April 2002 AHPP Summary 1
Informetrica
Limited
Alaska Highway Pipeline Project (AHPP)
Summary of Findings
Informetrica Limited
May 3, 2002
April 2002 AHPP Summary 2
Informetrica
Limited
The Future Demand for Natural Gas
• Gas demand in the North American economy is rising, with projections of 38.5 tcf per year by 2020
• The real price of NG is expected to rise• Alaska supplies are competitive, if delivered
through an efficient transportation system• Incremental supplies of 1.4 tcf per year available
from North Slope
April 2002 AHPP Summary 3
Informetrica
Limited
April 2002 AHPP Summary 4
Informetrica
Limited
B.C.
Alberta
N.W.T.Yukon
Alaska
FortSimpson
FortNelson
Whitehorse
FortSt.John
PrudhoeBay
Inuvik
Fort GoodHope
BoundaryLake
MackenzieDeltaStandAlone
MackenzieDeltaStandAlone
Northern RouteNorthern Route
AlaskaHighwayRoute
AlaskaHighwayRoute
Figure 3 – Proposed Pipeline Routes
April 2002 AHPP Summary 5
Informetrica
Limited
Project Characteristics
• Length – 2, 810 km (1,746 miles)
• Pipe – 42”, 0.75” wall, X80
• Tons of steel pipe – 1,381,000
• Construction Costs – $13.6 B (US$9.1 B)
• Real Tariff – $1.57 /mcf (US$1.05)
• Volume – 2.5 bcfd rising to 4 bcfd
• Compressors - 40
April 2002 AHPP Summary 6
Informetrica
Limited
Alaska
• Length – 1,193 km (741 miles)
• Pipe – 42”, 0.75” wall, X80
• Tons of steel pipe – 586,000
• Construction Costs – $6.6 B (US$4.4 B) 49%
• Real Tariff – $0.766 /mcf (US$0.51)
• Volume – 2.5 bcfd to 4 bcfd
• Compressors - 16
April 2002 AHPP Summary 7
Informetrica
Limited
Yukon
• Length – 832 km (517 miles)
• Pipe – 42”, 0.75” wall, X80
• Tons of steel pipe – 409,000
• Construction Costs – $3.8 B (US$2.5 B) 54%
• Real Tariff – $0.435 /mcf (US$0.29)
• Volume – 2.5 bcfd to 4 bcfd
• Compressors – 10
April 2002 AHPP Summary 8
Informetrica
Limited
British Columbia
• Length – 721 km (448 miles)
• Pipe – 42”, 0.75” wall, X80
• Tons of steel pipe – 355,000
• Construction Costs – $3.0 B (US$2.0 B) 43%
• Real Tariff – $0.348 /mcf (US$0.232)
• Volume – 2.5 bcfd to 4 bcfd
• Compressors - 14
April 2002 AHPP Summary 9
Informetrica
Limited
Alberta
• Length – 64 km (40 miles)
• Pipe – 42”, 0.75” wall, X80
• Tons of steel pipe – 32,000
• Construction Costs – $0.2 B (US$0.12 B) 3%
• Real Tariff – $0.023 /mcf (US$0.015)
• Volume – 2.5 bcfd to 4 bcfd
• Compressors - 0
April 2002 AHPP Summary 10
Informetrica
Limited
Comparison to TAPS
Cost (2000$)
Length
BTU Throughput per day
Tons of pipe
Employment
TAPS• US$11.3 B• 800 miles• 8.4 trillion • 450,000• 70,000
AHPP• US$9.1 B• 1750 miles• 4.1 trillion • 1,381,000• 59,000
April 2002 AHPP Summary 11
Informetrica
Limited
Volumes of Gas
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2005 2010 2015
bill
ion
cu
bic
fe
et
pe
r d
ay
April 2002 AHPP Summary 12
Informetrica
Limited
Tariffs
1.00
1.50
2.00
2.50
3.00
2001 2006 2011 2016 2021 2026 2031Year
Tarif
f (C
dn$/
mcf
)
Levelized Nominal Escalated Nominal Levelized Real
April 2002 AHPP Summary 13
Informetrica
Limited
Tariff Analysis
• A nominal tariff of $2.05 per mcf (Canadian $) , or
• A real tariff that starts at $1.57 per mcf in 2001, escalated by CPI will produce equivalent incomes
• Alaska (C$0.766), Canada (C$0.805)• Yukon (C$0.435), BC (C$0.348), Alberta
(C$0.023)
April 2002 AHPP Summary 14
Informetrica
Limited
Types of analysis for this project
• Benefit-Cost Analysis
• National Economic Impact
