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MGP partners wrestle with Mac gas line costs
The Mackenzie Gas Project is on the table, not the shelf, even though its current price tag of C$16.2 billion could be headed higher, ExxonMobil Chairman and Chief Executive Officer Rex Tillerson told panel on global energy security in Calgary Sept. 7.
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 He warned in May that the MGP would not be viable without a “sizeable chunk” of federal aid.
“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
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