Checking the details: TransCanada
TransCanada seeks pipe loan booster
TransCanada, which was sanctioned by Alaska last week to build a $26 billion pipeline to ship the state's natural gas, wants the US government to boost the loan guarantees offered for the project, chief executive Hal Kvisle said today.
Kvisle said inflation has cut the value of the $18 billion in loan guarantees authorised in 2004 by the US Congress, which was then looking to speed construction of the massive project.
TransCanada would like to see the guarantees boosted to compensate for inflation as it works towards holding a 2010 open season for the project, where it will look for producers to sign binding contracts to ship gas on the line.
"The ... question for us is can we get the US government to ideally increase (the guarantees) in step with inflation, recognising that inflation has taken a big bite out of them," Kvisle said in an interview. "We need to encourage the US government to perhaps increase the size of the loan guarantees."
Kvisle said TransCanada would also like to have more flexibility on how the loan guarantees are used by the company.
His suggestions include using the guarantee just to pay off the line's debt should the company fail, or perhaps to cover some of the interest charges due if the tolls producers pay to ship their gas are not enough to cover off the cost of financing the line.
"Or the loan guarantee, in the extreme, could be used to guarantee the tolls, to guarantee to the producers that the toll won't be above a certain level," Kvisle said.
TransCanada was the only company to clear the hurdles of the Alaska Gasline Inducement Act and win the backing of Governor Sarah Palin to build the line. The licence allows TransCanada to receive $500 million in matching state funds for advance work on the project.
The line would run nearly 2800 kilometres from Prudhoe Bay on the state's northern coast to a pipeline hub in Alberta.
Alaska's natural gas producers have yet to agree to ship on a TransCanada line and two, BP and ConocoPhillips, are touting a rival line called the Denali project.
Kvisle said the US federal guarantees are needed to assure financing for the line will be available, given the lack of long-term supply agreements from utilities that would use the gas.
"What's needed from the US government is a bit of a backstop guarantee," Kvisle said. "The project is fundamentally economic and we just need the guarantee to deal with some of the uncertainty around it."
TransCanada is also part of the planned Mackenzie Valley natural gas pipeline project that would take natural gas from fields in the Mackenzie River delta in the Canadian arctic and ship it to southern markets.
The $12.9 billion project was dealt a blow last week when a regulatory panel examining the social and environmental impacts of the pipeline said it would not have its final report ready until December 2009, months later than expected.
The latest delay on the line, originally expected to be completed in 2011, mean the chances it will be built are 50-50 at best, Kvisle said.
"This is a tragic thing," he said. "If the single biggest reason that the project fails is because of the cost and duration of the regulatory process, that's not a good outcome for the country."
The planned 1200-kilometre line is backed by a five company consortium led by Imperial Oil and includes Royal Dutch Shell, ExxonMobil, ConocoPhillips and the Aboriginal Pipeline Group.
TransCanada is providing financing for the Aboriginal Pipeline Group in exchange for a small stake in the line. Kvisle said the company has already put $105 million into the project and estimates that total spending among the partners on getting regulatory approvals is close to $640 million (S$800 million.
"As a country, we can't afford to waste C$800 million going through this," he said.