Identifier
Created
Classification
Origin
05CALGARY599
2005-10-07 17:29:00
UNCLASSIFIED
Consulate Calgary
Cable title:  

USDOE OFFICIALS LEARN ALBERTA OILPATCH DOES ALL IT CAN TO

Tags:  ENRG EPET ETRD PGOV CA 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 04 CALGARY 000599 

SIPDIS

STATE FOR WHA/CAN, EB/ESC/ISC/ EB/EPPD

USDOE FOR IA (DEVITO, PUMPHREY, DEUTSCH)

E.O. 12958: N/A
TAGS: ENRG EPET ETRD PGOV CA
SUBJECT: USDOE OFFICIALS LEARN ALBERTA OILPATCH DOES ALL IT CAN TO
ASSIST HURRICANE STRICKEN STATES

REF: CALGARY 248 AND PREVIOUS

UNCLAS SECTION 01 OF 04 CALGARY 000599

SIPDIS

STATE FOR WHA/CAN, EB/ESC/ISC/ EB/EPPD

USDOE FOR IA (DEVITO, PUMPHREY, DEUTSCH)

E.O. 12958: N/A
TAGS: ENRG EPET ETRD PGOV CA
SUBJECT: USDOE OFFICIALS LEARN ALBERTA OILPATCH DOES ALL IT CAN TO
ASSIST HURRICANE STRICKEN STATES

REF: CALGARY 248 AND PREVIOUS


1. (SBU) Summary: Calgary welcomed USDOE officials Mr. Gary
Ward, Director, American Affairs, and Ms. Kathleen Deutsch,
Senior Analyst, American Affairs, to Calgary September 27 - 30,

2005. In addition to presenting a speech at the Far North Oil
and Gas Conference and touring northern Alberta's massive
oilsands operations (hosted by Syncrude),Mr. Ward and Ms.
Deutsch participated in a series of Alberta Government and
oilpatch meetings that provided updates of Alberta's efforts
aimed at ramping up oil and gas production in light of
hurricanes Katrina and Rita, as well as briefings on other
current Canadian energy issues, notably the proposed Mackenzie
Valley pipeline. During their visit, the USDOE officials met
with the Alberta Government, the Canadian Association of
Petroleum Producers (CAPP),the University of Calgary, Imperial
Oil, ConocoPhillips, TransCanada Corp., the Canadian Energy
Research Institute (CERI),Petro-Canada, EnCana, and Devon
Corporation. Highlights of the meetings follow. Pol/Econ
Assistant accompanied Ward and Deutsch to all meetings and Vice
Consul Pidgeon participated in the Syncrude oilsands tour. End
summary.

-------------- --------------
-------------- -
Alberta Temporarily Suspends Rate Limitations In Light of
Hurricane Katrina and Rita
-------------- --------------
-------------- -


2. (SBU) In the aftermath of hurricanes Katrina and Rita, many
of our interlocutors addressed the ability of Alberta producers
to increase oil and natural gas production, and all agreed that
the industry and the provincial government are doing all they
can. In September, and for the first time in its history, the
Alberta Energy and Utilities Board (EUB) temporarily suspended
its Maximum Rate Limitations (MRL) systems allowing for an
additional 18,000 - 30,000 barrels of oil production per day
(Calgary 515). Joe Miller, Executive Director of Policy
Planning and External Relations for Alberta Energy, told us that
the same is being done for natural gas production. Miller and
Greg Stringham, VP of Marks and Fiscal Policy for the Canadian

Association of Petroleum Producers (CAPP) stated that the
industry is running full out, and everything that can be done by
the EUB to expedite and streamline applications and allow for
increased production is being done. For example, in addition to
temporary suspension of the MRL, other measures include
efficient approval of co-mingling gas production; temporary
suspension of gas removal permits and export licenses; and
efficient processing of down-spacing and coalbed methane
applications. Stringham stated that, even with these measures,
natural gas output will only amount to approximately one half
bcf/day, and will not come close to replacing the three bcf/day
that was taken out by the hurricanes.


3. (SBU) Alberta Energy's Miller also addressed the lack of
refining capacity in North America. He stated that there is
"much talk" about expanding refining capacity within Alberta
under the Hydrocarbon Upgrading Task Force (HUTF),which was
established in 2004 to produce an action plan for achieving
maximum upgrading of Alberta's bitumen resources. The HUTF,
comprised of 75 industry participants (including chemical
companies),most recently held a strategic planning workshop in
June 2005. Oilpatch officials such as Henry Sykes of
ConocoPhillips, however, acknowledge that the Alberta Government
would like to see refining investment take place in the
province, but he pointed out that ConocoPhillips has an
integrated heavy oil team in Canada and the U.S., and has no
plans to refine in Alberta. Sykes noted that ConocoPhillips
prefers incremental investments in U.S. refineries.

