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Witness Testimony
Mr. John Carruthers
Alaska Natural Gas Pipeline Status Report
Prepared Statement of John Carruthers, Vice President Northern Development for Enbridge Inc. Thank you Mr. Chairman, Ranking Member Boucher and Members of the Subcommittee and for this opportunity to present our views on the status of the Alaskan natural gas pipeline that will soon serve the energy needs of North Americans for decades to come. Introduction: I have worked in the industry for over 20 years and during most of the last 5 years have focused my professional attention on North America and northern gas and energy development. Enbridge Inc. is a natural gas and petroleum transportation and distribution company based in Calgary, Alberta, Canada with U.S. headquarters in Houston, Texas. We have been in the energy business for over 150 years through our ownership of Canada's largest local gas distribution company based in Toronto. We operate the world's longest liquid petroleum pipeline transporting over 2 million barrels per day of western Canadian crude oil production with the majority of that supply feeding the Great Lakes refinery region. We deliver most of the crude oil refined in the states of some Committee members and, in all, deliver roughly 10% of the United States' imported crude supply. We own or are involved with close to 12,000 miles of natural gas gathering and transmission pipelines, including our 50% ownership in the Alliance Pipeline. Enbridge Role in Alaska Natural Gas Pipeline: On April 30, 2004 Enbridge Inc. submitted an application to the Alaska Department of Revenue for approvals under the Alaska Stranded Gas Development Act. This application signaled Enbridge's intention to take a lead role in the creation of a consortium that will pursue the opportunity to plan, permit, build and operate the Alaska natural gas pipeline. Enbridge believes the time is now appropriate to further develop this project and has invested significant expertise and resources to framing a proposal to drive this pipeline to completion. Enbridge is uniquely positioned to lead this effort. In addition to our extensive background operating large diameter transmission systems, we have unequalled experience in pipelining north of the 60th parallel through our ownership of the underground Norman Wells crude oil pipeline and the Inuvik natural gas systems. We have been involved with planning, permitting and environmental assessments of roughly 3,000 miles of newly constructed large diameter gas and liquid pipelines built over the last decade, gaining significant perspectives and expertise on the regulatory environments in the U.S. and Canada, including projects requiring major international, provincial and state border crossings. These projects have solidified our experience in stakeholder consultation and approaches required to minimize the affects of a large project on the environment and the community. Enbridge has a solid reputation with stakeholders and has a net worth of $4.1 billion (Canadian) with another $1.3 billion (U.S.) added through our sponsorship of the U.S.-based Enbridge Energy Partners, L.P. Enbridge Experience in Northern Pipelining: The proposed pipeline route starts in continuous permafrost and then gradually transitions into sporadic pockets of discontinuous permafrost, found first in low-lying areas and eventually becoming more prevalent in southern sections of the pipeline. The discharge gas from the compressor stations located in permafrost regions will be cooled to mitigate potential impacts on pipe and soil. Based on our extensive northern experience, we emphasize that the challenges of constructing an underground pipeline in permafrost and discontinuous permafrost should not be underestimated. To further update our knowledge gained during our construction of the Norman Wells liquid pipeline in the mid-80's and the Inuvik Gas Project five years ago, Enbridge has participated in a study and field trials in Alaska to examine the state-of-practice trenching in permafrost terrain. The objective of this study and subsequent field trials was to identify parameters that limit and control trenching productivity in permafrost terrain and arctic conditions. The field trials were conducted in Prudhoe Bay and Fairbanks, Alaska using two chain-type trenchers. BP America Inc. has coordinated both the studies and the field trials. Enbridge headed the analysis of the field trial data and correlation of the study findings. While there were other parties participating in the trencher studies, only BP and Enbridge were common to both the study and the field trials involving the trenchers. This data gained in these studies will be of significant value to the development of the pipeline system. The ability to predict trenching progress will enhance project cost estimating accuracy. Incorporating this information early in the design process will result in reduced project cost risk and a reduction in the potential for rework. Now is the Time to Initiate the Alaska Natural Gas Pipeline: Mr. Chairman and members, many of you have heard testimony over many years on the means of meeting America's energy demand for this century. The Energy Information Administration has been before this body and will no doubt continue to reinforce the environmentally friendly role natural gas will play in meeting demand expected to rise to over 30 trillion cubic feet per year by 2012. Each of you represents consumers who have been faced with energy bills that have stretched the average American's budget. We all have an interest in participating in the success of this and other projects that will meet this demand, assure reliable supply and stable prices. To be clear, Enbridge believes that there are a number of required solutions to meet