The Fight to Pipe Alaska's Gas

The little guy wins the big one

The negotiating teams worked until 5:30 one morning last week to make final changes in the agreement. Only five hours later, as Canadian Prime Minister Pierre Trudeau stood by smiling, President Carter announced that Canada and the U.S. had decided to build a trans-Canadian pipeline that will carry natural gas from Alaska's North Slope to the Lower 48--and later may also funnel gas south from Canada's partly developed deposits in the Mackenzie Bay delta.

The swiftness of the final negotiations was surprising, since the U.S. and Canada have engaged in considerable bargaining about the project. More unusual, a relatively small and unknown company beat out the giants of the North American gas industry to win the contract to build and operate the pipeline. The construction cost alone could reach $14 billion. The victor is Northwest Energy Co., a firm based in Salt Lake City, which had sales last year of $626 million, mostly from a pipeline system supplying seven states. Its peppery chairman, John McMillian, a Texas independent oilman, masterminded the struggle. For his bested competitors, including the Canadian subsidiaries of Gulf, Exxon and Shell, McMillian had no sympathy: "If they had been more sensitive to what was going on, we wouldn't have had a chance."

When competition for building the pipeline first began in the late 1960s, leading Canadian and U.S. firms, among them Pacific Gas and Electric and Texas Eastern Corp., banded together in what seemed like an unbeatable consortium called the Arctic Gas Pipeline Project. The group, which at its height included 27 companies, proposed to construct a 48-in. line. It would begin at the Alaskan field of Prudhoe Bay (proven reserves of 26 trillion cu. ft., enough to supply current U.S. needs for more than a year) and follow the northern coastline to Canada's Mackenzie Bay deposits before heading south to carry the gas to the U.S.

Washington established ten task forces to examine the pipeline applications, and Ottawa set up three special committees. The hearings were exhaustive, especially those conducted by Canadian Justice Thomas R. Berger, who was commissioned to examine the pipeline's ecological and social impact. After interviewing 300 environmental and economic experts and 1,000 natives in the region, Berger ruled last May that the consortium's line was unacceptable because it would endanger the habitat of many species of wildlife. Canada's Natural Energy Board backed Berger, thus killing the Arctic project.

That left two outfits in the running. The first was the El Paso Co., one of the nation's largest gas transmission firms (1976 sales: $1.4 billion). It advocated an "all-American" solution: building a gas pipeline alongside the existing Alaskan oil pipeline to the port of Valdez, where the gas would be liquefied and shipped in special tankers to California.

Northwest was a last-minute starter in the competition. Ironically, Northwest had been a division of El Paso until 1974, when the Justice Department forced El Paso to divest itself of Northwest, and McMillian managed to gain control. Two years later, McMillian entered the pipeline race, and he learned fast. To enlist across-the-border support, he joined forces with two Canadian companies and christened his project Alcan. McMillian proved unabashedly opportunistic. When he heard, for example, that influential congressional staffers favored a route south from Prudhoe to Fairbanks, he seized on it. His approach inspired a Washington quip: "McMillian would ship the gas south in cellophane bags if we asked him to."

Frightened by El Paso's "all-American" project, the Canadians, who did not want to lose the jobs that pipeline construction would bring, dropped a request for immediate construction of a spur to Mackenzie Bay. California did not want the liquefied natural gas tankers from the El Paso project off-loading in its ports. Besides, according to Government projections, the El Paso gas would be costlier to the consumer. Even so, Energy Secretary James Schlesinger estimates that Alcan gas will cost the U.S. consumer about $2.50 per thousand cu. ft., about twice the price of present domestic gas.

The proposal will now go to Congress and the Canadian Parliament; both are expected to approve. The project will be privately financed; McMillian and his Canadian partners will own and operate the line under government supervision. Canadian environmentalists, who vigorously opposed the Arctic consortium's pipeline, are far less exercised about Alcan since it largely avoids uncontaminated areas. If all goes according to plan, the Alcan pipeline should be pumping 2.4 billion cu. ft. of gas a day to the U.S. by mid-1983. That is by no means enough to solve the U.S. shortage, but it would alleviate the crisis a bit.

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