the pipeline game kicks off new season

Big Oil kicked off the latest round of the Alaska Pipeline Game earlier this month, complete with Powerpoint eye-candy, a flashy project website and…

Big Oil kicked off the latest round of the Alaska Pipeline Game earlier this month, complete with Powerpoint eye-candy, a flashy project website and a new name: “Denali: The Alaska Gas Pipeline™.”

BP and ConocoPhillips announced plans to spend $600 million over three years planning the project. That’s a lot of engineering consultants and salmon habitat studies.

The other numbers are equally big: total project cost of $30 billion, four billion cubic feet of gas per day, five million tonnes of steel, 1,000 different government approvals and who knows how many lobbyists.

It’s a big project even by global standards.

The Saudis are spending a mere $14 billion developing their new Manifa oilfield.

All this hoopla isn’t aimed at the Yukon, which didn’t feature in the announcement except as a large green triangle inconveniently located between Alaskan gas and the barbecues of Chicago.

The real audience was likely the stock market, which has noticed that oil production actually declined for most of the major oil companies last year.

The oil companies need an “investor narrative” which includes a steady flow of Alaska’s 35 trillion cubic feet of gas to southern markets.

There were also a few interesting things that we didn’t hear during the announcement.

Exxon, the other big Alaskan oil player, wasn’t there. Maybe it was distracted by Cesar Chavez, who is confiscating their Venezuelan wells.

They said later that they might join Denali in the future.

Secondly, Denali isn’t bothering with Alaskan Governor Sarah Palin’s $500-million pipeline incentive package.

Apparently it had too many strings attached and $500 million is merely a decimal point on a $30-billion project.

Finally, the proponents were careful to pretend that TransCanada Pipelines doesn’t exist.

TransCanada and its subsidiary Foothills own pipeline rights dating back to the 1970s, embedded in various bits of legislation, a Canada-US treaty and Yukon land claim agreements.

Denali claims this is ancient history and that it is starting a new project. TransCanada can grovel to be a sub-contractor like everyone else.

This is likely a prelude to some tough bargaining in Houston.

Despite the publicity, however, no one paid much attention to Denali’s announcement.

Some of the New York market analysts put an extra bullet in their morning notes but the share prices — even for TransCanada — didn’t really move.

So is the Alaska gas pipeline a serious project? Or is it just an elaborate fantasy role-playing game that — like Dungeons and Dragons — has outlived its visionary 1970s creators?

Will we have to endure another round of public posturing by the usual suspects, featuring slick oil executives, earnest but outraged environmentalists, optimistic small business people and newly popular welding instructors?

It’s hard to tell.

On the one hand, natural gas prices have been hovering around $10 per cubic foot and show no signs of collapsing back to $2 like in the 1990s.

That makes Alaska’s reserves worth $350 trillion dollars, give or take a hundred trillion.

Pipeline construction is also more efficient and faster than it used to be, with lots of robots and computerization.

The builders also plan to bury the pipeline, which will reduce costs associated with teenagers shooting it with .30-06s (unfortunately this also eliminates the world’s most awesome snowboard pipe-slide location if the pipeline follows the Foothills right of way at the bottom of Mount Sima).

On the other hand, energy prices are notoriously volatile.

Plus a future president might impose a carbon tax. There is the risk of cost overruns, caused by melting permafrost or spiraling steel prices.

And Denali knows it needs 1,000 government permits, involving, in Canada alone, four layers of government plus dozens of agencies (some of whom have never dealt with a project this large), unsettled land claims, some endangered species and an expensive dollar.

But forget about land claims and the environment. If the pipeline does happen, how can you get rich?

First, you have some time to think about it.

Don’t cash in your RSP to buy a welding truck just yet. Denali’s timeline shows construction not starting until 2014, if all goes well getting those 1,000 government permits.

In the meantime, here is a quick rundown of six ideas your columnist has heard lately.

And remember, the way to get rich is to find something that the pipeline will need desperately but that there won’t be much supply of either in the Yukon or readily accessible from Alberta.

1) Cash in on the consulting budget. Starting soon, Denali will start to spend that $600 million in planning money.

Now might be the time to get that civil engineering degree you were thinking about.

There are other technical skills that will be in demand, ranging from socio-economic studies to environmental base-lining to constitutional legal challenges.

But they probably won’t give you a nine-figure consulting contract, so you’ll have to find partners and prime contractors who can cut you into the action.

Time to refresh your website and start lunching with bigger firms in Calgary and Vancouver.

2) Get a welding ticket. Unfortunately, it won’t be like the Second World War when they dragged thousands of women out of teacher college and told them to start welding aircraft carriers.

The builders have their own networks of highly specialized contractors and staff they have worked with before.

It is possible to crack these networks, but when the pipeline is done there won’t be much similar work in the Yukon. It may, however, be your entrée into pipeline welding in Yemen and Kazakhstan.

3) Buy a hotel, restaurant and bar. This has the advantage of benefiting from all the consultant travel during the planning phase. However, the pipeline-related travellers will remain a relatively small share of total travellers.

So the pipeline might be a profit boost, but if your hotel isn’t profitable the rest of the time then the pipeline probably won’t save you.

4) Buy an apartment building. This was apparently Jimmy Pattison’s strategy in Prince Rupert. There were multiple companies trying to build major new container terminals, but no one knew which would actually happen. So apartment buildings were a way to get a share of the action, no matter which project went forward. The workers need somewhere to live.

However, the long-term increase in jobs due to the pipeline is likely to be relatively small. It won’t require massive amounts of local maintenance and repair. So, like a hotel, your building should already be profitable and you should consider the pipeline a nice extra.

5) Get the natural gas distribution franchise in Whitehorse. This is only possible if the builders invest in an expensive “gas off-ramp” to step down the pressure in Whitehorse.

They have promised five off-ramps in Alaska, probably for political reasons.

Our governments would have to make them do the same here.

Then, of course, you’d have to pay to rip up all the roads to bury pipes around town.

The current installed base of propane users is scattered all over the city so you would likely need significantly more people to install gas heat. The numbers might not add up for you.

6) Build a dam. The pipeline will likely have three top five compressor stations in the Yukon, consuming about as much power as the Yukon currently generates.

Plan A is to siphon off some gas from the pipeline at each stage to power the compressors.

However, using electrical power instead could be good all around.

The producers get more gas to Chicago and the Yukon gets cheap carbon-free electricity to heat our homes and power our electric cars (remember this is 2020 and gas is $12 per litre).

So in conclusion, unless you have a very clever idea the pipeline probably isn’t worth betting the farm on.

It might not happen.

And even if it does, its economic impact probably will be smaller than the hoopla suggests.

There are other, bigger economic variables to salivate over.

For example, the number of government employees in the Yukon has gone up by 900 in the last five years. That’s an entire sub-division of housing demand.

If you think the nice people in Ottawa are going to keep on sending the money, then Whitehorse real estate remains the place to be whether or not the pipeline ever happens.

Keith Halliday is a Yukon economist and author of Aurore of the Yukon and Yukon Secret Agents. His next book Yukon River Ghost appears in May.