A DARK HORSE, A STALKING HORSE: ENBRIDGE INC. AND

UNCLAS SECTION 01 OF 02 OTTAWA 000429

SIPDIS

SENSITIVE

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: N/A
TAGS: ENRG ETRD EPET CA
SUBJECT: A DARK HORSE, A STALKING HORSE: ENBRIDGE INC. AND
THE ALASKA GAS PROJECT

REF: A. OTTAWA 0134


B. 04 OTTAWA 3414


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


2. (SBU) Summary: As wrangling continues over who has
rights to build the Canada portion of the Alaska Gas
Pipeline, Calgary-based Enbridge Pipelines Inc. has
persistently signaled its capabilities and interest in the
project. Enbridge does not have an ownership stake in the
gas, nor does it possess "certificates of public convenience"
to build the pipeline, as does archrival TransCanada
Pipelines Ltd. However, Enbridge appears to be the only
Canadian company other than TransCanada that is capable of
building and operating a 1,300 mile natural gas pipeline from
the Alaska/Yukon border to southern Alberta. With the Alaska
gas producers (notably BP and Conoco-Phillips) reluctant to
be locked into doing business solely with TransCanada on the
basis of its 25-year old "exclusive" certificates under the
Northern Pipeline Act (NPA),Enbridge is both a stalking
horse, providing the producers with a plausible alternative
to TransCanada, and a dark horse, in that wresting control of
the project away from TransCanada would be a formidable task.
Nevertheless, as a signal of its intent to pursue a role in
the Alaska project, Enbridge filed a proposal in April 2004
under Alaska's Stranded Gas Act to build the entire 2,100
mile pipeline. End Summary.

Alaska's Gas, Canada's Laws
--------------


3. (SBU) In a meeting February 8 with DCM and ESTOFFs,
Enbridge Vice President for Public and Government Affairs
D'arcy Levesque emphasized Enbridge's position that an
alternative regulatory framework for construction of the
Alaska pipeline already exists in Canada, obviating reliance
on the NPA. The issue of whether authorities other than the
NPA may be used for permitting construction of the Canadian
portion of the Alaska pipeline is crucial: TransCanada
insists that the NPA is the only valid legislation pertaining
to the project, giving it exclusive construction rights. To
bolster its claims, TransCanada has repeatedly cited a 2003
letter from then-Prime Minister Chretien to CEO Hal Kvisle
expressing a preference to work within the framework of the
NPA.


4. (SBU) According to Levesque, the NPA is irrelevant
because Canada's National Energy Board (roughly equivalent to
the U.S. Federal Energy Regulatory Commission) already has
the power to approve any gas pipeline project in Canada which
crosses Canada's national or inter-provincial boundaries.
Further, he said, existing environmental legislation under
the Canadian Environmental Assessment Act (CEAA),as
administered by the Canadian Environmental Assessment Agency,
will allow for an Environmental Impact Statement that will
cover the pipeline's environmental implications better than
the "antiquated" NPA. The NEB and CEAA, Levesque said,
furnish the regulatory neutrality and transparency for the
project to proceed, and also provide better recognition of
aboriginal rights along the pipeline's proposed route.


5. (SBU) Levesque said that although the 1977 Northern
Pipeline Act was originally intended to create certainty, its
effect in today's changed situation is the exact opposite.
Levesque said that TransCanada's claim that its NPA
certificates are still valid has hampered GOC efforts to take
a neutral position on the pipeline's regulatory authority,
but acknowledged that the GOC is sensitive to the fact that
TransCanada has spent millions of dollars to maintain the
validity of its NPA certificates (ref B). Levesque noted,
however, that most of TransCanada's expenses went into
constructing the "pre-build" pipeline from southern Alberta
to the United States, a pipeline which is currently in use
and has since recovered its construction costs.

Enbridge vs. TransCanada
--------------


6. (SBU) Enbridge, Levesque said, is particularly well
suited to construct the Canadian portion of the pipeline
because of its extensive experience with oil lines in
Canada's north. For example, he noted that the company has
considerable expertise in building and operating a pipeline
in permafrost. Unlike TransCanada, Enbridge has not taken a
stance on whether a 48-inch or 52-inch diameter pipeline
would be best (ref A),but Levesque said that ultimately the
market will determine the best configuration for the line.


7. (SBU) Enbridge owns and operates 8,500 miles of pipeline
in North America, with a combined throughput of more than two
million barrels per day of crude oil and petroleum liquids.
Enbridge also owns and operates Canada's largest natural gas
distribution company, with customers in Ontario, Quebec, and
New York State. The company reported earnings of C$645
million (about 495 million USD) in 2004. Although Enbridge
primarily focuses on petroleum liquids and TransCanada on
natural gas, the two companies increasingly compete in both
areas: TransCanada recently announced a 1.7 billion USD
proposal to build a crude oil pipeline from the Alberta
oilsands to southern Illinois, a distance of 3,000
kilometers.


8. (SBU) Comment: Although Enbridge claims not to be in
direct negotiation with producers BP and Conoco-Phillips
regarding the Alaska Gas Pipeline, there is clearly a
convergence of interests among the companies. They are all
opposed to the notion that only the NPA provides Canadian
regulatory authority for the pipeline's construction, and are
therefore dismissive of TransCanada's claim to exclusive
construction rights. All the companies nevertheless appear
concerned that the GOC will support TransCanada simply in
order to avoid a lengthy legal challenge to the NPA.
Ironically, the sheer magnitude of the proposed project --
2,100 miles of steel pipeline from Alaska to Alberta -- means
that when and if the line is built, there will likely be
ample work not only for TransCanada and Enbridge, but a host
of other contractors as well. End comment.

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