Mac line a distant prospect

EIA forecast of North Slope gas development delays extends Mackenzie timeline

Gary Park

For Petroleum News

Canada’s proposed Mackenzie Gas Project faces even lengthier delays if the U.S. Energy Information Administration is on the mark with its estimate that commodity prices will stall shipments of natural gas from Alaska’s North Slope to the Lower 48 until at least 2033.

The agency’s annual outlook report estimated wellhead prices, excluding transportation costs, would have to reach US$6.18 per thousand cubic feet to spur producer interest in an Alaska pipeline.

If the price is not high enough to move an Alaska project forward, there is even less hope for the Mackenzie venture, said EIA analyst Joe Benneche.

Because a Mackenzie project lacks the economies of scale and the infrastructure that already exists on the North Slope, developing Canada’s Arctic gas reserves faces even higher costs, he suggested.

TransCanada’s Girling says government involvement required

Russ Girling, newly installed chief executive officer at TransCanada — the leading contender to carry gas from the Mackenzie Delta to southern Canadian and U.S. markets — said the MGP remains in Canada’s interest, although northern producers are currently faced with cheaper southern volumes.

But, if the Arctic resource is to be commercialized, the Canadian government will have to be involved in “some form or fashion,” he said, noting that Alaska has far greater established reserves, existing oil production and infrastructure that provide built-in advantages for the North Slope, and a US$500 million state incentive.

Dennis Bevington, the Member of Parliament for the Western Arctic in Canada’s House of Commons, added his voice to those concerned that the National Energy Board has set a deadline of Dec. 31, 2013, for the MGP partners to decide whether to go ahead with their project.

He said the companies need more time to gauge when the MGP can meet their economic threshold, adding that three years is not enough time given the uncertain outlook for gas prices.

Bevington said the NEB was “pretty hard-lined” in imposing the 2013 sunset clause, given that Imperial had asked for a two-year extension.

“The situation in the natural gas industry has changed dramatically over the last two or three years and with a major project (like the MGP) there should be a little more lead time,” he said.

Meanwhile, Bob McLeod, Industry Minister in the Northwest Territories government, is urging the MGP proponents and the Canadian government to resume efforts “very soon” to negotiate a fiscal regime for the project.

He said Jim Prentice, the federal cabinet minister handling the MGP file until he quit politics for a job as vice chairman of the Canadian Imperial Bank of Commerce, indicated earlier last year that about C$3.2 billion of federal money would be available for MGP-related infrastructure and other incentives.

McLeod said if that money could be obtained, the MGP partners would feel more confident about moving forward.

MGP key to development

“The economic potential of Northern Canada is highly dependent on its mining and oil and gas resources,” said Len Coad, the board’s director of environment, energy and technology policy, in releasing the report.

“These primary industries also drive growth in other sectors of Northern economies, including communication, electricity and transportation infrastructure and commercial services. They can contribute to the prosperity of northern communities by providing jobs and supporting local businesses.”

The board’s definition of the North embraces the three territories (NWT, Yukon and Nunavut) as well as northern parts of seven of Canada’s 10 provinces.

The study was based on seven industries — oil and gas, mining, forestry, fishing, utilities, construction and tourism.

The board said that as conventional resources mature and decline, the North’s conventional and unconventional resources will grow in importance, noting that the transition is already taking place in the Alberta oil sands and British Columbia’s shale gas plays.

In contrast, the oil and gas resources of the territories remain largely undeveloped, constrained by a challenging climate, lack of infrastructure, a fragile natural environment, workforce issues and the distance to markets, the report said.

In 2004, the National Energy Board estimated Northern Canada has an ultimate natural gas potential of about 201 trillion cubic feet, of which about 50.5 tcf has been discovered.

The onshore and offshore areas of the northern territories have an estimated ultimate potential of 116 tcf of gas, while the southern Yukon and NWT have an estimated 6.9 tcf and offshore Labrador holds about 28 tcf.

Gaining access to reserves in the Arctic Islands is part of an NEB review of drilling in a region where ice coverage poses a significant technical challenge.

The board said that considering the distance to market, pipeline transportation from the Arctic Islands is probably not economic, but LNG technology may offer an alternative, although LNG projects elsewhere in the world do not face the same kinds of operating difficulties.