU)  In addition, according to the producers, there is 
likely to be an excess of capacity in existing pipelines as 
conventional gas production in the Western Canada Sedimentary 
Basin begins to decline.  The NPA mandates a "bullet" line 
through Canada directly to the United States, which the 
producers see as inefficient given the coming excess pipeline 
capacity.  The NEB process, they said, would provide greater 
flexibility in determining how the gas would be marketed in 
North America, and would still provide a benefit to 
TransCanada by utilizing its existing pipelines.  NEB 
permitting would also make it easier to construct a natural 
gas liquids (NGL) facility in Alberta -- a major industrial 
benefit -- to take advantage of the "wet" properties of the 
North Slope gas.  The NPA did not envision an NGL facility, 
the representatives said, much less one that would be 
constructed in Canada and could provide product for both the 
U.S. and Canadian petrochemical industries. 
 
¶6.  (SBU)  Calgary based-Enbridge Inc. has touted itself as a 
viable alternative to arch-rival TransCanada as prime 
pipeline contractor (ref C), and has taken a position on 
permitting authority which closely mirrors that of the 
producers.  However, the three representatives told us that 
the companies themselves, ExxonMobil, BP, and ConocoPhillips, 
are perfectly capable of building and operating the pipeline. 
 As the BP representative noted, BP has built more natural 
gas pipelines around the world than either TransCanada or 
Enbridge.  The actual work, he added, could be subcontracted 
to any number of companies, including Enbridge and/or 
TransCanada. 
 
Potential for Delay 
------------------- 
 
¶7.  (SBU)  According to the producer representatives, there 
is potential for the pipeline to be delayed on other fronts. 
Assuming that the producers are able to reach a financial 
agreement and royalty package with Alaska, similar 
arrangements would have to be worked out with the Yukon 
Territory and the provinces of British Columbia and Alberta. 
In addition, there are several unsettled tribal land claims 
in areas of the Yukon through which the pipeline would pass. 
 
¶8.  (SBU)  The producer representatives noted that opening 
the Alaska National Wildlife Refuge (ANWR) for oil and gas 
development is extremely unpopular in Canada.  As the Alaska 
pipeline and ANWR are debated, the producers said they would 
prefer to see the two issues kept separate (if natural gas is 
discovered in ANWR, it would likely be transported through 
the pipeline).  For now, Canadian environmental NGOs 
concerned about northern pipelines are focusing their efforts 
on opposing the proposed Mackenzie Valley gas pipeline. 
 
Comment 
------- 
 
¶9.  (SBU)  As we read the events of the last several months, 
the companies have conducted a persistent, but low key, 
campaign to remind GOC officials that NEB rules can apply to 
the Alaska project.  They appear to have had notable success, 
bringing in other GOC agencies as counterweights to Natural 
Resources Canada's evident preference for the NPA.  Given 
that the GOC appeared last February to be on the verge of 
declaring the NPA as the only valid permitting authority, the 
producers' efforts seem to have been successful indeed. 
 
Visit Canada's Classified Web Site at 
http://www.state.sgov.gov/p/wha/ottawa 
 
DICKSON