--------------
Alberta Energy Flexes Its Muscles
--------------


4. (SBU) Alberta Energy's Miller noted the visit of Mexican
President Vicente Fox to Calgary on September 29, adding that
the province is trying to get a draft MOU signed with the
country. Acknowledging that MOU's often provide little more
than a gentleman's handshake to be open to more deals, Miller
said it was a step in the right direction, adding that Alberta
had also recently signed an MOU with India. When asked how the
Canadian federal government reacts to the province signing
province-to-federal government agreements, Miller stated that
the Canadian federal government recognizes that Alberta has
jurisdiction over its natural resources. Miller, who has long
lamented over provincial exclusion at federal level energy
meetings, said the federal government has a tendency to promise
things at the national level to other countries that it cannot
deliver without provincial agreement. Miller added that there
is "not much movement" in Canada politically at this point
(read: Mackenzie Valley pipeline). He said the GOC has an
interim energy minister, and the deputy minister seems
enthusiastic, but not much will happen until the next federal
election, expected sometime in early 2006.

-------------- --------------
--------------
CAPP Pleased Interim Energy Minister Will Not/Not Link Energy to
Trade Disputes
-------------- --------------
--------------


5. (SBU) Greg Stringham, Vice President of Markets and Fiscal
Policy for the Canadian Association of Petroleum Producers
(CAPP),provided a thorough briefing of Canadian energy issues.
Stringham, who stated that he had had an "excellent" breakfast
meeting with interim federal Energy Minister John McCallum, said
he was particularly pleased that the new minister said energy
would "not" repeat "not" be linked to other Canada-U.S. trade
disputes. In light of those trade disputes, Stringham noted
that there is a general desire to move away from the U.S. market
and diversify into other areas. Stringham has long said that,
because energy works so well, it should be used as a model, not
a tool in resolving trade disputes.


6. (SBU) Stringham continued with his briefing noting the
changes in the industry that have taken place over the last
decade. While producers in the U.S. initially expressed concern
that Canadian production might flood their market, now, 10 years
later, they are calling for Canada to "bring it on". Stringham,
who said that natural gas exports to the U.S. have essentially
tripled in the last 10 years, pointed out that there are
currently 700 rigs active in Canada, up from 400 about a year
ago. He added that CAPP forecasts 24,500 wells would be drilled
in Canada in 2006, 17,000 of which would be natural gas.
Stringham stated that, for as often as he gets to Washington
(about 8 times per year),there continues to be officials "on
the hill" who remain unaware that Canada is the largest supplier
of energy to the United States. He emphasized that Canada is
the world's third largest natural gas producer and the world's
ninth largest crude oil producer and, by 2015, Canada will move
from ninth place to fifth place in production as a result of
oilsands production. Other key items noted by Stringham
include: oilsands production, which now exceeds one million
barrels per day, is forecast to reach 2.7 million barrels per
day by 2015; the amount of natural gas used to produce oilsands
has decreased over the last 10 years as a result of new
technologies; and coal-bed methane wells drilled in Western
Canada will rise to some 6,000 by 2010, up from about 3,000 in

2005.

-------------- --------------
--------------
Aboriginal Benefits Agreements Continue to Delay Mackenzie
Valley Pipeline
-------------- --------------
--------------


7. (SBU) Imperial Oil officials provided a status review of the
proposed C$7.7 billion Mackenzie Valley Gas Project, a
1900-kilometre, natural gas pipeline aimed at delivering some
1.2 billion cubic feet (bcf) per day from Inuvik in the
Northwest Territories to northern Alberta and markets beyond.
Imperial leads the Producers Group (PG),which includes
ConocoPhillips, Shell Canada, ExxonMobil, and the Aboriginal
Pipeline Group (APG). Sandy Martin, Imperial's Manager of
Regulatory Affairs, noted that the biggest obstacle to the
project, first proposed in 2000, is now socio-economic. Martin,
who pointed out that the PG has spent C$400 million on the
proposal to date, echoed media reports that noted talks hit a
wall in April this year as aboriginal groups located along the
proposed pipeline route attempted to add taxes through the
access and benefits negotiations. Their attempts failed as both
the federal and territorial governments said the issue was a
non-starter because none of the communities has the right to
collect taxes until they first negotiate a pact with Ottawa to
acquire self-government.