• Provincial/Territorial Economic Impact
• Regional-Urban Model
• Local Area Model
• Occupational Impact
• YTG Revenue and Expenditure Model
April 2002 AHPP Summary 15
Informetrica
Limited
Benefit-cost Analysis• Positive Net Benefits
• Net gains mainly in Alaska and lower 48
• Regulation of pipeline rate of return minimizes Canadian gains
• Increased government revenues in Canada
April 2002 AHPP Summary 16
Informetrica
LimitedNPV of Net BenefitsB$, Canadian 0% 7% 10% 15%
Production, US 32.4 8.0 4.6 1.9
Transmission, US 15.4 2.3 0.6 -0.8
Transmission, Cdn 13.8 1.6 0.1 -1.1
Government, US 50.0 13.6 8.5 4.2
Government, Cdn 12.5 3.7 2.4 1.3
Federal 6.2 1.8 1.2 0.6
Provincial 6.3 1.9 1.2 0.7
Total 124.1 29.2 16.0 5.5
April 2002 AHPP Summary 17
Informetrica
Limited
Implications of Benefit-cost
• Financing from US sources or normal financial markets
• Canadian interest hinges on federal & provincial revenue
• Yukon interest areas:– Jobs– Energy options– Minimizing adverse effects
April 2002 AHPP Summary 18
Informetrica
Limited
Economic Impact Analysis
• Uses statistical/econometric methods to develop a mathematical model of the economy (the “Base Case”)
• Adds the project parameters (“Injection”) to the “Base Case” model to estimate Direct, Indirect and Induced Effects on a number of economic variables (e.g., GDP, employment, tax revenues)
April 2002 AHPP Summary 19
Informetrica
Limited
Two Scenarios
• Scenario I – Governments retain all balance improvements, choosing to reduce outstanding debt
• Scenario 2 – Federal government recycles improved balances through:– Corporate tax reductions– Personal income tax reductions– Reduced EI contributions
April 2002 AHPP Summary 20
Informetrica
Limited
Key Impacts
• Investment• GDP• Employment• Unemployment• Inflation• Fiscal Balances (Taxes, Govt. Spending, Debt)• Current Account Balances
April 2002 AHPP Summary 21
Informetrica
Limited
Construction Period Impacts, 2002-12
GDP,Millions 2000$)
Employment(person-years)
Investment - Canada 6,990 30,440
Yukon 3,369 12,114
Scenario 1-Canada 9,762 72,799
Yukon 3,736 19,448
Scenario 2 - Canada 14,497 194,396
Yukon 5,082 28,585
April 2002 AHPP Summary 22
Informetrica
Limited
Operations Period Impacts, 2013-25
GDP,Millions 2000$)
Employment(person-years)
Revenue- Canada 15,288 4,253 (327)
Yukon 8,252 2,220 (171)
Scenario 1-Canada 16,678 34,921
Yukon 7,775 13,029
Scenario 2 - Canada 16,906 182,678
Yukon 8,911 21,998
April 2002 AHPP Summary 23
Informetrica
Limited
Investment
-$500
$0
$500
$1,000
$1,500
$2,000
2002 2005 2008 2011 2014 2017 2020 2023
mill
ion
s o
f c
on
sta
nt
20
00
$
Structures (direct) Machinery & Equipment (direct)
Total Induced (Scenario 1) Total Induced Scenario 2)
April 2002 AHPP Summary 24
Informetrica
Limited
GDP
0
0.05
0.1
0.15
0.2
0.25
0.3
2002 2007 2012 2017 2022
% Im
pa
ct
Scenario 1 Scenario 2
April 2002 AHPP Summary 25
Informetrica
Limited
Employment
-10
0
10
20
30
40
50
2002 2007 2012 2017 2022
Em
plo
ym
en
t (0
00
s)
Scenario 1 Scenario 2
April 2002 AHPP Summary 26
Informetrica
Limited
Fiscal Balances – Scenario 1(millions of dollars)
$0
$500
$1,000
$1,500
$2,000
$2,500
2002 2007 2012 2017 2022
Imp
act
(No
min
al $
)
Federal Provincial-Local-Hospital CPP & QPP
April 2002 AHPP Summary 27
Informetrica
Limited
Fiscal Balances – Scenario 2(millions of dollars)
-$500
$0
$500
$1,000
$1,500
2002 2007 2012 2017 2022
Imp
act
(No
min
al $
)
