US embassy cable - 05OTTAWA603

C O N F I D E N T I A L SECTION 01 OF 02 OTTAWA 000603 
 
SIPDIS 
 
STATE 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: LONGENECKER 
 
E.O. 12958: DECL: 02/24/2015 
TAGS: ENRG, ETRD, EPET, CA, Alaska Pipeline, Anne McLellan, NPA, John Efford 
SUBJECT: GOC HINTS THAT IT WILL SOON AUTHORIZE ALASKA GAS 
PIPELINE UNDER NPA 
 
REF: A. OTTAWA 429 
     B. OTTAWA 0134 
     C. 04 OTTAWA 3414 
 
Classified By: Minister Counselor for Economic Affairs Michael F. Galla 
gher.  Reasons 1.4 (b) and (d) 
 
1.  (C) Summary: Top Canadian officials have indicated their 
desire to move quickly on northern pipeline issues, providing 
clues on which permitting process Canada will use to 
authorize its section of the Alaska Gas Pipeline.  In a 
series of meetings with a delegation led by Alaska Governor 
Frank Murkowski, senior Canadian government officials, 
including Minister of Natural Resources John Efford and 
Deputy Prime Minister Anne McClellan, hinted that Canada will 
endorse the Northern Pipeline Act (NPA) as the relevant legal 
authority for construction of the Canadian portion of the 
pipeline.  Prime Minister Martin, while withholding direct 
comment on the merits of the NPA versus an alternative 
regulatory regime, pledged to move as quickly as possible to 
advance the project.  Deputy Prime Minister McClellan also 
stressed the urgency for Canada to resolve a separate 
deadlock over the Mackenzie Valley Gas Pipeline, so that the 
Mackenzie delays do not impact on the Alaska line.  End 
Summary. 
 
2.  (U) Embassy ESTOFF accompanied a joint Alaska-Yukon 
delegation headed by Governor Murkowski and Yukon Premier 
Dennis Fentie, who paid a series of calls February 23-24 on 
cabinet officers and Prime Minister Martin to discuss Alaska 
pipeline issues.  The delegation also raised the proposed 
Alaska-Yukon "Rails to Resources" project, which Embassy will 
report septel.  Governor Murkowski and his staff have not 
cleared this message. 
 
EFFORD TILTS TOWARDS THE NPA? 
----------------------------- 
 
3.  (C) Minister of Natural Resources Efford told Governor 
Murkowski and Premier Fentie that the GOC wants to move 
"expeditiously" on the issue of permitting the Alaska Gas 
Pipeline.  Efford stressed that Canada should not be the 
cause of any undue delays on the pipeline, especially in the 
wake of congressional passage late last year of $18 billion 
U.S. in loan guarantees and tax credits for the pipeline's 
construction.  Efford did not directly comment on the current 
stalemate between Calgary-based TransCanada Pipelines Ltd., 
which contends that it holds valid and exclusive certificates 
to construct the pipeline under the NPA, and producers 
ExxonMobil, BP and Conoco-Phillips, who argue that Canada's 
National Energy Board (NEB) already provides an alternative 
permitting process that would not lock them into doing 
business solely with TransCanada.  In referring to the NPA, 
however, Efford commented that "it is easier to manage 
existing legislation."  Efford said that the GOC would come 
to a decision within a few weeks, and that the GOC recognizes 
the benefits of a 48-inch pipeline.  (The NPA requires a 
48-inch pipeline, which can be manufactured in North America. 
 A 2001 study of the project by the producers assumed a 
52-inch pipeline, which could only come from Asia.) 
 
4.  (C) Efford's chief of staff, Lou McGuire, proceeded to 
lay out further reasons why the NPA might be preferable to 
National Energy Board permitting, including that the GOC has 
been complicit in acknowledging the validity of the NPA by 
approving TransCanada's "pre-build," a network of gas 
pipelines in Alberta into which the Alaska line will 
eventually be connected.  McGuire said that with the NPA, 
there is a "plan on the table," and criticized the producers 
for failing to develop a credible alternative. 
 
PM AND DPM VOW NOT TO DELAY THE PROCESS 
--------------------------------------- 
 
5.  (C) In a separate meeting, Prime Minister Martin and 
Deputy Prime Minister McClellan told Governor Murkowski and 
Premier Fentie that the GOC would soon move decisively on the 
Alaska Gas Pipeline permitting issue.  The Prime Minister did 
not appear to be familiar with relative merits of the NPA 
versus the NEB, but Deputy Prime Minister McClellan commented 
that the NPA "is a more streamlined process."  McClellan also 
said that she hoped that the stakeholders could resolve their 
differences and work together, but repeated Efford's comment 
that a GOC decision would be forthcoming in two to three 
weeks.  The Prime Minister told Governor Murkowski that the 
GOC "will do whatever the hell we have to do" to get the 
project moving. 
 
MACKENZIE, ALASKA, AND THE DEH CHO BAND 
--------------------------------------- 
6.  (C) In response to a question from Governor Murkowski, 
Deputy Prime Minister McClellan expressed frustration with 
the slow progress of negotiations with the Mackenzie Valley's 
Deh Cho band.  Along among the aboriginal groups in the 
Mackenzie Valley, the Deh Cho have yet to endorse the 
Mackenzie Valley Gas Pipeline.  When completed, the line will 
run from Inuvik in the Northwest Territories through the 
Mackenzie Valley to Alberta, where a large portion of the gas 
may eventually be used to supply energy and feedstock in the 
oilsands.  McClellan opined that Deh Cho leader Herb 
Norwegian appears to have overplayed his hand in holding out 
for more benefits, and that some of the other Deh Cho leaders 
are becoming impatient over the delays.  McClellan expressed 
concern that if there is progress on the Alaska line but not 
Mackenzie Valley, Alaska could end up being built first and 
delay Mackenzie by a decade or more.  (There is an industry 
consensus that the Mackenzie Valley line should be built 
first, and then Alaska, but that there are insufficient labor 
and resources to build the two lines simultaneously.) 
McClellan said the GOC "may need to play hardball" with the 
Deh Cho and exercise GOC authority over the recalcitrant band. 
 
COMMENT 
------- 
 
7.  (C) At the risk of being proved wrong in a few weeks 
time, we predict that the GOC will endorse the NPA as the 
valid permitting authority for the Alaska Gas Pipeline. 
Senior GOC officials appear to have concluded that they will 
inevitably be sued no matter what they do: by TransCanada if 
they abandon the NPA endorse an NEB process, or by the 
producers if they endorse the NPA.  However reluctantly, they 
appear to have concluded that the NPA is nevertheless their 
best option.  Industry officials have told us that any 
decision by the GOC will at least force the stakeholders to 
begin negotiations with each other.  The way forward will be 
uncertain and litigious, but at least it will be a way 
forward. 
 
Visit Canada's Classified Web Site at 
http://www.state.sgov.gov/p/wha/ottawa 
 
CELLUCCI