Providing coverage of Alaska and northern Canada's oil and gas industry
February 2006

Vol. 11, No. 7 Week of February 12, 2006

Gary Lunn has full plate

Arctic gas, labor shortage, B.C. offshore confront Canada’s new energy chief

Gary Park

For Petroleum News

From journeyman carpenter, to construction superintendent, to lawyer, to cabinet minister in the federal government, Gary Lunn brings a varied skilled set to his job as Canada’s new energy minister.

He might need to draw on his full bag of tricks as he tackles a mountain of unfinished business from the previous Liberal administration, with the development of natural gas in the Arctic regions of Alaska and Canada near the top of the heap.

Much as the Alaska government might hope for a quick resolution of who will build and operate the Canadian section of a gasline from the North Slope to the Lower 48, there are still matters relating to the Mackenzie Gas Project needing government attention.

One commitment made by the Liberals seems certain to survive — the pledge of C$500 million over 10 years to address social and economic issues stemming from a pipeline along the Mackenzie Valley.

Prime Minister Stephen Harper, in a January letter to Northwest Territories Premier Joe Handley said the Conservative party (now the government) endorsed the “general principles and objectives of the socio-economic fund,” although it would still be an issue for discussion.

But Randy Broiles, Imperial Oil’s senior vice president in charge of the Mackenzie project, said in mid-January he did not think a change of government would jeopardize the Liberal promises.

“We’re not concerned about the election,” he said. “We are committed to working with whichever government is in place.”

Fiscal enhancements a challenge

A bigger challenge for the Harper administration is picking up where the Liberals left off in offering federal fiscal enhancements to improve the Mackenzie economics, including assuming some of the downside risks provided the government could “increase its share in the potential financial rewards.”

Questioned by a lawyer for the Mackenzie Explorer Group, in the opening round of National Energy Board hearings, Imperial executive Randy Ottenbreit said he did not know what types of investment the federal government might make.

The Liberal government turned down a request for subsidies of C$1.2 billion and Imperial has made it clear it is not open to a government equity interest.

Ottenbreit said fiscal terms were expected to be settled by mid-year, although that target might have to be revised because of the change in government.

Part of those negotiations might involve Ottawa becoming a significant shipper on the pipeline if the government is prepared to accept royalties in kind, he said.

Otherwise, Ottenbreit again took up Imperial’s message that the Mackenzie economics are “thin” and the project faces substantial risks if it hopes to compete with other gas supplies, including imported liquefied natural gas.

Getting to grips with the Mackenzie is sure to claim a large chunk of Lunn’s time and does not bode well for a quick decision on the Alaska pipeline.

Kyoto Protocol changes promised

The initial reaction to the arrival of Lunn, 48, has been positive.

Since his election to the House of Commons in 1997 he has built a reputation for handling his assignments efficiently, openly and cheerfully.

Those characteristics will quickly be put to the test.

Along with Environment Minister Rona Ambrose, he will be thrown an early nettle.

Prime Minister Stephen Harper, a harsh critic of Canada’s decision to sign the Kyoto Protocol, has promised to set new made-in-Canada targets for reducing greenhouse gas emissions without saying whether he was withdraw from the climate change treaty.

He said during the election campaign that Kyoto’s targets of a 6 percent cut in emissions from 1990 levels by 2012, when Canadian levels have already climbed 24 percent since 1990.

Harper said Kyoto will “not succeed at achieving its objectives” and the Conservative government will do what its Liberal predecessor didn’t by consulting with the provincial governments on aspects of the international agreement that touch on provincial jurisdiction.

He also said any future international treaty would have to include the world’s largest polluters — the United States, China and India — all of whom have joined an Asia-Pacific partnership of countries to pursue voluntary emission reductions.

Lunn Member from Vancouver Island

As a Member of Parliament from Vancouver Island, Lunn is also under pressure from his own provincial government to end the 35-year moratorium on offshore exploration.

British Columbia Energy Minister Richard Neufeld said progress towards lifting the ban was being made in discussions with the Liberal government and he hopes the pace will accelerate under the Conservatives, even though the other opposition parties (New Democratic Party and Bloc Quebecois) are not seen as backers of exploration.

Because the moratorium was not covered by legislation it can be ended by the government not parliament, he said.

In one of his few comments since being appointed, Lunn said the Conservatives have an open mind on the moratorium.

He said the government will probably want updated research data on the impact of exploration before making up its mind.

Neufeld suggested that before drilling occurs, the industry will need a chance to use modern seismic technology to update the resource potential of the offshore.

For now, he said the British Columbia government will work constructively with Ottawa, First Nations, coastal communities and others who want to be involved “in a meaningful way.”

Some in the industry think the most pressing issue before Lunn and the government is the shortage of skilled labor and materials, and the need to fast-track the processing of immigrants.

Just one indication of the pressures that are inhibiting upstream activity comes from drilling and service rig contracts who say new rig construction is hampered by the demand on raw materials, labor and plant capacity which have added 12 weeks to delivery times for conventional products and as much as one year for major components, forcing customers to place orders for the first quarter of 2007.

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