Federal Provincial-Local-Hospital CPP & QPP
April 2002 AHPP Summary 28
Informetrica
Limited
National Findings
• No stresses on macro economy
• Procurement effects important to steel and turbines
• Additional investment may be needed in Alberta
• Larger impacts if governments recycle their “fiscal dividend”
April 2002 AHPP Summary 29
Informetrica
Limited
Regional Impacts
• Direct spending on construction & operations determined by location of pipeline
• Indirect spending (commodity content of direct spending) determined by the location of suppliers and their suppliers
• Induced spending depends on distribution of wage income and sources of supply of consumer goods and services
April 2002 AHPP Summary 30
Informetrica
Limited
Territories(effects concentrated in Yukon)
0
2
4
6
8
10
12
2002 2005 2008 2011 2014 2017 2020 2023
% Im
pac
t GD
P
0
2
4
6
8
10
2002 2005 2008 2011 2014 2017 2020 2023
Em
plo
ymen
t (00
0s)
Scenario I Scenario II
April 2002 AHPP Summary 31
Informetrica
Limited
British Columbia
0
0.1
0.2
0.3
0.4
0.5
2002 2005 2008 2011 2014 2017 2020 2023
% I
mp
act
GD
P
0
500
1000
1500
2000
2002
mill
ions
of c
onst
ant 2
000$
#REF! #REF!0
0.2
0.4
0.6
0.8
1
1.2
2002
% Im
pact
(bar
s)
0
0.2
0.4
0.6
0.8
1
1.2
% Im
pact
(lin
es)
#REF! #REF! #REF! #REF! #REF! #REF!
-2
0
2
4
6
8
10
12
2002 2005 2008 2011 2014 2017 2020 2023
Em
plo
ymen
t (0
00s)
Scenario I Scenario II
April 2002 AHPP Summary 32
Informetrica
Limited
Alberta
0
0.05
0.1
0.15
0.2
2002 2005 2008 2011 2014 2017 2020 2023
% Im
pac
t G
DP
-1
0
1
2
3
4
5
2002 2005 2008 2011 2014 2017 2020 2023
Em
plo
ymen
t (0
00s)
Scenario I Scenario II
April 2002 AHPP Summary 33
Informetrica
Limited
Rest-of-Canada
-0.05
0
0.05
0.1
0.15
0.2
2002 2005 2008 2011 2014 2017 2020 2023
% I
mp
act
GD
P
-10
-5
0
5
10
15
20
25
2002 2005 2008 2011 2014 2017 2020 2023
Em
plo
ymen
t (0
00s)
Scenario I Scenario II
April 2002 AHPP Summary 34
Informetrica
Limited
Regional Findings
• The impacts on the provinces are modest• Impacts on Yukon are large• Procurement has been directed to increase
impact and test industrial capacities• Distinction between residence of workers
and place of work important• Assumption that 80% of construction
workers come from outside Yukon
April 2002 AHPP Summary 35
Informetrica
Limited
Yukon Impacts
• Yukon economy identified separately• Base Case View• Impacts from RIM on Yukon Base• Focus on:
– Employment– Wage Bill– Disposable Income
• Direct and Indirect +Induced
April 2002 AHPP Summary 36
Informetrica
Limited
Yukon GDP Impact
0
10
20
30
40
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
% I
mp
act
Scenario 1 Scenario 2
April 2002 AHPP Summary 37
Informetrica
Limited
Yukon Employment
0
2
4
6
8
10
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
Lev
els
Scenario 1 Scenario 2
April 2002 AHPP Summary 38
Informetrica
Limited
Yukon Wage Bill
0
5
10
15
20
25
30
35
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
% I
mp
act
Scenario I Scenario II
April 2002 AHPP Summary 39
Informetrica
Limited
Yukon Real Disposable Income
05
1015202530
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
Scenario 1 Scenario 2
April 2002 AHPP Summary 40
Informetrica
Limited
Key Industry Impacts - YukonTop 10 industry impacts during construction period
1. Construction 6. Telecommunications
2. Professional Services to Business 7. Other Personal Services
3. Accommodation and Food 8. Retail Trade
