JANUARY 24, 1974
Arctic Gas: A Giant of Necessity
AN ADDRESS BY William P. Wilder,
CHAIRMAN, CANADIAN ARCTIC GAS STUDY LIMITED
CHAIRMAN The President,
Robert L. Armstrong
Mr. Minister, Mr. Consul General, honoured guests, ladies and gentlemen: "Fuels for living are providing fuel for debate. Nothing has sparked national soul-searching on such a wide range of issues as Canada's proposed massive energy projects. Arctic gas is one of them." This statement is an excerpt from the preface to "Comment" by our guest of honour in an article which appeared in the May 1973 issue of the magazine, Executive. Subsequent events have amplified that statement to the nth degree and energy has become the most widely used term in the English language.
A few years ago when the search for oil and natural gas in the Arctic began in earnest I asked a friend of mine, an eminent Canadian geologist, how can there possibly be fossil fuels under frozen polar wastes? I was informed that this planet earth precesses on its axis so that the magnetic poles shift approximately six inches a year, and what are now frozen polar wastes were once tropical seas. Eons ago, the equator passed through the present north magnetic pole. It is not my purpose to expound this theory but it is my purpose to introduce to this audience the Chairman of Canadian Arctic Gas Study Limited, which is conducting the most comprehensive study ever initiated in the private sector.
On August 31, 1972, William P. Wilder, then President of Wood Gundy Limited, left the so-called quiet and private atmosphere of the financial world (and there may be some who will dispute that premise), for the noisy and very public energy business. He has taken on the extremely heavy responsibility of the construction of a five billion dollar pipeline to carry natural gas from the Mackenzie Delta and Prudhoe Bay to Canadian and U.S. Markets. Not only are the interests of consumers and governments of prime concern but also those of environmentalists, sociologists, native peoples, economists and indeed, businessmen.
Bill Wilder, as he is known to his friends, was born in Toronto, attended Upper Canada College and holds a Bachelor of Commerce degree from McGill and a Harvard M.B.A. He joined Wood Gundy, Canada's largest investment company, in 1946 after service in the Navy. During his twenty-five years with Wood Gundy, he developed an ability to cut through red tape and make sound decisions quickly.
He is a great believer in vigorous physical exercise as an attribute to buoyant good health. I claim him as my sometime doubles partner in tennis.
He purportedly has ice water in his veins. I am certain the colour is Arctic blue.
Ladies and gentlemen, I am pleased to present to you Mr. William P. Wilder, Chairman and Chief Executive Officer, Canadian Arctic Gas Study Limited, who will speak to us on the subject "Arctic Gas: A Giant of Necessity".
The proposed Arctic Gas pipeline to transport natural gas from the North Slope of Alaska and the Mackenzie Delta is clearly a giant. At an estimated cost of $5.5 billion, it is the world's largest energy project, and the largest project of any type ever proposed by the private sector.
But in my mind, the Arctic Gas project is not merely a giant undertaking. I believe that it is, more importantly, a project of compelling necessity. I want to talk today about why I believe the Arctic Gas pipeline is a giant of necessity for Canada.
1. It is necessary to help provide an escape from a regime of welfare, poverty and social despair which pervades so much of our far north.
2. It is necessary if we are to maintain in this nation adequate and assured supplies of domestic energy.
3. It is vital to our future trade and economic relations primarily with the United States, and our economic well-being.
The proposed $5.5 billion system of Arctic Gas would be one segment of a system of connecting pipelines to supply natural gas to consumers across both Canada and the United States.
Across the northern end of Alaska, the Alaskan Arctic Gas pipeline would stretch from the Prudhoe Bay field for a distance of some two hundred miles, and at a cost of about half a billion dollars. The Canadian Arctic Gas pipeline, which would cost about $5 billion, would span some 2,400 miles, from the Alaska-Yukon boundary and from the Mackenzie Delta, down through the Northwest Territories and Alberta. It would connect with other existing and proposed pipelines. These, in turn, would supply Canadian consumers from Alberta to Montreal, and U.S. consumers from the Pacific to the Atlantic seaboards.
