Alaska Highway Gas
For centuries Arctic countries have sought territorial franchises by
drawing boundary lines across northern provinces. More recently, corporations
and governments have drawn Arctic pipeline routes on maps, seeking to acquire
power through modern economic franchises. The Alaska Highway Gas Pipeline
Project is the story of a struggle for a franchise.
In 1967, North American
gas demand and exciting Arctic prospects caused TransCanada Pipelines Ltd. to
join American partners, Michigan Wisconsin Pipe Line Company and Natural Gas
Pipeline Company of America, forming the “Northwest Project” to study movement
of potential gas reserves in the Northwest Territories (Pointed Mountain area)
Soon after the 1968
bonanza discovery at Prudhoe Bay, more energy companies focused on economic
conquest of this new Arctic world. After the September 1969 Prudhoe Bay lease
sale produced $900 million for Alaska, rumors of huge reserves accelerated
efforts to develop alternate transportation schemes for the oil and gas.
In 1969, the “Gas Arctic”
project was formed. Alberta Gas Trunk Line, Ltd., Canadian National Railways,
Columbia Gas Systems, Inc, Northern Natural Gas Company, Texas Eastern
Transmission Corporation and Pacific Lighting Corporation coordinated study of
a 1,550-mile pipeline from Prudhoe Bay to Alberta.
By early 1970, prospects
for a 48” 1,700 mile oil pipeline from the North Slope to Edmonton looked
promising, then failed. Older readers will remember the “Manhattan voyage
through the Northwest Passage”, a failed effort to determine feasibility of
‘tankering’ Alaskan oil directly to market.
In 1971, the Gas Arctic
and Northwest Project groups merged, growing into the Arctic Gas consortium
that numbered over twenty companies by 1973. Its members were less concerned
about any ‘transportation franchise’ than with how to feasibly commercialize
Prudhoe Bay and Mackenzie Delta gas. At its zenith, this energy dream team
included the most powerful oil and gas production and transportation companies
in the U.S. and Canada. The group was headquartered in Toronto under the
chairmanship of financier William Wilder. Subsidiary companies included
Canadian Arctic Gas Pipeline Limited (CAGPL, with Calgary offices) and Alaskan
Arctic Gas Pipeline Company (AAGPC, with Anchorage and Washington D.C.
offices). Former TransCanada President, Vern Horte, was president of CAGPL
and Bob Ward led AAGPC. Ward had served as Lieutenant Governor
of Alaska and, earlier, as Commissioner of Administration, had assisted in
presiding over the 1969 North Slope lease sale.
Arctic Gas filed
applications with Canada’s National Energy Board and America’s Federal Power
Commission in 1974. Its $70 million in research had pointed to an
environmentally and economically feasible, 48” pipeline moving gas 2,600 miles
from Prudhoe Bay and the Mackenzie Delta to Alberta, then via an “Eastern Leg”
and a “Western Leg” to US consumers.
While Arctic Gas producers
and pipeline companies focused on their engineering, environmental and
financial studies, others were studying how best to capture a gas pipeline
franchise. These included an Arctic Gas member and El Paso Natural Gas.
El Paso’s Chairman, Howard
Boyd, had met Alaska Governor Walter J. Hickel in the early 1970s. The two
believed North Slope gas should move in an “All American” line paralleling the
oil line to the Valdez area, be liquefied, and taken by cryogenic tankers to
California. There the LNG would be regasified and gas moved eastward via a
‘displacement’ scheme, reversing the flow of East-West pipelines.
After Arctic Gas filed applications, Northwest Pipeline Corp. president John
McMillian, who had been supporting Arctic Gas, and Alberta Gas Trunk Line
president Robert Blair, proposed that Arctic Gas modify its filings with the
two regulatory agencies and adopt alternate routing in case Arctic’s prime
route was unacceptable. The alternate routing would parallel the Trans-Alaska
Pipeline System (TAPS) to Fairbanks, moving down the Alaska Highway toward the
East-West branches in Alberta. Another “Maple Leaf” branch down a proposed
“Dempster Highway” route would connect Mackenzie Delta gas to the system.
