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Gloom over Mackenzie line Kvisle: project ‘may well not proceed,’ partly because of gas drilling in Alaska Gary Park For Petroleum News
Faltering progress through the regulatory thicket that has entangled the Mackenzie Gas Project is generating a grim message from Hal Kvisle, chief executive officer of TransCanada.
Frustrated by the drawn-out approval phase — which he only half-jokingly told shareholders May 1 was “the greatest regulatory process that mankind has ever mounted” — he has made less and less effort to disguise his view that the MGP is in trouble.
“I confess to some pessimism on the Mackenzie project and it may well not proceed,” he told an industry conference in Houston three months ago.
Kvisle raised that warning level on May 1 when he told TransCanada’s annual meeting that there is now a strong chance a gas pipeline from Alaska could overtake the MGP, while noting there is little downside to a pipeline that would generate jobs in Canada and support petrochemical projects in Alberta.
“Five or six years ago, we were much more optimistic about the Mackenzie than about Alaska. … All the cards were stacked in Mackenzie’s favor at that point in time,” he said.
The regulatory process did not move ahead at the expected pace and now, in 2009, “it’s almost beyond belief the quagmire that we continue to work through,” he said.
Mackenzie fields not developed Kvisle said it doesn’t help that the major natural gas fields backing the MGP have not been developed.
“The fields need to be completely drilled up (and) all of the production facilities need to be constructed,” he said. “Obviously, all of the regulatory permits (which number in the hundreds) need to be received to do that kind of work.”
In contrast, Kvisle noted that Alaska’s producers, ExxonMobil, BP and ConocoPhillips have been drilling on the North Slope for years, advancing that resource to a “state of maturity where it’s time to go ahead with the gas pipeline and the predictions by people like ExxonMobil have always been 2016-2018 would be the right time from a reservoir engineering point of view to bring that gas on production.”
Kvisle is more strongly placed than anyone to offer a candid assessment of both projects — close enough to the action to have a clear sense of what is happening and what is needed, yet not restricted by having a direct ownership stake.
Although TransCanada has no current stake in the MGP, it can acquire 5 percent through its ongoing commitment to fund the work of the Aboriginal Pipeline Group, which can own one-third of the pipeline on behalf of aboriginal communities along the pipeline route.
It also holds an exclusive Alaska license to build the state’s proposed gas line and has just received a green light from the U.S. Federal Energy Regulatory Commission to join the rival Denali project in entering the pre-filing phase.
Imperial hasn’t wavered Imperial Oil, the lead partner in the MGP (along with ExxonMobil Canada, ConocoPhillips Canada and Royal Dutch Shell) and 69.6 percent owned by ExxonMobil, has never openly wavered from its “commitment” to the MGP and opening up Canada’s Arctic gas, despite regulatory setbacks that have now stretched to years, rising costs and growing pessimism among analysts, politicians and others that if the MGP trails Alaska to the construction start line it will be shelved indefinitely.
Imperial Chief Executive Officer Bruce March gave a measured report card at his company’s annual meeting March 30.
He said spending has been slowed while the emphasis has shifted to striking a fiscal agreement with the Canadian government and negotiating benefits and access agreements with First Nations — three of which have been concluded, one is close to a deal and, the toughest of all, with the Deh Cho First Nations is still being negotiated.
March said discussions are still under way with federal Environment Minister Jim Prentice and other government departments to settle on a fiscal regime that will allow the partners “to go forward to invest and develop the property and get a pipeline built.”
Gas bubble not an obstacle While reiterating Imperial’s commitment, he said “the main focus is on the last remaining aboriginal agreements and the fiscal framework. We’re confident we’re going to work hard to get that agreement and, like everyone else, we’re anxiously awaiting the Joint Review Panel’s report” on the environmental and socioeconomic issues, now expected late this year, about four years behind the original objective.
March does not believe that the current North American gas bubble poses an obstacle to the MGP over the long term.
He said that as governments in Canada scale back coal-fired power generation, the need for alternative, cleaner energy sources will grow.
“There’s not enough gas in North America to make the conversion (from coal-fired to gas-fired plants) if you went 100 percent,” he said. “We still feel pretty good about gas being well in the energy mix, but it has a price environment that’s gone up and down.”
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