Alberta hopes to sell more natural gas via early stage of Alaska pipeline

The much-delayes Alaska Highway gas pipeline is under construction, and at least the Canadian section or parts thereof could be operating within the next two years.

Passion-filled parliamentary debates and intense petroleum industry lobbying in late July preceded the federal go-ahead signal to allow early, or "prebuilt," construction of the southern legs of the $23 billion transmission system. The federal Cabinet at the same time approved additional gas exports to the United States to bring to about 1 billion cubic feet the daily through-put volumes of fuel via the "prebuilt" connection.

An initial trickle of western Canadian gas is expected to reach the West Coast later this year. Full-volume deliveries through both legs of the pronged, "prebuilt" facility -- the second leg chaneling the gas to the Midwest -- now are scheduled for 1981-82.

The original plans called for a phasing out of the interim "prebuilt" gas deliveries once the entire Alaska pipeline has been completed -- by 1984 perhaps.But some industry people here believe that their surplus gas could still be intermingled with fuel from the North Slope and sold in the lower 48 states after completion of the entire $23 billion system. The Ottawa approval, as always hinging on events in Washington, could not have come a day too soon for local gas producers.

Western Canada is bursting with surplus gas -- some estimates put it as high as 10 trillion cubic feet -- in search of markets.

In fact, the marketing situation is being aggravated by a sharp decline this year in Canadian gas sales to the US sold under longstanding contracts (forming transanctions separate from the "prebuilt" related deliveries).

Apparently some of the US utilities, having bought gas here for the past quarter of a century, are having second thoughts about carrying on with their obligations, mainly because of the record-high border prices and their own growing surplus supplies.

In past years the US bought about 1 trillion cubic feet of Alberta and British Columbia gas annually, mostly for power generation in environment-conscious California and for space heating in the fuel-short Midwest.

The same US utilities that on the one hand will soon be taking deliveries of short-term gas imports through the "prebuilt" section of the Alaska Highway pipeline may actually curtail purchases of western Canadian gas now sold under their old contracts.

The explanation for the seemingly contradictory actions is that some utilities are unable to work the higher-cost Canadian fuel into their rate base, while others importing new Canadian gas may do so. Some of the utilities caught in the financial squeeze of the escalating Canadian border price of gas -- now at $4.47 per thousand cubic feet -- are said to be contemplating force majeurem declarations on existing contracts.

Also, there is now a glut of gas in some parts of the US available at lower costs than the Canadian imports. Gas producers here point out that the American gas glut will prove to be a temporary affair and that demand once again will exceed supply by 1985.

The "prebuilt" pipeline costs are estimated at about $1 billion. Canada's original pipeline enabling legislation, passes last year, specified that the "prebuilt" may proceed only when the financial guarantees from Canadian and US sponsors have been obtained.

Ottawa last month agreed to vary the order so that the "prebuilt" and associated gas exports could go ahead even though there are still loose fiscal ends on the American side. President Carter's letter to Prime Minister Pierre Trudeau reaffirming executive support for the entire Alaska Highway gas transmission facility appeared to have dispelled any doubts that may have lingered over the fate of the project on this side of the border.

It will be more difficult, however, to resolve the thorny pricing issue for "old" gas exports. US deliveries of gas from Canada in recent months dropped dramatically to far below minimum through-put commitments. Indeed, the backlog in some instances could not be cleared up this year even if full flow resumed immediately. Under such circumstances the US buyers would be in default on their contracts by the year's end. The gas contracts stipulate automatic heavy penalties for defaulters.

Western Canadian gas producers fear that their US clients would rather invoke force majeurem than default on their obligations. The US buyers could claim, for example, that the border price no longer forms part of any previous commercial agreement, since it is being set by Canada's national energy board. That price, incidentally, is to go up later this year by as much as 70 cents per thousand cubic feet.

Supporters of the "prebuilt" enterprise forecast that US gas prices by the mid-'80s will have escalated to perhaps double today's Canadian levels.