The Really Big Show is on the road in Canada’s north, launched Jan. 25 in Inuvik with a flourish of Native dancing, singing and drumming and enough vows, promises and pledges to apparently remove any doubts that the Mackenzie Gas Project will finally proceed.
But, farther south, project leader Imperial Oil was doing one of the things Imperial does best — injecting a note of caution.
In contrast to the celebration that set in motion a year of regulatory hearings, Randy Broiles, Imperial senior vice president, offered a sober assessment of the project’s outlook.
Speaking to an energy conference at Lake Louise, a resort community in the Canadian Rockies, he again echoed Imperial’s standard caveat that the Mackenzie economics are “thin.”
He said a combination of rising construction costs, eroding natural gas prices and emerging competition from liquefied natural gas could yet be the Mackenzie’s undoing.
“While the Mackenzie would be an important source of supply, LNG imports are expected to dominate the new growth wedge,” Broiles said Jan. 27.
He noted that LNG terminals typically range in size from 1 billion to 2 billion cubic feet per day (compared with the Mackenzie’s targeted start up of 1.2 billion and its potential for 1.8 billion) and nearly 60 new LNG terminals or expansions are on the table in North America.
“Simply put, if new gas pipeline projects like Mackenzie are not competitive with LNG imports, they will not be built,” he said.
“Some people assume that since the Mackenzie project is an onshore, North American pipeline project, it isn’t as large or as complex as an LNG development.
“That’s not the case — Mackenzie is a major undertaking on par with any of the proposed North American LNG projects,” he said. “Our focus for the Mackenzie is ensuring we have a viable project that can compete head-to-head with LNG in the long term.”
However, aside from Imperial’s standard caveats that it must first obtain regulatory approvals and then reach a corporate decision on the economics of building a pipeline, Broiles’ primary focus was on the progress achieved so far in a venture that has already cost the co-venturers C$400 million and involved more than 1,000 documented meetings with northern communities.
Despite the many loose ends — including the need for benefits and access agreements with aboriginal groups, final terms of agreement on fiscal matters, natural gas markets, project costs and the level of shipping commitments — his essential message was that “we’re confident we will go forward with this amazing opportunity.”
Other participants readyThat sentiment was widely echoed by government, regulatory, industry and aboriginal leaders.
“We’re ready,” said Fred Carmichael, chairman of the Aboriginal Pipeline Group, which could own 2 percent to 33 percent of the pipeline, adding the north has had 30 years to “get ready” since a 1977 national inquiry halted the first attempt to develop Canada’s Arctic gas.
Ken Vollman, chairman of the National Energy Board — which is conducting one of two parallel hearing processes along with a Joint Review Panel, charged with assessing the environmental, socio-economic and cultural impact — described the new phase as a “historic undertaking.”
“We’re striving to hear all voices,” he said.
“We have been asked to make a decision on a proposal to build a pipeline system from north of Inuvik to the Alberta border covering nearly (840 miles).
“If approved, this C$7 billion system would be one of the largest projects considered by the board since its creation in 1959,” Vollman said.
Environmental opposition expectedDealing head-on with what is expected to be one of the most contentious issues, Randy Ottenbreit, the Mackenzie project manager for Imperial, identified the key issues as balancing resource development with the environment — an acknowledgement of the opposition expected from the Sierra Club, the World Wildlife Fund and the Canadian Arctic Resources Committee — and ensuring that First Nations people benefit from the use of their land.
He said the proponents are committed to “demonstrating care for the environment during all phases of the project, before, during and after construction.”
They are also resolved to working with “aboriginal and non-aboriginal northern residents, to provide northern people and businesses opportunities to benefit from the proposed project.”
Access a sticky issueOne of the stickiest matters is already gaining prominence as gas producers outside the anchor field owners — Imperial, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada — are intensifying their case for access to the Mackenzie Valley pipeline.
Devon Energy and EnCana are among the companies renewing their argument that the system is not currently designed to handle production from third parties.
Richard Neufeld, an attorney for the independent producers, told the hearings that if the pipeline receives fiscal support from the Canadian government it should be open to all producers.
“If there is a need for public investment in this project, it ought to be accessible, both physically and contractually, for gas from future discoveries,” he said.
When questioned by Neufeld on the details of possible federal investments, Ottenbreit said he could not provide an answer while discussions continue.
He also said negotiations have yet to determine whether the government will become a significant shipper on the pipeline.
Because of the change of regime in Ottawa, following the Jan. 23 defeat of the Liberal government, Ottenbreit said hopes of completing fiscal terms by mid-2006 will likely be delayed.
Harper: little change in federal policyIncoming Prime Minister Stephen Harper, in a letter to Northwest Territories Premier Joe Handley during the campaign, indicated there would be little change in federal policy on the project.
He said a fiscal regime, including taxes and royalties, would be a “matter of discussions with all the interested parties” under a Conservative government.
Harper also said his party endorses the “general principles and objectives” of the C$500 million promised by the Liberals over the next 10 years to deal with social and economic impacts of a pipeline.
The New Democratic Party also told Handley it would support any legislation setting up the fund.
Broiles saw no reason to be concerned about the change of administration, noting that Canada has a “long history of stability through changing governments.”
Ultimatum to Deh ChoWith the hearings under way, those aboriginal regions who are in the final stages of wrapping up deals with Imperial to take full equity positions in the Aboriginal Pipeline Group delivered an ultimatum to the Deh Cho First Nations, the last holdout community. Carmichael said a letter has been sent to the Deh Cho giving them until June 30 to take an equity position or lose their reserved seat.
“This project is going to go … with them or without them,” he said.
But Deh Cho Grand Chief Herb Norwegian was typically direct in his response, telling the Globe and Mail that “we don’t accept deadlines on anything. That’s the attitude we get from imperialist oil companies.”
He said the Deh Cho first wants the Canadian government to break a deadlock in land claims and self-government negotiations.
Otherwise, Norwegian said, the Deh Cho are ready to support environmentally sound projects that directly benefit First Nations, at which point the Deh Cho would be “right in the forefront.”