Canada opposes gas-line credit

Posted: Thursday, May 16, 2002

WASHINGTON - Canadian officials are mounting a campaign of public criticism to stop a final bill from including subsidies for a natural gas pipeline from Alaska to the Lower 48.

Canada's ambassador to the United States, Michael Kergin, criticized a proposed pipeline loan guarantee and a gas tax credit in an opinion piece Wednesday in the Wall Street Journal. The loan guarantee and the tax credit were approved by the U.S. Senate last month.

"Canada urges Congress to refrain from distorting the North American energy market," Kergin wrote. Canadian embassy spokesman Rodney Moore said the loan guarantee and tax credit could "have a negative effect on Canadian exploration and development."

Meanwhile, a study paid for by Canada's Northwest Territories government and released Monday concluded that the Senate's tax credit could cost U.S. taxpayers $16.4 billion to $43.8 billion over 15 years.

Sen. Frank Murkowski, R-Alaska, has repeatedly stated that the tax credit, which he convinced the Senate to include in the energy bill, is not a subsidy. That's because gas producers would be required to pay back any tax credits when prices are higher, he argues.

However, the Northwest Territories' report, written by the Houston, Texas-based Purvin and Gertz Inc., says the money is not likely to be repaid. The tax credit kicks in when prices are below $3.25 per million British thermal units at a central distribution hub in Alberta, Canada.

Starting three years after the pipeline's completion, the companies would have to begin paying back the tax credits whenever the price climbed above about $4.90 mBtu.

That threshold is so high, the payback requirement "is totally and completely irrelevant," said Roland George, the report's author.

George, of Calgary, Alberta, is Purvin and Gertz's partner for North American natural gas. A price of $4.90 per mBtu "has never been reached on a sustained basis," George said.

To date, no Canadian officials have threatened to challenge the gas line provisions under the North American Free Trade Act or before the World Trade Organization. But they are looking at the issue in that context, Moore said.

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