Arctic natural gas will be flowing to Alberta as early as the end of this decade despite problems that could delay or derail both the Mackenzie Valley and Alaska Highway pipelines, industry and political leaders predict.

Both projects face serious challenges, including regulatory hurdles, unsettled aboriginal claims and a battle between Calgary pipeline giants TransCanada Corp. and Enbridge Inc. over who will build the Alaska Highway line.

As for the Mackenzie project, "it makes me very, very nervous," says former Alberta premier Peter Lougheed, referring to the regulatory maze that the pipeline has yet to negotiate.

Lougheed, who chaired the Canadian's Institute's annual Arctic Gas Symposium in Calgary last week, said it is crucial for the North's economic development and the rest of Canada that the $7-billion Mackenzie project goes ahead. "If I were the prime minister of Canada, I would move this (file) up."

Larry MacDougal photo, Business Edge
Former premier Peter Lougheed introduces Alaska Gov. Frank Murkowski at the symposium.

Alaska Gov. Frank Murkowski elicited chuckles from some conference delegates when he said: "We're not giving you (Canadians) any advice, but we strongly suggest you get on with the Mackenzie pipeline."

Yukon Premier Dennis Fentie, who planned to sign an agreement with Premier Ralph Klein on Yukon-Alberta co-operation in oil and gas development, pointed out that both Northern gas projects will together generate up to $30 billion in investment.

"Canada cannot allow these projects to be bogged down in a regulatory quagmire," Fentie said.

A big problem facing the Mackenzie pipeline is that one of the four aboriginal groups in the Northwest Territories has not signed on to the project.

The Deh Cho, across whose territory about 40 per cent of the 1,220-kilometre pipeline would cross, remain opposed unless their land and governance claims are settled with the federal government.

"What we see today is Canada not living up to its obligations," Dene National Chief Noeline Villebrun told the conference.

Despite renewed legal action by the Deh Cho, however, the Deh Cho and Ottawa are continuing to talk, she said.

N.W.T. Premier Joe Handley told the conference that he remains optimistic. "We've got too much at stake to put this project in jeopardy."

Brian Chambers, executive director of the Northern Gas Project Secretariat, said he expects that the Imperial Oil Ltd.-led consortium of gas producers and the Aboriginal Pipeline Group in the N.W.T. will file applications for permits to construct the Mackenzie pipeline by the end of this year.

Hal Kvisle

As for the $20-billion US, 5,600-kilometre Alaska Highway pipeline, it risks being mired in a nasty court battle between TransCanada and Enbridge.

TransCanada says it has the right, under the Northern Pipeline Act (NPA) of 1978, to build the Canadian portion of the pipeline. Under the NPA, TransCanada acquired the rights-of-way and other permits needed for the project.

"We believe we have some historic positions and rights with respect to the movement of Alaska gas through Canada," said Hal Kvisle, TransCanada's chief executive.

"We've been working on this project for 25 years," he said after addressing the conference. "We think we've done all of our homework. So we think we're the best party to deliver it."

But Enbridge argues that the project should be open to anyone to bid on and build under the more modern regulatory process led by the National Energy Board and the Canadian Environmental Assessment Agency.

"We're saying: 'Give us an opportunity to compete,'" said Steve Letwin, Enbridge's vice-president of gas strategy. "In what country in the world are you not given a chance, on a $20-billion project, to compete? What country does that?" Alaska's big natural gas producers, which include BP plc, ExxonMobil Corp. and Conoco Phillips Co., also favour using a competitive, market-driven process to decide how the pipeline gets built.

"We just want to be able to come up with the best project," said Ken Konrad, senior vice-president at BP Exploration (Alaska) Inc. "And the traditional market-based regulatory process does that."

The Alaska producers are negotiating their own pipeline proposal and financial deal with the Alaska government.

Konrad said if the pipeline looks like it will stall in Canadian courts, the producers would consider building and owning the entire project themselves. Gas could be flowing by 2014-15, he said.

"We build pipelines all over the world," he noted. "We've probably built more in the last three years than these companies (TransCanada and Enbridge) have in the last 10."

Yukon Premier Fentie and Alaska Gov. Murkowski both said they were told in a recent meeting with Prime Minister Paul Martin that the Canadian government was close to deciding which regulatory process will be used to build the Alaska Highway. An announcement could come as early as this week.

"If the Government of Canada takes a position to give exclusivity to TransCanada, we will fight it," Enbridge's Letwin warned. "We will fight it with every means we have available, (including) in court."

For its part, TransCanada insists that its rights under the NPA are equivalent to property rights, and the NPA must be the legislation used to build the pipeline.

"We've done all the necessary things to maintain our property rights over the last 25 years, and we fully intend to (continue) to do so," Kvisle said.

Dennis McConaghy, Trans-Canada's executive vice-president, gas development, underlined the company's position, telling the conference: "The NPA is the law of Canada today, and that is a fact."

Letwin said that Enbridge isn't opposed to leaving the NPA in place, providing the decision on who gets to build the pipeline is decided in a fair and competitive process.

Enbridge would even consider partnering with TransCanada on the project, "if it was a competitive process," Letwin added.

Kvisle said he didn't rule out some sort of participation by Enbridge, although more likely as a gas distributor rather than a builder of the pipeline.

That offer is unlikely to satisfy Enbridge, which took out full-page ads in national and Alberta newspapers and created a website (www.competitivecanada.com) warning that the NPA "puts the entire enterprise at risk by inviting parties to legally challenge the project at every step."

Letwin said if TransCanada gets a monopoly to build the pipeline, Canadians could end up paying more for natural gas to heat their homes than they would otherwise because the price will be "whatever they (TransCanada) decide it is."

(Mark Lowey can be reached at mark@businessedge.ca)