of Canadian gas consumers will have a direct interest in uninterrupted throughput when the Dempster Line comes into service from the Mackenzie Delta. The Canadians expect the Dempster Line to be built within several years of initiation of service on the main line. Provision for access to the Mackenzie Delta reserves will have beneficial effects on the national security of both countries due to decreased dependence on imported oil. Canadian oil import requirements will be directly reduced by availability of gas to Canadian consumers. Access to frontier gas reserves will allow Canada to fulfill its current gas export commitments, preventing an increased degree of U.S. oil import dependence due to curtailment of Canadian gas supplies. Attaching Canadian frontier gas and providing a stimulus to the Canadian oil and gas producing industry may ultimately allow some increase in the level of Canadian gas exports, which would allow even further reduction in oil import depend ence. CHAPTER IX-THE WESTERN LEG THE AUTHORIZATION OF FACILITIES There are two basic methods for delivering Alaskan natural gas to the West Coast. The first method is to construct a "Western Leg" to the Alcan system by constructing a new pipeline and some looping in Canada from Caroline Junction to Kingsgate, and by increasing the capacity of the existing Pacific Gas Transmission (PGT) and Pacific Gas and Electric (PG&E) pipeline, also through looping. A fully looped system would cost about $770 million (1975 dollars). The second method is to deliver the gas to the West by "displacement." The Northern Border section of the Alcan project to Chicago could be sized to deliver all Alaska gas to the Midwest. Natural gas from West Texas and New Mexico that otherwise would flow to the Midwest could then be diverted to the West Coast through the El Paso, Transwestern and Nothwest pipeline systems. As set forth in the Presidential Decision, construction of a Western Leg will be authorized for direct delivery of Alaskan gas to the West Coast. See page 20 of the Decision. The Western Leg facilities proposed by the sponsors in the FPC hearings (i.e., the "1580 Design") will be authorized for "construction and initial operation." All such facilities will be entitled to the special mandatory certification and expediting procedures provided by ANGTA. However, the facilities proposed in the "1580 Design" will be subject to a final review and possible adjustment prior to final certification by the FPC. As in the case of the Northern Border system, the Secretary of Energy shall determine at the time of certification whether the facilities proposed in the "1580 Design" are larger or smaller than necessary to handle the contracted supplies of Alaskan gas and Canadian exports and whether "preconstruction" is necessary to accommodate short-term excess deliveries of Canadian gas from Alberta. The "1580 Design" facilities would be needed to handle exports from Canada continuing beyond current contract expiration dates or if new gas supplies from Alaska are developed. Furthermore, complete delivery by displacement would not be feasible if Mexican gas becomes available and the 30 inch gas pipeline that is part of the El Paso system between Texas and California is converted to an oil pipeline for use in the Sohio project to transport surplus Alaskan crude oil. At the time of certification, however, when there will likely be better information upon which to project future gas supplies, the "1580 Design" may prove not to be the appropriate size. Therefore, the Decision does not make an irrevocable commitment to construct new capacity that is either too small or too large for the projected needs. Prior to final certification of a Western Leg, the Secretary of Energy shall make the precise determination of facility size and volume to account for material changes in the facts, if any, since the Presidential decision. The Western Leg may also be utilized in connection with short-term deliveries from Canada. The Western Leg facilities required for direct delivery will depend on several estimates-the estimated Western share of Alaskan gas, the estimated volume of Canadian exports, the amounts of Mexican gas, and the abandonment of the El Paso gas line in favor of the Sohio oil transport system. These estimates provide the basis for the decision to authorize the Western Leg. The Western share of Alaskan gas The proportion of natural gas that is distributed to a particular region of the country is ordinarily determined by private contract between the producers, on the one hand, and the purchasers which are usually interstate pipeline or local distribution companies, on the other. There is no reason to change these rules for Alaskan gas. A region of the country that is arbitrarily and inequitably deprived of its share of Alaskan gas will have the opportunity to seek relief from the FPC. But, in the absence of such discrimination, regional distribution of Alaska gas will be made by the usual means of private agreement. Since contracts for the purchase and sale of Alaska North Slope gas have not yet been executed, it cannot now be determined with precision how much of that gas will eventually be destined for the western states. However, in the absence of sales contracts, it is reasonable to assume that 30 percent of the Alaskan gas will be purchased by parties served by the Western Leg. It is also assumed that deliveries of Alaskan gas to the lower 48 States will begin at 2 bcfd in 1983 and increase to about 2.4 bcfd within a few years. For purposes of this analysis, then approximately 700 mmcfd will be considered the maximum Western share of Alaskan gas through this period. Increased and accelerated Canadian exports In its July 4th decision authorizing the Alcan proposal, the Canadian National Energy Board (NEB) assured the continuation of current Canadian supplies to the West. It rejected outright any suggestion that existing Canadian agreements to export gas to U.S. markets not be honored. The NEB also concluded that gas production from the established fields of Alberta and British Columbia would exceed total demand, including exports, by as much as 400 