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Mackenzie gas line wanted — alive, but not at any price Federal, Northwest Territories cabinet ministers open to all options for Mackenzie Gas Project, except direct subsidies; status of fiscal talks under wraps Gary Park For Petroleum News
The Canadian government believes it and so does the Northwest Territories.
Getting natural gas out of Canada’s North is so important to the national interest that every effort should and will be made to keep the Mackenzie Gas Project alive, short of direct government subsides, say key cabinet ministers.
On the other side of the fence, the industry players view a government role as essential to close the gap between project cost and the project economics.
Those fundamental views have been restated in the fallout from the May 30 comments by ExxonMobil Chief Executive Officer Rex Tillerson that the MGP is uneconomic in today’s cost environment and may be abandoned unless the Canadian government is willing to improve the economics through royalty and tax breaks.
For NWT Industry Minister Brendan Bell it was the first time he could recall a public stand on the MGP by the head of ExxonMobil, which owns 69.6 percent of Imperial Oil, the MGP’s operator and largest partner.
They were a clear indication of the financial challenges facing the MGP, but they didn’t change the need for Arctic gas beyond adding to the sense of urgency to “turn over every rock we can” to find solutions, Bell said.
“In the national (energy security) interest, we have to look at all the options,” and that could require measures “above and beyond” what is normal, while stopping short of direct subsidies, he said.
Bell said the federal government has a number of possibilities within its powers, including royalty and tax breaks that have been used for other offshore and frontier projects, taking royalties in kind and providing an accelerated capital cost allowance.
“There are ways to help make this project more economic,” he said.
Prentice: project has to have ‘private sector rates of return’ Indian Affairs and Northern Development Minister Jim Prentice, the lead federal cabinet minister in MGP negotiations, agreed that a pipeline along the Mackenzie Valley is important to Canada and “is in our interest as nation.”
“How it happens, when it happens, and by whom, and what the rate of return will be on that pipeline all need to be determined,” he told reporters outside the House of Commons.
Sticking to one of his consistent messages, Prentice said the MGP will “have to achieve private-sector rates of return and make sense of free-market principles.”
“So I await to see if that is the case or not and if it isn’t, the proponents will have to consider alternatives.”
Neither Prentice nor Bell has shown any enthusiasm for a government equity stake and Prentice has rejected as “erroneous” speculation that the Canadian government was prepared to take an ownership position.
NWT Member calls for government stake But Dennis Bevington, the federal Member of Parliament for the NWT, called on the Canadian government May 31 to buy an equity stake in the MGP, “so long as there is a return on investment.”
Endorsing Tillerson’s view that the increase in capital costs has cut too deeply into rates of return, Bevington said a government partnership in the MGP would be consistent with government one-third participation in Imperial’s NWT’s Norman Wells oil field, the result of an agreement in 1944.
Bevington represents the New Democratic Party, only the fourth-largest party in the House of Commons, and said the NDP is only opposed to Ottawa “handing out corporate welfare” to a company that logged a record profit this year.
That leaves an equity stake as the only choice available to government and it’s one being adopted by energy-producing and exporting countries around the world, he said.
Status of fiscal terms talks under wraps The status of talks on fiscal terms for the MGP is under tight wraps.
Imperial spokesman Pius Rolheiser confines himself to describing them as “confidential and sensitive.”
To reinforce Imperial’s commitment and downplay the impact of Tillerson’s remarks, he said: “Is it an economically challenging project? Absolutely. Is it dead? Absolutely not. We believe it is ultimately do-able and that it can be a good project.”
As well as negotiations on federal fiscal terms, Rolheiser said the MGP partners are continuing to work on the regulatory process and seek benefits and access agreements with aboriginal communities along the pipeline route.
Prior to stepping down as chief executive officer of Shell Canada (whose minority shareholding was bought out in April by Royal Dutch Shell), Clive Mather offered a mixed assessment of the MGP’s outlook.
He told reporters Shell, which has an 11.4 percent stake, remains “very much committed” to the MGP and “quietly confident” that it will proceed because the fundamentals of bringing stranded northern gas to market and of opening up a potential new supply basin are strong.
“But right now it’s hard to see how it’s going to get to a level where the economics work,” Mather said, delivering a final message to government that its involvement “will always be important.”
He said the current need is to find a configuration between project costs and economic returns as the role of government.
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