U.S. must listen to Canada on Alaska gasline incentives, Canadian official says

Posted: Friday, May 02, 2003

OTTAWA (AP) Canada will be able to exert pressure on the United States government not to grant subsidies to help build a natural gas pipeline to bring North Slope gas across Canada to the Lower 48, Northern Development Minister Robert Nault said Thursday.

We will have some influence,'' he said in a teleconference from Washington. Our regulatory regime will have to be respected. Our Canadian interests will have to be respected.''

While Canada is concerned about items such as a marginal-well tax credit the North Slope producers want, Nault said providing a loan guarantee for the pipeline owners was a legitimate approach to take.''

If the U.S. subsidizes the line from the North Slope, it could draw investors and capital away from the Mackenzie Valley project and delay its construction for years, Canadian officials say.

I very much believe that the cooperation between the American government and the Canadian government is necessary in order to see this pipeline built and not at the detriment of other important initiatives,'' Nault said, citing the Mackenzie project.

Nault met with U.S. industry and government leaders on Thursday in Washington to emphasize that Canada is ready to review a proposal for construction of a Mackenzie Valley natural gas pipeline.

If built, the Mackenzie Valley pipeline would be one of the longest in North America, stretching from the Mackenzie Delta northwest of Inuvik in the Northwest Territories to northern Alberta.

There's no race'' to build a pipeline first, Nault said, as both government and industry officials agree that the Mackenzie Valley project will go first, followed closely by the Alaska gas pipeline.

The Mackenzie project is Energy producers backing the pipeline have been ready to file a proposal since last November, but the Aboriginal Pipeline Group, which is slated to own a third of the project, has yet to come up with $70 million (Canadian) for its portion of the preliminary design phase.

If the U.S. does end up offering subsidies for the line from Alaska project, they will be reviewed by Canada's energy regulator, the National Energy Board, to decide whether in fact the project would go ahead,'' Nault said.

The marginal-well credit, according to Alaska Sen. Lisa Murkowski, would give producers a federal tax credit of up to 52 cents per thousand cubic feet of gas shipped if the wellhead price dropped below $1.35 per thousand cubic feet.

But the wellhead price is determined after subtracting transportation costs. If pipeline tariffs come out at the predicted level of about $2.38 per thousand cubic feet, that would mean the credit would kick in when the wholesale market price reached about $3.73.

Natural gas at the Henry Hub was selling for $5.30 per thousand cubic feet Thursday, but the price is very volatile depending on such factors as winter temperatures and supply fluctuations.

Another incentive being pushed by Murkowski would allow producers to depreciate the Alaska portion of the line over seven years, instead of the normal 15 years. That would cut taxes on the line in the early years, which backers say would reduce financing costs.

Those provisions, along with tax credits for coal-bed methane, gas hydrate, and heavy oil production in Alaska, have been approved by Senate committees but not by the full Senate.

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