CALGARY - A controversial U.S. energy bill that proposes gas subsidies for an Alaska Highway pipeline could still pass, say experts in Washington and Alaska, despite assurances yesterday from the U.S. Energy Secretary that the Bush administration would prefer a market solution to Arctic development.
The bill, which is working its way through the U.S. Congress, would create a floor price on gas shipped from Alaska, making the proposed Alaska Highway pipeline route economically viable. Under the plan, energy producers would also receive loan guarantees to build the pipeline.
Canadian gas producers have opposed the bill, as has Herb Dhaliwal, Canada's Minister of Natural Resources, saying it could derail any plans for Canadian pipeline routes and disrupt the natural gas market.
Yesterday, Spencer Abraham, the U.S. Energy Secretary, said the White House has been "very clear in terms of the tax provisions we support, which were not the ones ... with respect to that subsidy.
"The administration's position is a neutral one with respect to route preference. We believe the market should make that decision," Mr. Abraham told reporters after a meeting of the G-8 energy ministers in Detroit.
However, many observers still expect the bill to pass, in part because the Bush administration needs a sweeping energy bill, and in part because this one has received broad support in Congress.
"If [Canada] brought this to a higher plain by direct engagement with [George W. Bush], perhaps the administration might consider threatening vetos, but I doubt it," said Jerry Taylor, director of natural resource studies at the Cato Institute, a conservative think-tank in Washington, D.C.
The bill, passed in the U.S. Senate last week, includes broad measures to boost domestic energy sources. It still must be merged with a separate bill passed by the House of Representatives.
"Since both the House and Senate have weighed in on that particular pipeline project I suspect that it will [be approved]," said Bob King, spokesman for Tony Knowles, the Governor of Alaska.
"There was broad, bi-partisan support, at least in the Senate, for that specific provision. There is also support on the House side for similar incentives. At the end of the day [critics] will realize that these types of provisions and incentives will be good for meeting the nation's energy needs."
The Canadian Association of Petroleum Producers has said it is "troubled" by the bill, which is seen by many as threatening the viability of a competing project in Canada's Mackenzie Delta.
"We are troubled by any signs that governments want to get back into the marketplace," Mr. Alvarez said last week. "Ultimately, it comes down to a belief that the market is the one that should determine the nature, scale and pace of projects."
Some opposition to the bill is already coming from U.S. producers -- many of which now have Canadian operations -- which see the subsidies as favouring development of Alaska resources at the expense of Canada and U.S. regions such as Texas.
"We have urged [Senate Majority Leader Tom] Daschle and others to be very cautious about what they are doing," said Scott Anderson, executive vice-president for the Austin-based Texas Independent Producers and Royalty Owners Association.
"It seems quite likely that a measure like this would skew investment decisions toward Alaska and away from Canada and the lower 48 States in the U.S.
"Even though that might temporarily create a gas bubble, an increase in supply of gas from Alaska, before long there would be a day of reckoning for consumers and it's very likely this policy would exacerbate price volatility," Mr. Anderson said.
Under the proposal, such Alaska producers as ExxonMobil Corp., BP PLC and Phillips Petroleum would get the subsidy if prices fall below US$3.25 per thousand cubic feet. It also proposes US$10-billion in project loan guarantees.
"They tend to forget that if they want the Alaska route," said Mr. Dhaliwal, "two-thirds of it is going to have to come through Canada. So they should keep that in mind. At the end, it needs Canadian support."
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