Arctic Gas had studied a dozen alternate routes and modes, deeming them all
uneconomic and environmentally inferior. Several members believed that while
the alternate routing could financially benefit certain Canadian and US
pipeline companies and be politically attractive to others, the Consortium
should continue representing the most economic and environmentally feasible
project to the NEB and FPC. All were aware of political concerns arising from
the ongoing Berger Inquiry, but most were determined to not let politics trump
science and consumer interest.
In September of 1974 Bob Blair and John McMillian stopped supporting Arctic
Gas. By mid-1975, a new consortium filed for a new route with the NEB. The
“Maple Leaf” project drew sponsorship from former Arctic member, Alberta Gas
Trunk Line and Westcoast Transmission, organized as Foothills PipeLines Ltd..
Maple Leaf would only move Mackenzie Delta gas to Canadian markets.
American and Canadian
regulatory agencies then received applications in 1976 for the Alaska Highway
Project (known as ‘Alcan’) for moving Alaskan gas to the Lower 48, sponsored
by Northwest Pipeline Corp. Alcan, the US part of the consortium, would
construct the 730-mile segment from the North Slope to the Canadian border.
Foothills (Westcoast and Alberta Gas Trunk Line) would construct the Canadian
Arctic Gas producer and
gas distribution companies were outraged by what some considered a brazen
attempt to establish a franchise. After all, it was the Arctic Gas consortium
members who were doing the responsible research, had the gas and/or intended
to arrange for equity financing of the project. Their frustration level was
especially high considering they had studied LNG and Highway alternatives,
finding them demonstrably unacceptable. It would be insult added to injury
were government regulators to force one of these routes on them and force use
of the renegade companies sponsoring that route.
Meanwhile, tortuous, long
and expensive hearings before the NEB and FPC commanded countless man-years of
time. In the Washington and Ottawa chambers—and around the
countries--hundreds of witnesses prepared and testified as scores of lawyers
representing the various competitors and special interests jousted,
questioned, posed arguments and counter arguments…day after day…year after
If the NEB and FPC
selected its project, Arctic Gas didn’t want competitors and environmental
activists to raise endless challenges in court, among other reasons. So, its
management and attorneys met with Members of Congress to craft the language of
what became the Alaska Natural Gas Transportation Act of 1976 (ANGTA). It
employed as lobbyists, former Nixon White House executives Bill Timmons and
Tom Korologos and democrat strategist
Matt Reese (confidant to House Speaker Tip O’Neill), among others, in
various aspects of the campaign. Its public affairs office worked with
political consultants like the renowned Bill Squires and owner companies,
obtained dozens of endorsements from companies, minority organizations, state
regulatory agencies and national business organizations. In the same year,
Justice Thomas Berger completed his Mackenzie Valley Pipeline Inquiry. 1976
was an important year both for Arctic Gas and its Alcan/Foothills competitors.
1977 was the year of
decision. Early in the year, the FPC staff recommended approval of Arctic
Gas’ project, completely rejecting El Paso.
On February 1, FPC
Administrative Law Judge, Nahum Litt, issued his long-awaited “Initial
Decision” recommending Arctic Gas, completely rejecting Alcan.
“The Arctic Gas
application is superior in almost every significant aspect when compared to El
Paso,” Judge Litt wrote. “It is found that Arctic Gas’ prime route should be
certificated, including both western and eastern legs.”
As to Alcan, Judge Litt
said, “No finding from this record supports even the possibility that a grant
of authority to Alcan can be made. …Alcan’s present design is clearly neither
efficient nor economic,” he elaborated, “since the pipeline is undersized.”
