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Ownership out of question Cabinet minister suggests Mac gas pipeline project may have to be ‘reinvented’ Gary Park For Petroleum News
The Canadian government has no intention of bridging the cost escalation gap between the C$5 billion Mackenzie Gas Project when it was studied in 2000 and the revised budget of C$16 billion, but it does want gas from the Canadian North delivered to market, Indian and Northern Affairs Minister Jim Prentice said.
In what represents the most declarative statement yet by the government of Prime Minister Stephen Harper, he stated “categorically that we have no interest in owning the pipeline ourselves – this is not a business at which the government of Canada has distinguished itself.”
Prentice said the government would not subsidize the Mackenzie Gas Project.
“If the project is not viable as a private sector investment, then it should not proceed,” he told the Canadian Gas Association.
But, without entering the realm of a public equity stake, he said the government is open to negotiating:
• Acceptance of royalties in kind.
• A royalty regime that is consistent with a project to open exploration and development of Canada’s North.
• Taking out shipping commitments to reduce volume risk.
• Other unspecified forms of support.
Wants to stay ahead of Alaska Prentice said the government is also “mindful of public policy developments in other jurisdictions, particularly Alaska, and we are cognizant of the need to have a competitive fiscal regime and to ensure that we maintain the timing advantage over the Alaska pipeline project.”
He said the Mackenzie natural gas pipeline must be “cost-competitive with alternative sources of supply. … Recent developments in the United States in relation to a potential Alaska gas pipeline may have shifted the competitive landscape somewhat. We will follow these developments closely.”
However, he said that the rise in the budget estimates makes it “difficult to imagine any significant progress on fiscal framework discussions in the absence of the proponents reinventing this project.”
Prentice touts importance of gas explorers Pius Rolheiser, spokesman for the Mackenzie Gas Project’s lead partner Imperial Oil, which is 69 percent owned by ExxonMobil, welcomed what he said was an “expression of continued (government) commitment to working with the proponents and other parties to help move the project forward.”
He said Imperial was in complete agreement with Prentice’s stance that the northern gas project “must be economic on its own merits” and was not interested in subsidies.
But Rolheiser told Petroleum News that Imperial needs to better understand what Prentice had in mind when he said the Mackenzie Gas Project should be reinvented and when he made a case for ensuring that the gas pipeline is a “basin-opening piece of northern infrastructure.”
Prentice said it is “fundamental” that the project should serve not just the interests of owners of the three anchor fields in the Mackenzie Delta, but the Mackenzie Explorer Group made up of independent E&P companies such as Devon Canada, BP Canada Energy, Chevron Canada and MGM Energy.
“It will be the availability and market predictability of access to the pipeline and gathering system that drives the economic activity that is required to justify the project,” Prentice said.
“If the pipeline and gathering system are designed, constructed or regulated in a manner that only serves the anchor field (owned by Imperial, ConocoPhillips Canada, Royal Dutch Shell and ExxonMobil Canada) and the conveyance of anchor field gas, it is impossible to make a compelling case, or even a strained one, that the project is in the national interest,” Prentice said.
Urges revisit of access issue To that end he urged the proponents and the Mackenzie explorers to revisit issues that have stalled an agreement on access to the gathering system.
The Mackenzie Explorer Group was unable to persuade the National Energy Board last year to bring the main pipeline and gathering system under a single jurisdiction, with common tolls and tariffs.
But Prentice noted that the 2007-08 federal budget committed the government to pursue amendments to legislation regarding the authority to regulate pipeline access, tolls and tariffs.
Rolheiser said the gathering system has already been designed to handle 50 percent more gas than the 830 million cubic feet per day that is initially planned for production at the anchor fields.
On the broader question, Prentice said Canada’s stranded northern gas reserves “must eventually be connected to North American markets. … This will support the competitiveness of Canada’s energy sector by ensuring existing pipeline infrastructure is more fully utilized. It will also support our long-term energy security and help moderate price fluctuations. … About one-third of remaining recoverable gas in Canada is in the North and more than half is in the Mackenzie Delta and Beaufort Sea,” he said.
Prentice argued that accessing that gas will become increasingly important as production declines in the Western Canada Sedimentary Basin, where well completions have multiplied seven-fold since the 1990s, but production has remained static – a trend that is expected to continue, making a natural gas pipeline from the Mackenzie Delta even more vital.
Must generate benefits for northerners But a pipeline along the Mackenzie Valley must generate tangible benefits for northerners, especially economic development in aboriginal communities, and “the gas itself must connect into the Canadian hub,” he said.
He said the participation of the Aboriginal Pipeline Group, which is seeking a one-third equity stake in the pipeline, has been an important aspect from the outset.
“It is virtually impossible to imagine the project proceeding on another basis,” Prentice said.
However, Hal Kvisle, chief executive officer of TransCanada, which has funded the Aboriginal Pipeline Group’s participation in the planning and regulatory stages, told the same conference the federal government should be willing to compensate the proponents for the C$2 billion they have spent on regulatory and land-access costs that would not be faced by other energy projects.
“We think in part the government should think about what their role might be in covering part of that cost because it’s not a situation of the industry’s making,” he said.
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