BUSINESS WATCH

Tending Canada’s only megaproject

‘We’reinto something more serious than recession or depression—a major economic and social restructuring’

Peter C. Newman March 2 1992
BUSINESS WATCH

Tending Canada’s only megaproject

‘We’reinto something more serious than recession or depression—a major economic and social restructuring’

Peter C. Newman March 2 1992

Tending Canada’s only megaproject

BUSINESS WATCH

‘We’reinto something more serious than recession or depression—a major economic and social restructuring’

PETER C. NEWMAN

Even if Gerry Maier, the chief executive officer of TransCanada PipeLines Ltd., describes the state of his industry as “somewhere between Godawful and terrible,” he happens also to be presiding over Canada’s only current megaproject—now that both Hibernia and James Bay II are history.

The Saskatchewan-born engineer is in the middle of spending^.5 billion on expanded and extended pipeline systems to bring western Canadian natural gas to eastern North American markets. A key component in that expansion is the Iroquois Pipeline, opened in January, which pumps Alberta gas from Iroquois, Ont., 130 km west of Montreal, through New York state and Connecticut, then under Long Island Sound to South Commack, 120 km east of New York City. TransCanada’s expansion program is one of the largest ever undertaken by a single company and dwarfs any other pipeline construction, either under way or planned, anywhere in the world. Although the 595-km Iroquois line already has the capacity to carry 576 million cubic feet of gas per day, TransCanada plans to increase its throughput to 650 million cubic feet by November.

Maier stands out among the walking wounded of the Oil Patch because his company (the only major pipeline firm to achieve Standard & Poor’s A rating) has no trouble financing its growth. “Raising money isn’t a problem,” he told me during a recent interview in Calgary. “We not only can borrow at lower rates than other firms, but we can access types of capital other companies can’t touch. In fact, we’ve got more people beating our door down trying to loan us money than we can possibly use.” TransCanada is still controlled by Montreal’s BCE Inc., the telephone company that went bananas diversifying in the 1980s and has ever since been retreating into its core businesses. Maier expects that by the end of this year, Bell’s interest will be down to zero, at which point he will enjoy the good fortune of not having a dominant shareholder.

But none of that makes him feel any better about the current condition of Canada’s energy industry. “We’re in hard times, and I don’t see those hard times changing very much,” he laments. “The Saudis have firmly assumed control of the pricing of crude. They want to keep prices at a level where they extract as much money as they can, keeping in mind that oil must be sold at low-enough levels to prevent alternative forms of energy from being exploited. So we’re not going to see the wild swings in prices we had in the past 15 years or so. In fact, I can’t see oil prices in the near future increasing much more than annual inflation.”

The gas industry is in even worse shape. For years, Oil Patchers have been forecasting a bonanza for natural-gas discoveries and sales. The gas was found, all right—we now rank third, just after the United States and Russia, with proven recoverable reserves of 97 trillion cubic feet—but the extra demand has yet to materialize. Gas company profits have been tumbling with overproduction because Ottawa’s 1985 deregulation freed supply as well as prices. (Previously, U.S. exports were dependent on Ottawa being satisfied that we had at least a 25-year supply on hand; now there are no reserve quotas.)

Not only are the Americans buying less gas (partly because the last four winters have been abnormally warm), but they are not living up to long-term contracts they signed during the past decade at prices higher than the current quotes. In a case now before the California courts, the Sacramento Municipal Utility District is claiming that customers in northern California paid $674 million too much for their gas because of what it labelled cartel-like arrangements among 190 Canadian natural-gas producers. Earlier, the California Public Utilities Commission had ruled that local naturalgas buyers can cancel their long-term contracts by October of this year.

Apart from such trans-border problems, Maier has some positive emotions about the Free Trade Agreement. “The alternative— being left out to dry in the trade wars as an island unto ourselves—was even worse,” he insists. “I’ve worked for American companies, and I know how those people operate. They deal from strength, and they’ll put it to you, nine times out of 10, any way they can. In the gas trade, there isn’t a day or week goes by that we don’t run into some sort of invisible trade barrier, roadblocks put in our way by the Americans in what’s supposed to be free trade.”

Although his company has done no studies on the effects of Quebec independence, TransCanada’s pipelines could become a crucial issue if the country breaks up. “Right away,” Maier points out, “there would be the question of changes in the transportation rates to get gas from Western Canada into Quebec. At the moment, the cost we charge for bringing a cubic foot of gas from Alberta to Toronto is the same as taking it to Montreal because they’re in the same eastern toll zone. If Quebec went, the people of Ontario would be demanding why they should subsidize transportation of gas to another country called Quebec.”

It’s an important question, particularly since Quebec relies on importing about 750 million cubic feet of Alberta gas per day, nearly all of it via TransCanada. (A subsidiary problem for Quebec would be the serious negative trade balance it would run on energy alone. According to one estimate, the cost of the natural gas plus the 80,000 barrels of crude per day it buys from Alberta would add up to $2.5 billion annually. Maier believes chances are no better than 50-50 that Quebec will remain within Canada, and blames “the vacuum in political leadership in this country” for this situation. “We need people with stronger convictions,” he says, “and the willingness to lead instead of reacting to public opinion polls.”

He adds: “We’re in something much more serious than just a recession or depression. We’re in the midst of a major economic and social restructuring. Governments will not be able to get us out of this one. Right now, we’ve got all kinds of laid-off people sitting on their hands, so it’s up to every citizen to start taking a hard look at himself and give something back to the country in a personal way.”

Gerry Maier wants to do his part by ensuring that his new pipeline isn’t Canada’s last megaproject.