Analysts: US might build LNG in Alaska to bypass Canada

08 April 2005 19:31  [Source: ICIS news]

TORONTO (CNI)--The US might decide to build a liquefied natural gas (LNG) terminal in Alaska as an alternative to a proposed Alaskan natural gas pipeline if Canada “drags its heels” on the pipeline project, analysts said Friday.

 

In a research report, analysts with Toronto-based brokerage TD Newcrest said Canada’s government needs to “take a stance” on the Alaskan pipeline which would bring gas from Alaska’s Prudhoe Bay to markets in Canada and the US.

 

The analysts warned that should Canada not clarify the regulatory framework soon, the US might opt to build an LNG terminal at the port of Valdez in Alaska to transport gas to the US West Coast or Asia, bypassing Canada altogether.

 

While overall the LNG option would be a “sub-optimal economic outcome, in our view it could become reality,” they warned.

 

If the US opts for LNG transportation Canada would lose out economically, the analysts said.

 

TD specifically highlighted the importance of the Alaskan gas, which is rich in ethane feedstock, for Canada’s petrochemicals industry in Alberta.

 

TD acknowledged that Canada faces many challenges over the pipeline project. And since the ruling Liberals under Prime Minister Paul Martin form only a minority government, decision-making is even more difficult. Still, “we believe the government needs to take a stance,” TD urged.

 

According to TD, Alaskan gas could come to market around 2012-2015 at a cost of some $15bn-25bn (Euro11.7bn-Eruo19.5bn) depending to what extent the project can leverage on existing infrastructure in Alaska and Canada.

 

Canada’s major pipeline companies TransCanada and Enbridge are locked in a bitter fight over who will get to build the Canadian portion of the Alaska pipeline.

 

But according to TD, TransCanada has an edge over Enbridge. TransCanada subsidiary Foothills was named in legislation in the 1970s, when the project was first proposed, as the company designated to build the Canadian portion. For another company to build the pipeline Canada’s parliament would first have to repeal the legislation, the analysts explained.

 

Earlier this week Jeff Lipton, the chief executive of Calgary, Alberta-based Nova Chemicals cautioned that his company does need access to Northern gas if it is to expand and grow in Canada.

 

According to previous estimates by Canadian Chemical Producers Association (CCPA), gas from Prudhoe Bay, together with supplies from the Mackenzie Delta in Canada’s Northwest Territories, could provide some 100,000 bbl/day of ethane, enough to feed an additional world scale ethylene (C2) plant in Alberta.

By: Stefan Baumgarten
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