TransCanada Alaska Project on Despite Natgas Price

By Frank Pingue (LINK)

TORONTO, Oct 2 (Reuters) - TransCanada Corp (TRP.TO: Quote, Profile, Research, Stock Buzz) said on Thursday the slide in natural gas prices does not dampen the outlook for its proposed Alaska gas pipeline, which would deliver natural gas to U.S. markets from Alaska's North Slope.

TransCanada Chief Executive Hal Kvisle told reporters after a Toronto speech that natural gas prices often hit their lowest level of the year around September and October before turning around during the winter months.

"The commodity price is always a big concern and a big risk on a project like (Alaska) but I still don't think we're in an environment of falling natural gas prices," said Kvisle. "The real comparison is what was the bottom in the gas market this year versus what it was a year ago, and we're actually up a bit over a year ago."

The price of natural gas fell as low as $7.43 on Thursday, which is off considerably from the $13.69 reached in July, but comfortably above the 2007 low of $5.19 touched in September.

In August, TransCanada won approval from Alaskan lawmakers to construct a 1,700-mile (2,700-km) line to an existing pipeline hub in Canada that would send about 4 billion cubic feet of Alaska natural gas a day to U.S. markets.

Tar Sand Project Cost Increase

It's a preview of things to come - Mega Project, Mega Cost. This problem is exacerbated by the Wall Street meltdown.

Fort Hills Costs Leap to $24 billion (LINK)
Petro-Canada hikes price tag for oilsands project 50 per cent
Shaun Polczer, Calgary Herald
Published: Thursday, September 18, 2008

Petro-Canada on Wednesday set a new benchmark for capital cost overruns in the oilsands after it hiked estimates for the proposed Fort Hills mine by 50 per cent.

The project, originally pegged at $14.1 billion, will now cost about $24 billion.

"We've seen a dramatic rise in capital costs in the past year," said Ron Brenneman, Petro-Canada's president and CEO.

Analysts said UTS will face difficulties coming up with the extra money given the financial turmoil that has rocked Wall Street in recent days, with the collapse of big investment banks like Lehman Brothers and fire sales of Merrill Lynch and AIG.

"Financing was already a concern in the current credit market. With the mounting cost escalation and a sum of $3 billion of additional financing, UTS faces considerable headwinds moving forward," UBS analyst Andrew Potter noted.

TransCanada Plans Open Season

June 2010, According to Tony Palmer, TransCanada's vice president for Alaska gas development.

TransCanada to beat Denali in open season (LINK)

By Tim Bradner
Alaska Journal of Commerce

The great pipeline race is on. TransCanada Corp. will begin an open season for an Alaska natural gas pipeline in early 2010, beating a rival pipeline group led by North Slope producers by several months, a senior TransCanada manager told an oil and gas conference in Anchorage Sept. 23.

Meanwhile, TransCanada's rival, the Denali pipeline group, said it is ramping up its work fast and plans to have 300 to 400 people in the field next summer, up from 80 this year.

Tony Palmer, TransCanada's vice president for Alaska gas development, told the annual Alaska Oil and Gas Symposium, sponsored by the American Conference Institute, that his company will conclude its open season June 30, 2010, and will proceed with work toward certifications of the project by the U.S. Federal Energy Regulatory Commission and Canada's National Energy Board.

TransCanada Financials

TransCanada’s high debt to equity ratio and exposure to Lehman’s meltdown prompted me to examine TransCanada in comparison with industry peer Enbridge, Denali Pipeline partners ConocoPhillips and BP, and North Slope producer ExxonMobil. (click to enlarge)

It looks like TransCanada is highly leveraged and not very profitable. What’s not clear to me is exactly how TransCanada would swing the funding for the $40B Alaska Gas Pipeline. Without a successful open season what would they borrow against? If interest rates go up (and they will) will TransCanada plan still turn a profit?

TransCanada Exposure to Lehman

TransCanada (TRP) moves to keep Lehman deals from Barclays,
PAUL WALDIE (LINK)

TransCanada PipeLines Ltd. has more than $250-million (U.S.) in exposure to Lehman Brothers Holdings Inc. and it's concerned about what might happen to that debt if Lehman is taken over by Barclays PLC, court filings show.

TransCanada revealed the holding in a filing in the New York court that is overseeing Lehman's bankruptcy protection. Lehman filed for protection on Monday, listing $613-billion in debt. Two days later, London-based Barclays announced plans to buy the firm's U.S. operations for $1.7-billion.

In its court filing, TransCanada said it has "significant contractual agreements" with Lehman Brothers Commodity Service Inc. and its subsidiary, Eagle Energy Partners, a Houston-based energy marketing and services specialist. The contracts total "in excess of $250-million," the company added.

TransCanada was selected by the Alaska Gasline Inducement Act (AGIA) to compete with the North Slope producers gas pipeline, the Denali Pipeline.

The Total Debt to Equity ratio of TransCanada is 1.345, compared to Exxon's debt to equity ratio of  0.077. 

Denali Pipeline partners ConocoPhillips (COP) and BP have debt to equity ratios of 0.237 and 0.287 respectively.

Bottom line - This is something to keep an eye on as the banking crisis unfolds.  TransCanada is the most exposed (weakest) firm of the potential Alaska Gas Pipeline players.  ConocoPhillips and BP are in good shape and Exxon is more or less bullet proof.  TransCanada's weakness could tip the game in Denali's and Exxon's favor.

Canadian Tar Sands Utilization

One of the main drivers for the Alaska Gas Pipeline is the development of the Canadian Tar Sands.  This link details the outlook for pipelines and refineries downstream of tar sands (LINK).

By Lindsay Sword, Wood Mackenzie

Supply of Canadian oil sands products will increase by 2 million b/d between 2007 and 2015; half of this growth will be in Canadian heavy crude blends. A recent study shows that the export pipeline infrastructure and US refinery capacity will be able to handle forecast additional supplies of Canadian crude during 2007-15. Planned export pipeline infrastructure should keep pace with forecast additional supply of oil sands products to 2015; export pipeline capacity will increase by 2.1 million b/d. Current capacity tightness should be resolved once expected new pipelines start up in 2008 and 2009. By the end of 2015, spare capacity will reduce, suggesting the need for additional export capacity shortly after 2015. Refinery projects targeting Canadian heavy blends that we expect to proceed are aligned with our forecast of additional supply: Canadian heavy blends supply will increase by 1 million b/d by 2015, and projects that are planning on processing heavy blends will increase by 1.1 million b/d.

A quick math check - It takes 1,200 cubic feet of gas to produce a barrel of tar sand oil -   So to produce 2.1 million barrels of tar sand oil, you would need about 2.5 BCF/day.  That's more than twice the volume of the MacKenzie pipeline and a little more than half the capacity of the proposed Alaska Gas Pipeline.

Mackenzie Pipeline Leaders "Optimistic"

From Bloomberg:

Imperial Oil Ltd. Chief Executive Officer Bruce March, head of Canada's largest oil company, said he's the most optimistic he has been in the past five years about the chances of the Mackenzie gas pipeline proceeding.

``We're very committed to the project and we're probably more optimistic than we've been in the last five or six years,'' said March.

Building the proposed 1,220-kilometer (758-mile) pipeline has been marred by regulatory delays and surging costs. Calgary- based Imperial, head of the conduit's development group, in 2007 doubled its cost estimate for the project and pushed back the target completion date by three years to 2014. (LINK)

The cost are up, the schedule has move to the right, there are regulatory delays.  There are a lot of lessons here for the Alaska Gas Pipeline.