4. Personal Finance 9. Air Transportation
5. Motor Transportation 10. Printing and Publishing
Employment Impacts Scenario 1 Scenario 2
Peak Employment 6930 8250
Average Employment 2005-07 4723 5900
April 2002 AHPP Summary 41
Informetrica
Limited
Yukon Fiscal ImpactsScenario I
-15
-10
-5
0
5
10
15
20
25
30
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10
Imp
ac
t le
ss
Ba
se
($
mil)
Own-Source Revenue Fiscal Grant
April 2002 AHPP Summary 42
Informetrica
Limited
Yukon Fiscal ImpactsScenario II
-15
-10
-5
0
5
10
15
20
25
30
35
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10
Imp
ac
t le
ss
Ba
se
($
mil)
Own-Source Revenue Fiscal Grant
April 2002 AHPP Summary 43
Informetrica
Limited
Findings from Fiscal Model
• Own revenue increases from activity are offset by federal transfer reductions
• Expenditure increases will worsen Territorial Balance, unless financing arrangement made or territorial tax rates increased
• Revenue consequences of pipeline construction are modest at Territorial level
• Federal government is major beneficiary
April 2002 AHPP Summary 44
Informetrica
Limited
Local Impacts
• Employment Effects
• Local supply
• Spending by non-residents
• Bidding up Local Wages
April 2002 AHPP Summary 45
Informetrica
Limited
Occupational Impacts, Yukon
1. Construction (1128)
2. Clerical (432)
3. Services (370)
4. Managerial & Administration (366)
5. Sales (199)
6. Fabricating, Assembly (157)
7. Natural Sciences (132)
8. Transportation & Eqpt. Ops (104)
9. Farming (70)
10. Machining (55)
April 2002 AHPP Summary 46
Informetrica
Limited
Tough Questions
• Construction costs determine tariff and wellhead prices: can costs be controlled?
• Problems on any segment can hurt project economics. How to coordinate and avoid difficulties?
• Will escalating tariff be acceptable?• Need commitments to use the pipeline for some
defined amount for twenty-five years in order to finance it. Who guarantees performance?
April 2002 AHPP Summary 47
Informetrica
Limited
Yukon Development
• Expansion Opportunities – see industry forecasts
• New areas – not supplied by Yukon now What can be done here?
• Ancillary and Post-pipeline Opportunities
• When to start?
April 2002 AHPP Summary 48
Informetrica
Limited
Comparison to Other Studies
• 2000 Federal Study– Longer Pipeline, including Alberta and Sask.– Pipe imported– Fiscal policy like Scenario 1– Construction costs per mile lower– Less Throughput– Total tariff larger (US$2.83 vs US$2.63 from
Prudhoe Bay to Chicago)
April 2002 AHPP Summary 49
Informetrica
Limited
Next Steps
• Final Route Definition
• Define total direct HR requirements
• Review occupational requirements against supplies
• Contingency for low NG prices– Indexed bonds?– Long-tem contracts?
April 2002 AHPP Summary 50
Informetrica
Limited
Steps after “Go”
• Procurement Plans• ROW use• Training of Yukoners• Yukon business mobilization• Federal-territorial agreements• Agreements with Alaska and BC about
people, goods and services, supply, regulatory, and information
April 2002 AHPP Summary 51
Informetrica
Limited
AHPP – Will it Go?
• Cost effective – Alaska field costs are sunk and Alberta south has been pre-built
• Least-cost option for delivering Prudhoe Bay gas
• Most regulatory hurdles already jumped• No insurmountable bottlenecks identified• Do US consumers want the gas? Are
producers ready to sell?