Exxon's decision to join forces with TransCanada has spurred a new round of debate over the best way to make sure Alaska gets a North Slope gas line. In that debate, some misconceptions are floating around and should be corrected.
• It is not true that TransCanada is the only company with permission to pursue the project in Alaska. It has a state license, but that license does not convey exclusive construction rights. In getting the license, TransCanada has agreed to pursue the project on terms the state wants. In return, the state is paying part of the bills and will refuse any special state aid to a competing project.
The other gas line proposal, from the BP-Conoco venture known as Denali Pipeline, is still alive and progressing. It will seek federal permission for different terms of service than the state wants, but it is not taking any state money.
• It is not true that the TransCanada proposal is the only one ensuring open access to new shippers. Federal legislation passed in 2004 requires federal regulators to ensure that any North Slope gas line offers open access.
What may be different between the two projects is the price a new shipper pays for that access. At the state's request, TransCanada has agreed to seek federal approval for "rolled-in rates" -- meaning new shippers will pay the same rates as the first companies that sign up.
Denali pipeline's owners want more latitude to charge new shippers a higher rate and keep lower rates for the initial shippers. Ultimately, the Federal Energy Regulatory Commission will decide the issue.
• It is not true that TransCanada is the only company that will be allowed to build the gas pipeline through Canada. TransCanada has exclusive rights to use a streamlined regulatory review procedure for the section of gas pipeline through Canada. Denali pipeline will have to use Canada's standard regulatory process, handled by the National Energy Board. Naturally, there is dispute as to how much of an advantage this arrangement gives TransCanada.
• Another flawed argument: TransCanada's project can't succeed because the company doesn't own any North Slope gas. TransCanada is a pipeline company, not a gas production company. It has built more than 30,000 miles of pipelines without owning any gas.
• Last point: It's unfair to criticize either BP-Conoco or Exxon-TransCanada for not yet making an irreversible commitment to build the project. Legally, neither one can make a commitment until it has secured permission from the Canadian and U.S. energy agencies. That process will take roughly another five years, according to TransCanada's schedule.
Either company -- or both -- may eventually get the go-ahead from the U.S. and Canadian governments. At that point, there will still be one last hurdle: getting bankable commitments from customers.
A pipeline cannot raise billions of dollars to build the line without firm shipping contracts, covering 20 years or more. Getting those shipping contracts is the point of no return -- whichever project gets them wins out.
Because both pipeline ventures agree on this point: There will be only one pipeline from the North Slope to Alberta. The $30 billion or $40 billion question is who the winner will be.
BOTTOM LINE: In the gas line debate, some arguments are totally off-base.