this demand. We are, in fact, involved in northern Texas in several transportation projects that will deliver production from non-conventional supplies of gas shales and tight gas sands. Enbridge is closely monitoring developments and new Liquefied Natural Gas (LNG) plants that we expect will soon play a significant role in replacing waning supplies from conventional domestic U.S. production. And we are actively seeking business opportunities to build the additional pipeline infrastructure needed once supplies from the Rockies are further developed. Each of these efforts, along with development in the deep Gulf of Mexico are important incremental steps and have been the subject of prior testimony before this Committee. We also expect the Mackenzie Valley natural gas pipeline project will proceed ahead of an Alaskan project, although a significant portion of that incremental supply will be used to meet the energy needs of Alberta's oil sand production projects. Assuring incremental supply from each of these projects presents its own challenges, but nevertheless, it will not be sufficient to assure North America's energy independence and supply predictability needed for the future. Enbridge believes that the Alaskan natural gas project is the next step beyond Mackenzie Delta, LNG and non-conventional natural gas supplies and the time is ripe to drive the Alaskan gas project to success over the next decade. A Measured Approach: Enbridge is proposing a phased or "measured approach" to building the Alaska Gas Pipeline which we believe has significant advantages including faster completion of construction and initial gas delivery; more opportunities for North American steel manufacturers, pipe plants and contractors; more predicable costs, and lower transportation tolls and shipping commitment risks. Over the past several years, Enbridge has engaged in several efforts to better understand the market drivers for the Alaska natural gas project. We have invested considerable resources to identify what we believe is a project that is responsive to continental North American natural gas demand. We believe that our measured approach will provide the best benefits to producers, explorers, the state of Alaska, the people of Alaska, North American steel manufacturers, consumers and stakeholders located in proximity to the proposed route. Enbridge proposes to take a lead role in forming a consortium of owners. The Project will require producer and market support and a strong alignment of key stakeholders to manage the risk that a project of this size and scope will present. We propose the "southern route" starting in Prudhoe Bay, through Alaska and the Yukon to Gordondale, Alberta. More specifically, the Alaska Segment would follow the existing Trans Alaskan Pipeline System right-of-way from Prudhoe Bay to Fairbanks, Alaska. From this point, the proposed natural gas pipeline would generally follow the Alaska Highway to the Canadian border. The Canadian Segment of the pipeline would continue to follow the highway to Fort Nelson, British Columbia and then on to Gordondale, Alberta where it would interconnect with existing pipeline infrastructure, such as Alliance, TransCanada, and Duke Energy pipeline systems. As well, subject to regulatory, technical and economic conditions, Enbridge would facilitate access at appropriate locations along the pipeline to accommodate local gas distribution development. Enbridge proposes that the consortium of owners would develop the Canadian segment of the pipeline concurrently with the Alaskan portion of the project. Enbridge proposes that the Project, including the Alaska Segment be developed in phases. The proposed initial development would consist of a buried 36-inch diameter natural gas pipeline system and related facilities. The initial capacity of the proposed project will be 2.6 billion cubic feet per day and would be expandable as dictated by exploration and continental market demand. The buried pipeline would operate at approximately 2,500 psi with compressor stations located at appropriate intervals along the line. Expansion could be accomplished through construction of additional compressor stations and incremental segments of a second pipeline (referred to as "looping"), if required, to create an ultimate design capacity in excess of 5 Bcf/day. The pipeline would provide take-away capacity for natural gas reserves located both within and outside of the Alaska North Slope region. Final details of line size, operational pressure, and planned buildup will be developed through extensive dialogue with producers, consortium owners, explorers and shippers and detailed design work. A key advantage of specifying smaller diameter pipe materials is that U.S. and North American pipe mills will have a better ability to manufacture pipe of sufficient specifications. Availability of pipe from both local and offshore suppliers will sharpen competition and provide greater opportunity for the U.S. and North American industry, and improve the Project schedule that will deliver Alaskan gas to consumers quicker. A 48-inch diameter or larger pipeline would, in our view, take about one year longer to deliver gas to market and reduce the involvement of North American suppliers and contractors. While feasible, (Enbridge operates both liquid and natural gas pipelines of this diameter), our view is the phased-in approach better aligns the large new supply of gas with the market demand. The initial phase will provide take-away capacity of 2.6 Bcf/day and is estimated to cost $3.3 billion for the Alaska Segment and $4.2 billion for the Canadian segment. Enbridge has estimated the eventual cost of this conceptual design (i.e. with capacity expanded to exceed 5 Bcf/day) for the entire project to be $13.8 billion in 2004 dollars. These costs are sensitive