Tough times for Mackenzie line

TransCanada is eager to build its interest in the Mackenzie Gas Project, but for now is preoccupied with the spectrum of complex issues that have to be overcome for the project to go ahead, Chief Executive Officer Hal Kvisle said.

“In any pipeline project we’re involved in, we’d rather have a larger interest than a smaller one,” he told analysts July 27.

But the more pressing matter for now is the focus on “building a major basin-opening pipeline that will benefit Canada and the core producers and set the stage for a lot of exploration and production activity long term,” Kvisle said. “That’s a very complex thing.”

He said it is challenging for the core producers (Imperial Oil, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada) to press ahead with the project when many other stakeholders stand to benefit from the undertaking.

The big issues are the most expensive capital costs “we’ve seen for a long time,” uncertainty about gas prices over a 30-year time frame and settling on a fiscal regime with the Canadian government.

“On top of that we have got this incredibly difficult regulatory environment,” Kvisle said.

Fourth year of trying to get approvals

He suggested that part of what has slowed the regulatory process has been the fact that matters before the regulatory panels are “in many cases social and not directly related to the construction of a pipeline.”

For the project to go ahead, the proponents must get the capital costs, now C$16.2 billion, under control and develop a comfort around them; see “this endless regulatory process” concluded; reach agreement between the parties and the government; and “see a gas price outlook that makes (the project) fundamentally attractive,” Kvisle said.

“There is much to be done. I hope we can get to the next stage soon,” he said.

TransCanada entered the project by agreeing to finance the regulatory costs faced by the Aboriginal Pipeline Group, which is entitled to a 33.3 percent equity stake in the Mackenzie Valley pipeline.

In return, if a decision is made to build, TransCanada has an option to acquire 5 percent of the anchor capacity and up to 50 percent of all or part of any interests sold by the anchor producers.

—Gary Park