Congress set to scrap floor price guarantee in Alaska

The US Congress is poised to scrap a controversial floor price guarantee for a proposed $ 20 bn Alaska natural gas pipeline as it completes work on a sweeping energy bill. The move would be a victory for Canadian natural gas producers, including Toronto-based Imperial Oil, which is the lead partner in a group proposing to build the C$ 5 bn Mackenzie Valley pipeline project.
Two key backers of the Mackenzie gas venture welcomed the news from the United States. They say it provides greater certainty for the line that would go through the Northwest Territories.

Opponents of the floor price argued that the lucrative Alaskan incentives would badly distort the North American gas market and possibly derail plans to tap gas reserves in Canada's Far North. Republican Pete Dominici, chairman of the Senate energy committee, said that he has rejected a bid by pipeline backers and their congressional allies to give Alaskan producers tax credits if natural gas prices slump.
"They're not getting the floor price," Mr Dominici told.

In Canada, Imperial Oil and ExxonMobil Canada have been hoping that the Mackenzie line could be built without a bidding war for labour and materials, said Hart Searle, a spokesman for the two companies. ExxonMobil of Irving, Texas, which is the parent company of Imperial and ExxonMobil Canada, has consistently declined to support a floor price for Alaskan natural gas. However, ConocoPhillips of Houston and London-based BP have favoured such subsidies for the Alaska project.
"Clearly, it's advantageous to our project to proceed or progress in advance of an Alaska project," Mr Searle said. "We don't want to be in a position where we're competing for the same quality contractors, for materials and steel supplies, because that can put upward cost pressure on your project."

The plan would have seen the subsidy kick in whenever the wellhead price of Alaskan gas sank to $ 1.35 per mm Btu. Ottawa, Canada's oil and gas industry and the Bush administration had argued strenuously against the floor price plan. In particular, Canada was concerned that any price-based incentives would threaten new Canadian natural gas projects, including plans to tap vast reserves in the Mackenzie Delta.
Still, the bill is expected to offer producers loan guarantees to spur construction of a pipeline to bring gas from Alaska's North Slope, through Canada, to the lower 48 states. The loan guarantees, although less controversial that the floor price proposal, would make it easier for producers to finance the mega project, which has been three decades on the drawing board.

The move comes as Senate and House of Representatives negotiators are completing work on a massive energy bill that is expected to include tens of billions of dollars worth of tax breaks and subsidies to spur a wide range of energy projects, including coal, nuclear, hydrogen, ethanol, plus oil and gas exploration.
Several other issues also remain highly contentious, including a scheme to overhaul the country's ailing electrical grid.