At a projected throughput of more than four billion cubic feet per day, Arctic Gas would increase the present total supply of natural gas use in Canada and the United States by about seven percent. And that involves only a start on the potential natural gas reserves of the western Arctic.
About half of the projected throughput of natural gas through the pipeline will be U.S. gas from Alaska flowing to U.S. markets. A portion of the Canadian gas from the Mackenzie Delta may also be exported, but only if it is found by the Government of Canada to be surplus to Canadian needs.
Some seven years and more than $50 million have already been spent in examining in detail the engineering, economic and environmental aspects of the pipeline. If we obtain timely approvals, the Arctic Gas system will be constructed and in operation before the end of the decade.
The studies which Arctic Gas has been conducting, include, among other things, the following:
The most extensive program of environmental studies ever conducted by private industry.
Engineering design, terrain and route studies.
Studies of energy demand and supply.
Studies of the impacts of the pipeline on the Canadian and U.S. economies.
Northern economic and social impact studies.
A viable plan of financing designed to achieve majority Canadian ownership and control of the Canadian pipeline.
Techniques to construct and operate a pipeline across the Arctic without undue damage to the environment or permafrost, and without adversely affecting wildlife resources.
Examination of possible alternative modes of transporting northern gas, including railway, aircraft, and others.
It has taken us somewhat longer than we had anticipated to put this all together and submit our applications and supporting exhibits to government bodies in Ottawa and Washington. But this should perhaps not be too surprising, since there has been little previous experience in putting together a project such as this. In fact, no other project has ever been preceded, prior to seeking government approval, by such an extensive program of research and studies.
The complete results of these studies will be made public in our applications. In Canada, we must file with the Department of Indian Affairs and Northern Development, and with the National Energy Board. In the United States, applications must be submitted to the Department of the Interior and to the Federal Power Commission. Extensive public hearings will be held on these applications.
Within the next few weeks, we will be filing our applications with both the Canadian and U.S. government agencies. We plan first to file all data necessary for the land use and right-of-way authorizations. This material will include design, construction, operation and maintenance of the pipeline; alternative routes and modes of transportation; environmental impact; and the economic and social impacts in the north.
This will be followed later by material dealing with natural gas markets, supply, financing, and the national economic impacts.
The exhibits and supporting reports are expected to exceed 7,000 pages of detailed information. Therefore, we expect rather extensive and lengthy regulatory proceedings in each country. Hopefully, these applications can be processed within a year.
Let me now explain the reasons why I believe the Arctic Gas pipeline is so important for Canada.
First, why it is important to the residents of northern Canada.
Increasingly, northern residents-and native peoples in particular-seek the benefits of wage employment. It is an urgent requirement as an alternative to the harsh realities of the traditional hunting and trapping economy, or the demoralizing existence of welfare.
This need for a northern wage economy was clearly recognized by researchers at a national seminar on Science and the North, sponsored by the Federal Government in 1972. The seminar report concluded:
That the traditional northern native economy could support only a very limited population at a very pre-carious margin of subsistence;
That already there are too many native people in the North to live successfully in the old patterns of a hunting society; and, That a blanket moratorium on resource activity . . . would condemn the northern peoples to a continued and worsening poverty.
Even so, northern resource development must not be allowed to impair opportunities for northern hunting, trapping, and fishing. These will continue to be of historic and great importance to northern people: as full-time pursuits; or as a means of supplementary income; or as recreational activities. But at the same time, it would be equally wrong to deny the opportunities for meaningful, long-term employment.
Construction and operation of the Arctic Gas pipeline will result in a viable wage economy for the western portion of the Northwest Territories. Directly and indirectly, it will create an appreciably greater number of long-term jobs than the presently available labour force of the region.