Then, Judge Litt said prophetically, “The suggested three years
construction schedule to be completed by 1981, which Alcan argues is one of
its prime strengths, cannot occur.” As presently proposed,” Judge Litt
concluded, “even with Alcan’s willingness to build anything anyone wants (as
long as it does not oust Westcoast and AGTL from their Maple Leaf project),
there is not enough left of its original proposal to serve as a basis for
granting its application.” A few weeks later-- testament to their strategic
thinking--Alcan and Foothills submitted revised applications to the NEB and
FPC withdrawing their proposal for a 42” diameter line and accepting Arctic
Gas’ 48” design.
Arctic Gas employees from Anchorage to Calgary, Toronto and Washington D.C.
felt due diligence had been vindicated. Hard work and ‘doing the right thing’
were paying off. The Alcan competitor was out of the game and the El Paso
competitor was a distant choice.
If there was any euphoria
in the Arctic Gas camp, it swiftly changed to concern with release of the
Federal Power Commission’s final “Recommendation to the President”, on May 1,
three months later.
In their May 2 letter to
the President, the four members of the Federal Power Commission transmitted
their analysis. “It is in the best interests of the citizens of the United
States that a system be built in the near future to transport natural gas from
the North Slope of Alaska to the contiguous United States,” they said.
The four commissioners,
Richard Dunham, James Watt, Don Smith and John Holloman agreed on an overland
route through Canada, eliminating El Paso. But contrary to Judge Litt’s
decision, they raised the currency of Alcan’s proposal. Commissioners Dunham
and Watt supported Alcan while Commissioners Holloman and Smith supported
Arctic. “Based on today’s circumstances,” their letter explained, “
reasonable men can disagree on the right course of action.”
Following the procedure
set out in ANGTA, which it had orchestrated, Arctic Gas knew that President
Jimmy Carter would make a final decision based on a split FPC decision. What
could maintain Arctic’s momentum? Clearly, it would be the NEB’s parallel
certification process in Canada, also in the final stages.
On May 10, shortly after
the FPC recommendation, Volume one of the Berger Royal Commission report
urged, among other things, a 10-year moratorium on Mackenzie Valley
The pivotal event occurred
on America’s Independence Day, July 4, in the polished mahogany chambers of
the National Energy Board in Ottawa. On one side of the aisle, sat Arctic
Gas’ management team: Chairman Bill Wilder, Vice Chairman Bill Brackett,
Canadian Arctic’s president Vern Horte, Alaskan Arctic’s Bob Ward, and other
executives including Canadian and American public affairs directors, Earle
Gray and Dave Harbour. The Alcan side of the aisle was more lightly
populated, led by the three principals: Alberta Gas Trunk Line’s Bob Blair,
Westcoast Transmission’s, Bob Pierce and Northwest Energy’s John McMillian.
The three, silvery haired, mustachioed executives sat confidently with arms
crossed. The impact of Justice Berger’s recommendations and the influence of
proponents soon became clear.
In its decision, the NEB
rejected Foothills’ Mackenzie Delta “Maple Leaf” project on the basis that,
“…it is not economically justified, …not the lowest cost alternative
available, …a pipeline should not be built along the Mackenzie Valley at this
time….” It found that the Arctic Gas “…project is based in incompatible time
constraints….” The Board said the Foothills (Alaska Highway/Alcan) project,
“…offers the generally preferred route for moving Alaska gas…,” but said
“further engineering design, environmental and socio-economic information is
to be filed prior to approval of final design…,” and, “…special measures to
mitigate undesirable impacts on native communities will have to be
Arctic and Alcan warriors
left the dark chambers, emerging onto the sunny sidewalks quietly, showing
little emotion. Arctic’s executives met for one final dinner meeting at Le
Guillotine restaurant, where disbelief transformed into group reality. Their
historic project was dead and many arrangements needed to be made. Foothills
in Canada and Alcan in the U.S. had positioned themselves beautifully and won
a “franchise”, ironically made into a monopoly by the very Alaska Natural Gas
Transportation Act of 1976, created by Arctic Gas’ efforts. In September,
President Jimmy Carter and Prime Minister Pierre Trudeau created an “Agreement
on Principles Applicable to a Northern Pipeline”, subsequently ratified by
Congress. The FPC then issued conditional certificates to ANGTS sponsors in
In 1978 Canada adopted the
Northern Pipeline Act, granting certificates to Foothills for construction of
ANGTS, and created the Northern Pipeline Agency to oversee design and
The NEB decision and
President’s decision both envisioned ‘prebuilding’ eastern and western legs of
the Highway Project, providing US consumers with “surplus” Canadian gas prior
to North Slope gas deliveries. The “Prebuild Western and Eastern Legs” began
service in 1981 and 1982 respectively. Several old, Arctic Gas members were
invited to the L.A. Marriott in 1981 where the ‘button’ was pushed to start
prebuild gas flowing from Canada to the Pacific Northwest and California.