to the price of steel to make the pipe that has been recently driven higher by tight worldwide supply. Costs could be different once shipping commitments are made and detailed design and routing work is complete. However, the measured approach is more flexible, enabling capacity to be closely matched to exploration success and market requirements. A long-term commitment will be required to align interests and commercialize the pipeline. Enbridge has a history of developing and embracing unique commercial arrangements that benefit both shippers and developers. Enbridge will proceed to develop the commercial phase of the project as expeditiously as possible. An in-service pipeline in nine years from project kick-off is a reasonable expectation. The Project includes some 1,100 miles of new pipeline in Canada. While other pipeline companies received certain approvals for the Canadian segment some 25 years ago pursuant to the Northern Pipeline Act, that Act does not provide exclusive rights to build a pipeline. For the Canadian segment, Enbridge would file application with the National Energy Board (NEB) and Canadian Environmental Assessment Agency (CEAA) under a well-developed federal process as well as other regulatory bodies with jurisdiction. Following the NEB's and CEAA's comprehensive project review procedures, Enbridge's proposal will ensure that the Project is subject to modern and efficient environmental assessment and regulatory processes. Moreover a precursor to any application for the Canadian segment will be consultation with First Nations and other aboriginal communities and stakeholders. Our view is a new application under the NEB and CEAA protocol would be the most efficient regulatory process with the least risk. Addressing Canada's environmental and regulatory process efficiently will provide the foundation for developing the project in a timely manner while mitigating unnecessary risk. Enbridge expects that capacity on the both the Alaskan and Canadian segments of the pipeline will be marketed and subscribed on an open-access, non-discriminatory basis. The proposed pipeline will therefore be available to transport all Alaskan gas supplies that meet standard posted tariff conditions and quality requirements. As an operator of thousands of miles of common-carrier transmission pipeline, we believe that a consortium of owners with an independent operator will best serve the interests of all producers and explorers in the region and North American consumers. Factors for Success: Several issues are key to ensuring the momentum for this important major project continues. To stay commercially viable, natural gas prices must remain above historical price levels. While that may not seem to be a major concern in light of recent pricing, the influx of non-conventional and LNG supply and the portion of MacKenzie Delta gas delivered to the Lower 48, together with possible demand destruction may serve to offset the recent tight supplies and higher prices we have seen in the last few years. Secondly, Enbridge believes that the current provisions in the Energy Bill (H.R. 6) regarding Alaska gas are a necessary precursor to this project. The federal loan guarantees and accelerated depreciation serve to reduce financial risk. The provisions on regulatory review significantly reduce the risks of extensive delays or judicial reviews faced by so many projects in the lower 48. We urge you to continue the hard work invested in the Energy Bill and assure that at least these provisions are enacted before Congress adjourns. Thirdly, the state of Alaska must actively participate to address the multitude of issues related to fiscal impacts on producers as well as state provisions for income, property, sales and inventory taxes. These are very significant issues that must be addressed to mitigate the impact of these material costs on the economics of the Project. Next, Enbridge is prepared to lead a collaborative approach with producers, Alaska, market participants and qualified investors such as Native Corporations and others to form a consortium that could take on a project of this size. Enbridge is prepared to take a significant equity interest in this consortium. While not a matter before the Energy and Commerce Committee, Enbridge believes that settlement of aboriginal land claims in some regions in Canada would expedite an Alaska Highway Pipeline Project and would more clearly clarify consultation and participation processes for aboriginal communities. However, we believe that the current National Energy Board and other regulatory processes in place in Canada are sufficient, without the need for new legislation. And finally, a decision on Enbridge's measured approach by a consortium is necessary to proceed with procuring long-term commitments from shippers for pipeline capacity. Once these issues are behind us, the project could then start and be completed within about nine years. Summary: In short, Enbridge's proposed consortium and "measured approach" design will provide significant advantages to shippers, consumers and the State of Alaska. Increased competition by pipeline suppliers will reduce the cost of the pipe and provide jobs for U.S. and North American plants. The measured approach offers a more flexible solution, matching capacity to exploration success and market demand. This results in reduced transportation tolls, less project risk, access to gas by consumers up to a year earlier and significantly longer construction job opportunities. Thank you for the opportunity to address you today and I hope I have helped in your understanding of new developments on the Alaska gas pipeline Project. I am pleased to answer any questions you may have on issues related to this Project. Related Documents |
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