bcf in It proposed that the current Canadian "gas bubble" be sold to The recently signed Agreement on Principles makes it even more The following sections set forth the analysis of the capacity avail- ESTIMATED EXCESS PIPELINE CAPACITY IN EXISTING SYSTEMS Existing facilities of the Western States At the present time, the West is provided with most of its natu- Direct delivery As noted, the Western Leg proposal would amount principally to 30 See NEB, Reasons for Decisions: Northern Pipelines, Vol. 1, pp. 1-69 to 1-83, 1-161, June There are four principal contracts pursuant to which Canadian gas is now delivered via the PGT and PG&E systems directly to California, their volumes and the expected expiration dates are as follows: Thus, even if none of these contracts is renewed-the likelihood of which is reduced as a result of the Agreement on Principlesdirect delivery of substantial volumes in existing facilities will be impossible for the first three or four years of an Alaskan gas transportation system. Displacement Under the "displacement" option, the Westrn share of Alaskan gas would not be directly delivered to the West but moved there indirectly through exchange arrangements with customers of the Northern border system. In order to carry out the displacement scheme, the capacity of the Northern Border system would have to be such as to accomplish the direct delivery of both the East's and West's share of North Slope gas. Full displacement would require either that the proposed 42-inch Northern Border line south of Empress, Alberta, be fully-powered or that a 48-inch line be constructed over this segment to carry the same volume of gas, at an additional capital cost but with the flexibility to increase capacity. On the surface, displacement appears to be the most cost effective method. The $770 million (in 1975 dollars) cost of a fully looped Western Leg could be avoided. Increasing the capacity of the Northern Border system would be much less capital intensive; $258 million for fully powering the 42-inch Northern Border System, and $404 million for increasing the pipe diameter to 48-inch. In either case the cost of service for the displacement plan would be about $50 million per year less than direct delivery. However, there are several reasons why displacement is not a desirable long term method in this situation. (a) Any displacement plan would consume more energy than direct delivery to the West. The West's Alaska gas essentially would move east to Chicago and then back west from the Permian or San Juan basins. By contrast, the looping of the PGT and PG&E systems would increase the overall fuel efficiency for those systems. The difference is about 25 bcf of gas per year, worth $68 million at $2.60 per mmbtu. (b) Use of displacement to transport all of the West's Alaskan gas would create capacity constraints on the existing El Paso and Transwestern lines if: One El Paso 30-inch line is converted to an oil line by the Sohio Project; Substantial volumes of Mexican gas become available for transportation to the West Coast; There are any advanced or increased deliveries of Canadian gas to the U.S. which would also have to be moved West by displacement; and The Algeria II LNG project is completed on schedule. For purposes of analysis, all four of these conditions should be regarded as reasonably likely to occur. While the Federal Government has not specifically endorsed the Sohio Project, it has endorsed generally the need for the expeditious construction of a pipeline to transport surplus Alaskan crude oil from the West Coast to refining markets east of the Rocky Mountains.31 Such a system is needed to provide economic and efficient transportation of Alaska North Slope oil to markets in the U.S. The conversion of the El Paso pipeline by the Sohio Project, which is assumed in the present analysis, will result in a substantial decrease in overall capacity of the Southwest gas pipeline system. Recent events have given cause for considerable optimism about increased exports from Mexico which would enter through the Southwestern and El Paso system. Petroleos Mexicanos (Pemex), the government-controlled oil and gas monopoly in Mexico, has recently expressed its intention to construct a 48-inch, 850-mile pipeline from the Reforma fields in Chiapas and Tabasco to the U.S. border near McAllen, Texas. Pemex expects initially to deliver 1 bcfd to the U.S. upon completion of the pipeline (probably not before 1980), and to increase the flow to 2 bcfd by about 1982. On August 3, 1977, Pemex and six U.S. companies signed a memorandum evidencing their intention to enter into supplier-purchaser relationships for 6 years, renewable for another 6-year term if the purchasers meet the best tender Pemex may have for the gas at the end of the first term. Notwithstanding several remaining uncertainties, it now appears likely that the Mexican Project will soon become a significant new source of gas supply in the Southwest. Between El Paso and transwestern, the West could reasonably expect to receive about 220 mmcfd of Mexican gas by 1980 and a total of 440 mmcfd beginning in 1982. As discussed above and throughout this Decision and Report, the Alcan system will offer the potential for accelerated delivery of Canadian exports under existing contracts; it will also enhance the overall availability of Canadian gas for absolute increases in exports. Since these additional volun.es of Canadian gas could not be delivered directly in the PGT and PG&E systems, as noted above, they would also have to be displaced through the El Paso and Southweastern systems for delivery to the West. Finally, the Algeria II project, El Paso's application for which is pending before the FPC, would deliver up to 325 mmcfd of regasified LNG from the Texas Gulf Cost to the Southwest by as early as 1983 and could deliver a total of 650 mmcfd by the following year. Under these conditions, delivery of Alaskan gas through the Northern Border system for displacement to the West would preempt all the excess capacity now available in the existing South 31 See Executive Office of the President, The National Energy Plan, April 29, 1977, p. 55. |