Minister: Arctic gas vital

Study for NWT outlines economic, environmental benefits of Alaska, Mac gas

Gary Park

For Petroleum News

Failure to develop Arctic gas from Alaska and Canada along with currently proposed LNG projects in Russia and Norway could cost North American consumers C$338 billion (US$321 billion) between 2014 and 2025, while raising carbon dioxide emissions by 280 million metric tons if coal was used instead to feed power plants, says a study commissioned by the Northwest Territories government.

Released by NWT Industry Minister Brendan Bell during a cross-North America mission to sell the importance of Arctic gas resources, the study by Calgary-based Angevine Economic Consulting assumes a base case of initial throughput from Alaska of 4 billion cubic feet per day by 2017, increasing to 6 bcf per day in 2020; initial volumes of 1.5 bcf per day from the Mackenzie Delta by 2013; and LNG from Russia and Norway.

The process also involved Energy and Environmental Analysis of Virginia, which ran two scenarios — one with and one without Arctic gas — to determine the impact of prices on North American consumers and the emissions that would result without Arctic gas.

Bell, in a presentation to the Center for Strategic and International Studies in Washington, D.C., said it is vital North Americans should know the cost of delaying the shipment of gas from the Arctic.

Speaking to reporters, he said the introduction of LNG imports to North America is not a threat to development of Alaska and Mackenzie Delta gas, noting: “We need it all.”

Bell said Canada and the United States “must work together to develop a range of options.”

‘Integrated energy market’

He said the problem and the need for solutions is much bigger than simply telling people to turn off the lights when they leave a room.

Without Arctic gas and regardless of demand easing as gas prices rise, the study estimates there would be close to a 12 percent difference in gas prices over the nine year period.

“Arctic gas could lower consumers’ cost of gas considerably in the years ahead,” it said

Speaking in New York, Bell said MGP negotiations are at a “critical juncture,” and he has “never been more concerned about anything than the costs and economics of the project and the negotiations that have to happen between the producers and Canada.”

However, overriding everything is Bell’s hope that the producers “have the will to see this thing through.”

Bell: Government help needed

Bell told a press briefing in Washington, D.C. the Canadian government, while it could contribute to the provision of “strategic infrastructure,” is unlikely to offer any direct subsidies, but it is eager to work on other types of incentives, such as adjusting depreciation rates on investment in the pipeline.

He found some concern about the cost of developing Arctic gas, but also encountered a desire to reduce the reliance on coal and an acknowledgement that obtaining approval for nuclear power plants will face stiff public resistance.

MGP partners wrestle with Mac gas line costs

The regulatory process, already dragging far behind original timetables, will likely take another year, at which point ExxonMobil will be able to provide an updated budget based on whatever conditions the project faces and decide whether to proceed, he said.

Until the regulatory rulings, engineering and field work are on hold, which means the cost estimate has “not had what I’d call a thorough update in some time,” Tillerson said.

“There is no question that the cost has gone up, but we don’t have a cost number that I have high confidence in,” he said.

ExxonMobil is the key corporate decision-maker in the MGP, owning 69.6 percent of consortium leader Imperial Oil, which has a 34.4 percent interest, while wholly owned ExxonMobil Canada has another 5.2 percent.

Tillerson cautioned that the budget could be higher or lower than the C$16.2 billion figure, which was released in March and was up C$8.7 billion from the previous estimate.

“People need to be careful when you start throwing numbers around as to what is the quality of the cost estimate,” he said, noting that costs across the energy industry have climbed “fairly dramatically.”

“These costs were developed to work through the regulatory process.

“I wouldn’t hang my hat on whether it’s 16 billion, or 14 billion or 20 billion. All I would say, it’s large, it’s larger than we thought,” he said.

Despite the regulatory delays and the inflated costs, Tillerson said “satisfactory” progress has been made on the regulatory front, discussions with the Canadian government are continuing and the project is still alive.

Tillerson: federal aid needed

“The thing people have to appreciate is these are enormous investment projects,” he said. “They will be among the largest investment projects undertaken anywhere in the world.”

Meantime, the partners are looking for various ways to implement the project in a way that addresses the cost concerns.

Drawing on his own involvement over the past 20 years in both the Mackenzie and Alaska pipeline proposals, he said projects on those scales simply take a long time to bring together.

“Government and policy regulators have to appreciate these are enormous investment projects. They will be among the largest investment projects undertaken anywhere in the world,” Tillerson said.

“Obviously there is a huge risk when you are putting that kind of capital upfront over your ability to get your money back and to generate some kind of acceptable return.”

He said ExxonMobil is seeking a fiscal structure in Alaska that ensures stability for a project most recently estimated to cost US$25 billion.

He said the project will “take multiple years to execute before we see the first gas transported to the marketplace and then it will take a long time before you get your money back. That is why we need to have fiscal stability.”

Tillerson said that although his company is ready to carry the resource risk and the risk of cost inflation, delays and gas prices, it expects the Alaska government to give a firm commitment on taxes and royalties.

—Gary Park