Providing coverage of Alaska and northern Canada's oil and gas industry
January 2010

Vol. 15, No. 1 Week of January 03, 2010

Mackenzie has liftoff; panel gives support to project

The Mackenzie Gas Project has surfaced from its prolonged regulatory bog to receive strong backing from a Joint Review Panel which gave approval, along with caveats, based on its examination of the impact on the environment and lives of people in the project area.

In a 679-page report issued Dec. 30, the seven-member JRP said the MGP and associated facilities in northwestern Alberta would “provide the foundation for a sustainable northern future” in a region that has traditionally depended on government handouts.

Beating its final deadline by one day, but 30 months behind its anticipated delivery date and about C$14 million over budget, the JRP said its conclusion was conditional on full implementation of its proposed measures to “mitigate adverse impacts, reduce the risk and enhance the opportunities” for a “durable and sustainable future in the Mackenzie Valley and Beaufort Delta regions.”

It said that future would be better than a future without the MGP.

The 176 recommendations are sweeping in their scope, requiring such things as inventories of specific wildlife species before work on the MGP could proceed.

But the panel does not require major rerouting of the pipeline.

The JRP said “there was broad consensus among participants (although by no means unanimity) that the project on its own, with few modifications and with the appropriate responses from governments, could be acceptable and indeed beneficial.”

To NEB next

What could be the largest capital project in Canadian history now moves to the National Energy Board, Canada’s energy regulator, which will incorporate the findings into its own examination of engineering, tolls and tariffs, economics and land issues in deciding whether the MGP is in the public interest.

If the project is deemed viable a final report will be turned over to the Canadian government’s cabinet, which will decide whether the NEB can start issuing the hundreds of permits and licenses needed for the MGP.

The NEB has scheduled its final hearings in spring 2010, indicating it expects to complete its work by September.

Assuming all of the hurdles are cleared and the MGP partners can negotiate a fiscal package with the federal government, that will likely include funding for related infrastructure, the co-venturers will be ready to make a sanctioning decision.

There has been no recent attempt by Imperial to set a startup date or cost estimate since it released a price tag of C$16.2 billion in March 2007.

No gas before 2017

However, the NEB has indicated it would not anticipate gas flowing from the Mackenzie Delta before 2017 and Northwest Territories government sources have estimated that the federal government might have to offer loan guarantees of C$24 billion to make the MGP viable.

Along with the economics, the most pressing issue facing the MGP is seen as gas need, especially if an Alaska gas line were to proceed first and forecasts for shale gas output in North America were to prove accurate.

Analysts have noted that shale gas estimates for northeastern British Columbia alone far surpass those for North Slope gas.

Bob Reid, president of the Aboriginal Pipeline Group, which has the option of taking a one-third equity stake in a Mackenzie pipeline, said that if Alaska overtakes the MGP and shale gas starts flowing “it’s conceivable we may have missed the window of opportunity” and the MGP could end up “on the shelf for a very long time.”

One of the key unknowns is whether gas from the Mackenzie Delta — which could initially flow in the range of 800 million to 1.9 billion cubic feet per day — will be deemed essential by Imperial, ExxonMobil, ConocoPhillips and Shell Canada to fuel their oil sands operations in Alberta, apart from meeting an expected surge in North American power and transportation needs.

—Gary Park

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