TransCanada Gets Go-Ahead for Alaska Pipeline Bidding Plan

SAN FRANCISCO (Dow Jones), Mar. 31, 2010

U.S. regulators on Wednesday approved a plan by TransCanada Corp. to solicit interest from oil and gas producers in a gas pipeline the company wants to build from Alaska to Canada and the continental U.S.

In January, TransCanada and Exxon Mobil Corp., a top Alaska oil and producer that is TransCanada's engineering partner on the pipeline project, asked the U.S. Federal Energy Regulatory Commission to approve two potential Alaska gas pipelines.

The primary project would be a $32 billion-$41 billion 1,700-mile pipeline from Prudhoe Bay to Alberta, Canada, that would connect with TransCanada's existing pipeline system that carries gas into the U.S. The other project would be an 800-mile pipeline that would ship gas to a port in southern Alaska where it would be liquefied for transport to Asia and other foreign markets. TransCanada and Exxon plan to build one or the other project, based on which one gets the most interest from potential customers.

TransCanada plans to solicit interest from oil and gas producers through an "open season" process, the plans for which FERC approved Wednesday, with conditions. FERC said TransCanada will have to immediately open its data room to allow prospective bidders adequate time to review "needed information," such as costs and fees.

TransCanada plans to hold its open season for the Alaska gas pipeline projects between April 30 and July 30.

The long-haul pipeline would ship up to 4.5 billion cubic feet a day of gas and could be expanded to carry 5.9 billion cubic feet a day.

TransCanada's pipeline project competes directly with a pipeline planned by a joint venture owned by BP and ConocoPhillips called Denali. Denali has also applied with FERC to build a $30 billion 2,000-mile pipeline from the North Slope to Alberta, that would ship about 4 billion cubic feet per day of gas. The company has also proposed building an additional 1,500-mile pipeline from Alberta to Chicago if the project could reach an agreement for space on existing pipelines. Denali plans to hold an open season to solicit interest from Alaska gas producers in April.

The Alaska government has been pressing TransCanada and Denali to combine forces to build one shared gas pipeline before the state makes a commitment on tax rates for Alaska gas production, which could give producers more confidence in signing onto the pipelines. TransCanada has said it has offered BP and ConocoPhillips equity stakes in the pipeline project, but that the companies haven't expressed interest.

Denali, for its part, said it welcomes investors to its project.

To compete against the Denali project, TransCanada and Exxon said they would cut tariffs for customers who sign up during their open season. The companies said the scheme would save customers $500 million a year over the 25-year life of the contracts.

TransCanada also has a license and financial backing from the state, obtained during former Gov. Sarah Palin's administration. The license includes a 10-year guarantee that locks in tax rates for producers. But producers have said the 10-year term is too short, in part because it doesn't match up with a pipeline commitment, which would likely be 20 years or longer. Denali's project doesn't have state backing.

The North Slope holds some 35 trillion cubic feet of known gas reserves and the state estimates there could be 215 trillion cubic feet of undiscovered reserves. By comparison, U.S. consumption in 2007 was just over 23 trillion cubic feet.

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