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Cablegate: Exxonmobil Enters the Alaska Pipeline Debate;

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 OTTAWA 000695

SIPDIS

SENSITIVE

DEPARTMENT FOR WHA/CAN AND EB/ESC/IEC
DOE FOR IA: PUMPHREY, DEVITO, DEUTSCH
DOE ALSO FOR OFFICE OF OIL AND GAS GLOBAL SECURITY: KORNFELD
STATE PASS USTR: CHANDLER
STATE PASS FERC

E.O. 12958: N/A
TAGS: ENRG ETRD EPET CA NPA
SUBJECT: EXXONMOBIL ENTERS THE ALASKA PIPELINE DEBATE;
WANTS "NO OPTIONS CLOSED OFF"

REF: OTTAWA 603 AND PREVIOUS

1. (U) Sensitive but unclassified. Not for distribution
outside USG channels.

2. (SBU) Summary: After many months of staying on the
sidelines while others argued about Canada's regulatory
regime for the Alaska Natural Gas Pipeline, executives from
ExxonMobil visited Ottawa March 3 to discuss the project with
the Ambassador and senior GOC officials. The ExxonMobil
representatives echoed the position of the other producers
regarding Canada's options for a regulatory authority.
Elaborating on the technical differences between a project
regulated by the 30 year-old Northern Pipeline Act, versus
permitting authority under Canada's National Energy Board,
they repeatedly stressed that the GOC should "not close off
any options." The executives claimed that they could be
forced to abandon the project if the NPA is the only
permitting authority, but said that delays on the Mackenzie
Valley Gas Pipeline should not negatively impact the Alaska
project. End summary.

ExxonMobil Comes Calling
------------------------

3. (SBU) An ExxonMobil representative told us late last year
that the company would not be ready to address the issue of
Canada's regulatory regime for the Alaska pipeline until the
three producers (ExxonMobil, BP and ConocoPhillips) had
finalized fiscal terms with Alaska. However, last week's
visit to Ottawa by Alaska Governor Murkowski (reftel) appears
to have prompted a shift in strategy. Senior GOC officials
broadly hinted to Governor Murkowski and Yukon Premier Dennis
Fentie that Canada may go forward with permitting the
pipeline under the Northern Pipeline Act (NPA), which
recognizes TransCanada Pipelines Ltd. exclusive
"certificates" for constructing the Canadian portion of the
project. The producers, most notably BP, have objected to
being locked into an exclusive arrangement with TransCanada,
and have lobbied for an alternate permitting process under
broader National Energy Board (NEB) rules. An NEB process
would force TransCanada into a less dominant negotiating
position, as it would open the project to other potential
players such as Enbridge Inc.

4. (SBU) The ExxonMobil delegation, led by Americas Gas
Marketing Vice President Richard F. Guerrant and Production
Manager Marty Massey, emphasized to the Ambassador that the
producer companies all agree that the GOC's best course of
action would be to declare that the pipeline can be permitted
under either the NPA or NEB rules (BP Senior Vice President
Ken Konrad also attended the meeting). The executives said
that with either permitting system available, the market will
ultimately decide the scope of the pipeline, along with the
route and the final destination of the gas. The ExxonMobil
representatives repeated BP's oft-repeated position that in a
project of the magnitude of the Alaska Natural Gas Pipeline,
the producers need maximum flexibility in order to manage the
enormous risk that the project entails.

"Not a Threat"
--------------

5. (SBU) The ExxonMobil executives said that if Canada were
to declare that the NPA was the only valid permitting
authority, the pipeline project may not go forward.
Underlining that this statement was "not a threat," the
company representatives said that an NPA-permitted project
would pose unacceptable risks for the producers. The
executives also said that an NPA-only permitting authority
will make it very difficult for the companies to attract
financing for the project, effectively stranding more than 35
trillion cubic feet of gas on the North Slope.

NPA vs. NEB
-----------

6. (SBU) Changes to the natural gas market since the 1970s,
the executives explained, have made the NPA obsolete for a
number of reasons. In the 1970s there were far fewer
pipelines and no integrated North American gas market, and
the NPA mandates that all gas must be destined for the United
States. In addition, environmental standards have changed,
as have government relations with aboriginal and native
groups along the route (note: Premier Fentie told GOC
officials last week that he believed the NPA adequately
protected native rights). Further, technical changes
regarding pipeline volume, pressure, natural gas liquids,
pipeline diameter, routing and distribution have all made the
NPA inadequate for regulating a modern project.

7. (SBU) The ExxonMobil delegation said that they had met
earlier in the day with Peter Nicholson, special adviser on
economic policy to the Prime Minister, and Minister of
Natural Resources John Efford. Efford had told Governor
Murkowski last week that a decision on the permitting regime
would be forthcoming in two to three weeks, but the
ExxonMobil officials believed they may have "slowed down" the
impending decision. Earlier this week, Natural Resources
Deputy Minister George Anderson told us in a separate meeting
that the GOC will make a "clean" decision on pipeline
permitting, one that will protect the government against
litigation. The final decision will be made by an ad hoc
committee of government ministers headed by Deputy Prime
Minister Anne McLellan.

8. (SBU) The Ambassador commented that ExxonMobil's absence
from discussions in Ottawa until now has probably not helped
its lobbying efforts with the GOC. The Ambassador further
noted that while Governor Murkowski has been careful not to
advocate one Canadian permitting regime over another, the
governor has remained engaged on the issue with the Canadian
government. Alaska has maintained its neutrality, moreover,
even though the state plans to hold a direct equity stake in
the project.

Alaska, Mackenzie, and Next Steps
---------------------------------

9. (SBU) The ExxonMobil representatives dismissed fears that
delays on the Mackenzie Valley Gas Pipeline, which would
carry natural gas from the Mackenzie Delta on the Beaufort
Sea to an Alberta hub, would impact on the Alaska project
(note: ExxonMobil subsidiary Imperial Oil holds the largest
stake in the Mackenzie project). They said they view the two
pipelines as complementary, and in contrast to concerns
voiced by Governor Murkowski and Premier Fentie, they fully
expect Mackenzie to be built first. The projected start-up
of the Mackenzie project is 2009, they said, and Alaska no
sooner than 2013 or 2014.

10. (SBU) The company executives told the Ambassador that
their next step would be to make their concerns about
Canada's permitting authority known to Department of Energy
officials in Washington in coming days. They clearly
indicated that they will seek greater USG engagement in
ensuring a flexible regulatory regime for the Canadian
portion of the Alaska Natural Gas Pipeline Project.

Comment
-------

11. (SBU) The statement that ExxonMobil could end up
abandoning the Alaska project may well have been a bluff; we
cannot see the producers simply walking away from more than
35 trillion cubic feet of North Slope natural gas.
Nevertheless, ExxonMobil clearly does not want to be locked
into doing business solely with TransCanada on the basis of
30 year-old legislation. We expect that the producers will
seek every possible opportunity to pressure the GOC for a
permitting decision favorable to their interests, including
lobbying the USG for a more interventionist stance.

Visit Canada's Classified Web Site at
http://www.state.sgov.gov/p/wha/ottawa

CELLUCCI

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