Adjusting to wage employment may, in some instances, present demanding challenges to northern native peoples. To assist in meeting this challenge, Arctic Gas is working with both the Federal and Territorial Governments, as well as with other companies, in an extensive training program. More than seventy northern residents are already employed in this program. Training involves not only pipeline construction and operation, but also related jobs in petroleum exploration, drilling, production and gas plant operations.
Northern residents have clearly recognized and supported the Arctic Gas project as being essential for the development of a viable and prosperous northern economy.
Next, let me explain why the Arctic Gas Pipeline is required to help ensure adequate domestic supplies to meet Canadian energy requirements.
In terms of energy supply, Canada may well be the envy of the industrialized nations of the western world. We are the only such nation which today produces as much energy as it consumes. Our present supply constraints are not a result of inadequate energy production, but inadequate transportation facilities. As such, present supply constraints are likely to be temporary.
But we will soon need new energy supplies. We will have to tap our frontier oil and gas resources in the Arctic and offshore regions; our enormous resources of heavy oil and Athabasca tar sands and similar deposits; and our coal deposits, which offer potential supplies of synthetic gas and petroleum fuels. These combined potential sources of energy are three times our requirements for fossil fuels during the next eighty years as estimated in a Federal Government study last year. Well before they are exhausted, our energy needs are expected to be largely provided by nuclear power and other new energy sources.
To develop these higher-cost fuels, however, we will have to pay higher prices than we have in the past.
Of all the potential sources of frontier oil and gas, of foreign imports, none now appear to be more economically attractive than natural gas from our western Arctic-provided we have large-volume, economic transportation.
Adequate and assured supplies of domestic energy at prices fully competitive with world energy prices will do much to help strengthen our industrial economy.
However, less than ten percent of our total potential fossil fuel resources are presently developed and available for use now, or for the next few years. Thus aggressive development of potential resources must be maintained, if we are to continue to supply our own energy needs.
Consider, for a moment, our requirement for additional supplies of natural gas. This fuel provides one-quarter of our energy needs; more than coal, coke, hydro and nuclear power combined.
Virtually all of the natural gas used in Canada is supplied by the four provinces of western Canada, principally Alberta. Reserves here will not be exhausted for many years. But before the end of this decade, the rate of western gas production will be inadequate to meet our requirements. We will by then need a source of supplementary natural gas supplies if we are to satisfy our own requirements and provide for presently authorized exports to the United States.
The most immediate prospect for a large supplementary supply lies in the Mackenzie River Delta region. Here, the initial stages of exploration have already established encouraging reserves, and much remains still to be discovered.
The problem is to economically transport this gas over the long distances from the Arctic Coast to major markets in Canada. Only by means of a large-volume throughput can such transportation be economically provided.
Such large-volume throughput can be attained by transporting both U.S. gas from Alaska and Mackenzie Delta gas across Canada by a single pipeline. Without the movement of Alaskan gas, an all-Canadian project would, at the very least, be delayed well beyond the time when additional gas will be needed in the Canadian market. And any such delay would be at great cost to the Canadian economy, in terms of meeting the energy needs of this country, the aspirations of the north, and the ultimate price of the product.
Canadian consumers-Ontario consumers-can obtain access to Delta gas at the lowest possible cost by transporting both U.S. gas from Alaska, and Mackenzie Delta gas in one system. This, of course, is what the Arctic Gas pipeline will provide. It would offer the lowest possible cost transportation with a throughput volume greater than the present total natural gas demand in Canada. A single pipeline to transport both Alaskan North Slope and Mackenzie Delta gas also provides significant advantages to the United States.
The United States has urgent need of its Alaskan North Slope gas. This area represents ten percent of proven U.S. gas reserves, and only a fraction of the North Slope potential has so far been discovered.