Then came diminished
demand and price of gas. Until the price spikes of 1999-2000, industry didn’t
pay much attention to Arctic gas projects for 20 years. Any Arctic gas found
was incidental to exploration for oil. The Alaska Highway franchise was alive
but nearly dormant.
In 2001 Alaska gas
producers completed a $125 million study, determining that neither a northern
route (similar to Arctic Gas’) nor an Alaska Highway Gas Pipeline were yet
economic. They had also participated in a ‘Sponsor Group’ confirming
infeasibility of an LNG project. With Alaska politicians firmly supporting
the Highway project, the energy bill put on the Senate floor last fall
contained language prohibiting the northern route and providing expedited
approval and guarantees against low gas prices…prospectively granting
economic feasibility to the project.
The legislation offered
mixed messages to Foothills and current owners, TransCanada PipeLines Ltd.,
and Duke Energy. Prohibiting a competing northern route supported the
long-held franchise. Providing federal price and loan guarantees supported
project financing. But establishing new expedited approvals for a project
would also open competition to entities other than Foothills. Foothills may
still pursue a project based on ANGTA, but other companies—including old
Arctic Gas successors—may apply for a project without support from
Foothills. Then Congress adjourned without passing the energy bill.
Last May 24, Foothills
Executive Vice President John Ellwood wrote a letter to Bill Britt, Alaska Gas
Pipeline Office coordinator. In it, he said that “several uncertainties” were
causing Foothills to “put on hold for a time” its application for a right of
way across state lands. Foothills checks had partly funded work of the
Alaska gas office. On May 28, Foothills’ Highway Project Communications
Manager, Rocco Ciancio, said “…the federal energy bill sought by the ANS
producers is currently awaiting outcome of the House-Senate conference. The
final content of this legislation could have a significant impact on the
On May 29, Alaska Pipeline
coordinator Britt resigned and his office closed later in the summer.
Meanwhile, Mackenzie Delta
producers and the Aboriginal Pipeline Group continue with feasibility work, to
ultimately construct the ‘Canadian only’ project created by Foothills as their
Maple Leaf project of the 1970s, but following the general routing of the old
Arctic Gas project and not the Dempster Highway. The project is not without
challenges but has momentum.
Foothills still has an
argument for maintaining its ‘1976 franchise’ to build an Alaska Highway
Project but a 2003 U.S. energy bill could open the Alaska portion of the
franchise to a modern array of applicants, including former competitors. If
highway project feasibility doesn’t materialize in 2003, it’s not beyond
imagination that someday Alaska gas could piggyback on the Mackenzie Valley
Pipeline as Arctic Gas pioneers envisioned three decades ago.
(Sources: NEB archives,
FPC documents, U.S. Senate Committee on Energy and Natural Resources,
Foothills Pipe Lines Ltd. documents, contemporaneous notes and correspondence.
Submitted to publisher: 11-02.)
Dave Harbour served as
director of public affairs for the Arctic Gas consortium in the 1970s and as a
consultant to the Alcan project in 1977. He joined Atlantic Richfield Company
as director of government affairs in the 1980s. Harbour is now president of
The Harbour Company, a public affairs consulting firm, and publisher of
Northern Gas Pipelines, a public service web site (http://www.arcticgaspipeline.com/)
Also see Betty Galbraith's