8. (SBU) Martin said the PG has offered a one-time payment to
the aboriginal groups, and they would also receive C$500 million
from the federal government over 10 years to address socio
economic issues in the region, but only if the project moves
forward. Martin added that, while more time is warranted to
address remaining issues, the PG hopes to announce in November
whether it will proceed to public hearings in 2006. Martin said
it is not necessary to have access and benefits agreements
secured for that to happen, and also suggested that unanimous
support from all of the aboriginal groups is not necessary.
Martin added that frustration among members of the PG is at an
all time high and they may be reaching a point where the group
might walk away from the project. Most oilpatch officials we
met with expressed similar sentiments, notably ConocoPhillips
President Henry Sykes, who added that his company would not
hesitate to pull out of the project if benefits agreements with
the aboriginal groups are not resolved before the end of the
year. Sykes added that, despite some recent media reports that
suggest negotiations might be moving along favorably, Sykes
stated it was "news to him".

-------------- --------------
--------------
Alaska Natural Gas Pipeline - TCPL Still Claims Route Exclusivity
-------------- --------------
--------------


9. (SBU) Little was said of the proposed Alaska Natural Gas
Pipeline during any of our meetings. It appeared that those
directly involved in the project with whom we met
(ConocoPhillips) had nothing to offer with respect to when a
decision on the pipeline will be made, given several outstanding
issues including fiscal arrangements with the State of Alaska,
and a yet to be defined regulatory process in Canada that will
address whether the Canadian portion falls under the auspices of
the Northern Pipeline Act (NPA) or Canada's national regulator,
the National Energy Board (NEB). That said, at least one of our
sources indicated that there is plenty of work for everyone to
go around (read: not one single pipeline will be able to handle
construction). Not surprisingly, during a brief meeting with
TransCanada Corp. (TCPL),the company maintained its route
exclusivity for the Canadian portion of the pipeline through the
certificate it obtained some 25 years ago under the NPA.

-------------- --------------
--------------
Devon to Re-enters Beaufort Sea with $60 Million Well
-------------- --------------
--------------


10. (SBU) Devon Canada Corporation VP for Government Affairs,
Michel Scott, described the company's operations as a
"microcosm" of Alberta. Devon is involved in exploring for
natural gas in deep, shallow, and conventional plays, and is the
only independent active in Alberta's oilsands. Scott noted that
Devon, which produces one bcf/day of natural gas and 200,000
bp/day of oil in Canada, said the company is not yet "big" into
coalbed methane, but plans to put more money into general
unconventional gas developments. One of the most significant
projects on Devon's books is the company's return to the
Beaufort Sea. Scott explained that the move is a "bit of an
historic moment", in that it will be drilling the first offshore
well in the region in 15 years.


11. (SBU) Scott explained that Devon positioned a steel drilling
caisson (SDC) in 13 metres of water just north of the Mackenzie
River Delta in the southern Beaufort Sea at the end of August.
Scott, who referred to the apparatus as a submersible vessel,
said it would remain there until winter freezes the vessel in
place. (The SDC was originally built for Dome Petroleum in 1982
and valued at $250-300 million in today's dollars; it had been
mothballed in Alaska for a decade before EnCana Corp.
refurbished it for an exploration well north of Prudhoe Bay in
2002-03. Put back into storage just off the Yukon coast, it was
reactivated and towed 100 kilometres to the Paktoa well site in
the Beaufort by a Russian icebreaker in August.) Scott, who
said drilling is scheduled to begin in mid-December, said it is
a gamble for Devon if the $60 million well comes up dry. In
that instance, Devon is likely to swallow its losses and abandon
the Beaufort until a pipeline (read: Mackenzie) is a certainty.
Scott said the company, which has already invested $250 million
since its four offshore licenses were acquired in 2000, is
looking for a "large structure", pointing to significant onshore
discoveries of close to three tcf, adding that the potential gas
resource in the Beaufort is estimated at 55 tcf.

--------------
Comment
--------------


12. (SBU) All meetings provided a valuable snapshot of how
important and equally efficient the bilateral energy
relationship is between Alberta and the United States. The
efforts to which the provincial government and the industry are
working to assist Louisiana in its time of crisis is just one
example of the importance of the relationship. In the meantime,
as the Canadian federal government continues to struggle with
jurisdictional issues, the Alberta Government and its energy
producers are clearly eager to ensure that this relationship
continues with few impediments. That said, it may be too soon
to tell whether or how much energy may be used as a link to
other trade disputes (as PM Martin suggested in his speech to
the Economic Club of New York on October 6),but we believe
producers here will do whatever they can to prevent such
linkages from occurring and tainting what has become one of the
healthiest sectors in our two-way trading relationship.



AHMED