On the other hand, an all-American system to transport North Slope gas would involve the proposed El Paso Natural Gas Company pipeline from Prudhoe Bay across to Alaska's Pacific Coast. Here the gas would be liquefied-by chilling to minus 260 degrees Fahrenheit-for shipment by tanker to U.S. west-coast markets.
But we believe that a combined North Slope-Mackenzie Delta pipeline offers the U.S. these advantages:
1. Lower cost transportation for North Slope gas.
2. Significant savings of gas supplies, thus making more gas available to consumers. The Arctic Gas pipeline would consume less fuel in the process of transportation than the alternative pipeline-liquefaction-tanker system.
3. The Arctic Gas pipeline and companion systems will have the ability to serve virtually all U.S. markets from the Pacific to the Atlantic seaboards.
4. The prospect of some additional natural gas imports from Canada.
5. Greater supply security. Nothing can match the long history of many thousands of miles of pipelines for safe, secure, reliable delivery of natural gas.
I am convinced that the Arctic Gas pipeline is essential to, help ensure adequate supplies of domestic energy to meet Canadian requirements. And further, that it offers significant advantages to the United States in its pursuit of adequate domestic energy supplies.
Thirdly, let me explain why I believe the Arctic Gas pipeline is so important to our total energy supply, our trade relations, and our economic well-being.
More than just the fate of the project rides on the outcome of the Arctic Gas proposal. The outcome will mean more than simply assurance of adequate supplies of domestic natural gas for Canadian consumers.
It involves all these things-but in its implementation, it involves something more important.
It involves co-operation and trust between two nations.
I am convinced that the advantages of the Arctic Gas pipeline to each of our nations are great, and that failure to achieve these advantages can result from one cause only. And that cause can be summed up simply as misunderstanding or mistrust.
Certainly, each nation must consider first its own interests. But there must be recognition of mutual interests. There must be recognition that, in this instance, the interests of each nation are best served by mutual trust and co-operation.
I believe that Arctic Gas is the most outstanding example of the economic advantages to be gained by mutual co-operation.
If either country sacrifices these benefits on the altar of excessive economic nationalism-in the shadow of fear and mistrust- then surely it will be reflected, not only in the loss of this project, but in other important areas of trade and economic relations between our two nations.
If the United States could not feel secure with less than ten percent of its gas supplies flowing by pipeline across Canada, where would that leave Canada? How, then, could we feel secure when most of our oil and a major portion of our gas supplies flow by pipelines that cross U.S. territory?
How secure would Montreal be with its flow of oil through the pipeline from Portland, Maine?
It is in this context that we at Arctic Gas attach importance to a statement in the House of Commons by Prime Minister Trudeau on December 6th. The portion of his address to which I refer is as follows, and I quote: "I can see no reason why Canada could not give suitable undertakings as to the movement, without any discriminatory impediment, of Alaskan gas through the pipeline across Canada to U.S. markets, provided all public interest and regulatory conditions are met in the building and operation of the pipeline. An undertaking of this sort would, of course, be reciprocal, with the same assurance being given Canada regarding our oil and gas shipments through the United States."
Canada would have much to gain from an arrangement with the United States which provided assurance for shipments of our oil and gas through the United States to our markets. Ontario in particular should benefit. Ninety percent of this province's oil supplies, and forty percent of its natural gas are shipped by pipelines from western Canada across the United States.
We have noted with interest the announcement that our two governments will hold high-level energy discussions at the end of this month. I strongly encourage both governments to commence discussions on the type of undertaking referred to by the Prime Minister. I am sure you will agree with me that Canadians would support such an affirmation of mutual trust. It is important that this be accomplished before our governments must determine how the large natural gas resources of the western Arctic are to be transported and utilized. Misunderstanding and mistrust can be removed from discussions in the public arena and the corridors of government. Only then can our two countries focus clearly on the interests of each nation and on the, merits of our proposal for a giant born of necessity.
Mr. Wilder was thanked on behalf of The Empire Club of Canada by Mr. Sydney Hermant.