Business

From Russia With Gas, or: The Improbable Dream

RODERICK McQUEEN July 24 1978
Business

From Russia With Gas, or: The Improbable Dream

RODERICK McQUEEN July 24 1978

From Russia With Gas, or: The Improbable Dream

Business

On the face of it, the proposal seems fanciful at best. A $4-billion 1,000-mile pipeline from eastern Siberia, under the Bering Strait, across Alaska, hooking into the yet unbuilt Alaska Highway pipeline to bring Soviet natural gas through Canada to U.S. markets. What might change fancy to fact is the list of supportive participants in the project discussions now under way: the Alaska Highway line builders, the U.S. state department, a former National Energy Board chairman, an enthusiastic Soviet ambassador to Canada, a quarter of Canadian federal ministries, and Prime Minister Pierre Trudeau. Behind it all. the far-seeing eye of Calgary's Frederick Philip Mannix whose plan for an intercontinental pipeline last month moved a giant, but careful diplomatic step nearer reality. His proposal, along with a request for an August exploratory meeting in the ° U.S.S.R., has been sent to Moscow and the «suggestion now is that two billion cubic S feet of Soviet natural gas could flow daily 5 from Siberia to energy-hungry U.S. homes

and industries by 1990, commercial warmth for the Cold War.

The idea struck Mannix, chairman of Loram Co. Ltd., of Calgary, six years ago. Although he personally told a responsive Prime Minister Trudeau then, it wasn’t until the Alaska Highway pipeline was approved late last year that Mannix was ready to move with his proposal. A December 1,1977, letter toTrudeau signed by Mannix, as well as Robert Blair, president of Alberta Gas Trunk Line Co. Ltd., and Edwin C. Phillips, president, Westcoast Transmission Co. Ltd., told the Prime Minister that it was an idea whose time was finally coming.

Thinking on such a grand scale has created a legendary aura around Calgary’s Mannix family. F. P. Mannix is the grandson of the firm’s founder, Frederick Stephen Mannix, who began the business as a horse-and-bucket railway construction company in 1898. Guided by son Frederick Charles Mannix through the middle years of the 20th century, the firm is today

one of the world’s leading contractors and carries out oil and gas operations, engineering contracts and coal mining. Loram, an acronym for Long Range Mannix, was adopted in 1975 to replace the family name of the firm which has been involved in multimillion-dollar projects at James Bay, Churchill Falls and Grand Coulee, Washington, as well as holding substantial

energy interests through Pembina Pipe Lines and Western Decalta.

Stanley C. Waters, president of Lorcan Co. Ltd., Loram’s project management services company, and a top non-family officer, readily admits the Siberian pipeline is “rather investigative.” He adds: “It depends on the implementation of the Alaska pipeline as well as a lot of other political and economic issues including reserves in eastern Siberia, the cost of gas in the 1990s and the cost of alternative sources of.energy then. We have to take advantage of something in place, the Alaska pipeline. It’s bloody hard to build a pipeline across the Bering Sea, through Alaska and all the way down to the U.S. West Coast.” If the planned hookup north of Fairbanks, Alaska, proves impossible, or capacity is not available in the Alcan line, Loram would have to spend another $4.3 billion laying pipe south to the U.S.

The man hired by F. P. Mannix to negotiate the all-important political issues is the recently retired chairman of the National Energy Board (NEB), Marshall Crowe, 57, centre of a conflict-of-interest controversy over private-sector directorships accepted since he stepped down in December to set up an Ottawa consulting firm. Crowe’s career in business and government has taken him to the U.S.S.R. four times including four years during two postings at the Canadian embassy in Moscow, a not unhelpful background for the current delicate talks he has begun for Loram with Moscow.

“Eastern Siberian gas reserves,” acknowledges Crowe, “are pretty much a question mark because there hasn’t been much exploratory drilling. We’d like to find out what’s there.” If the Soviets show interest. Loram can either assume exploratory work will be increased, or, even bet-

ter, reserves exist the Soviets are keeping quiet about. Already a major exporter, the U.S.S.R. pipes one trillion cubic feet of natural gas annually from western Siberia, mainly to Europe, about the same amount as Canada sends each year to the U.S. With no major markets close to eastern Siberian fields, Crowe thinks the Soviets will be interested in selling to the U.S. “It would be just as crucial for the U.S.S.R. to get the foreign exchange earnings as it would be for the U.S. to get the gas. It would be a pretty even-handed deal.”

Crowe has been carefully orchestrating the Loram presentation in Ottawa and Washington, preparing for Moscow, not looking for ecstatic embrace, but making sure there are no cold shoulders either. In February, Crowe met with Ivan Head, forz merly Trudeau’s foreign policy adviser y and now president of the International De“ velopment Research Centre. Head briefed 1 the prime minister, then wrote to Crowe: b “The prime minister took a positive interest in the proposal and thought it had sufficient merit that conversations should be pursued with the United States and the U.S.S.R.”

That signal flashed up, Crowe briefed

officials at the deputy minister and assistant deputy minister level in four federal departments: external affairs; industry, trade and commerce; energy, mines and resources; finance. Again, response was positive. He met with and received a goahead from American officials in Washington, including Julius Katz, assistant secretary of state for economic and business affairs. The key meeting came in June with Soviet ambassador to Canada Alexander Yakovlev at the embassy in Ottawa. Opening pleasantries between the two were in Russian but, while both speak the other’s language, Crowe outlined the proposal in English. The translator present was rarely used.

“For the U.S.S.R.,” Crowe told Yakovlev, “there is an assured market for gas from a remote region and a basis for early development, on favorable terms, of the resources of this part of the country. For the United States there is an important supplemental supply of energy. For Canada there is the possibility of additional natural gas, if it is needed by the 1990s, and opportunities for Canadian companies to participate in another major construction project in northern regions.” —overleaf

Soviet press attaché Victor Mikheev describes the 17-page proposal delivered the following day by Crowe as “serious and important.” It has been translated and sent with accompanying maps to Moscow, marked: “This needs action.” While response time is not precisely predictable, an invitation to visit Moscow and explain the project in detail to Soviet officials is likely for August or September.

While gas from the Soviet Union will help fill North American needs, it is not essential, stresses Crowe, pointing out that Soviet supplies by 1990 would only be about 1 per cent of the estimated 47 trillion cubic feet the United States will need annually. It is, however, all welcome in a world of diminishing resources. “We face long-term difficulties in getting sufficient hydrocarbons to meet the needs to which we have become accustomed,” says Crowe. Today’s proven reserves in Canada’s Mackenzie delta of 5.6 trillion cubic feet are not likely to be much larger by 1990, he claims. Although difficult to estimate, the Anadyr and Kamchatka basins in eastern Siberia along with offshore finds will likely total the 31 trillion cubic feet of gas Loram says is necessary to make a pipeline worthwhile.

Cost figures for gas delivered to U.S. markets are also difficult to predict but the best guess is that transportation costs on the Siberian line will be about double the Alcan system. Too, there is the delicate state of current Soviet relations with the West over human rights issues but, Crowe argues, economic ties can still be forged. “In spite of problems, trade and cultural relations have grown and expanded since Stalin’s death in 1953. We have to live with the Russians; they have to live with the rest of the world.” RODERICK McQUEEN