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Vol. 11, No. 18 Week of April 30, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

All for one, one for all

Mackenzie explorers want gathering and main pipelines under one regulator

Gary Park

For Petroleum News

The pace of future natural gas development in the Mackenzie Delta-Beaufort Sea region may hang on whether Canada’s National Energy Board agrees in June to assume jurisdiction of both the gathering system and main line, submissions to the board have warned.

Having already missed a deadline to contract for firm capacity on the two systems, six members of the Mackenzie Explorer Group have told the federal regulator there is an “urgent need” to resolve an impasse in negotiations with Imperial Oil, the lead partner in the Mackenzie Gas Project.

In a motion filed in April, the MEG members — Anadarko Canada, BP Canada Energy, Chevron Canada, Devon Canada, EnCana and Nytis Exploration — want the National Energy Board to issue an order to establish a “single” pipeline that would fall under the board’s jurisdiction.

The MGP proposal is currently structured so that the main line would be regulated by the board, while the gathering system (a 115-mile network to deliver gas and gas liquids to Inuvik, where they would be separated for delivery to southern markets, and a 280-mile liquids pipeline to Norman Wells) would fall under the Canadian Oil and Gas Operation Act.

MEG: concerns over tariffs, access

MEG said in its filing that uncertainty surrounding the question of whether the board will regulate tolls and tariffs on the gathering system have made it “commercially impossible” for its companies to sign the contractual commitments required by Imperial.

MEG has also expressed concern about whether the terms and conditions under which Imperial is offering access to the gathering system and the prospects of expanding the gathering system under its current design are fair and reasonable.

The group said its members and “other prospective shippers” have rejected Imperial’s ultimatum, including a Feb. 15 deadline for producers to sign contracts, regardless of the consequences.

Imperial has until May 5 to respond to the MEG filing and until then is not discussing the contents of its submission.

However, Imperial has warned that the Feb. 15 deadline “reflects the latest possible date to modify the gathering system design to provide capacity of more than 1.075 (billion cubic feet per day) without compromising the proposed” 2011 project start-up date.

Devon Canada Vice President Michel Scott told Petroleum News MEG would “never rule out having a negotiated deal,” even with the dispute heading for a regulatory hearing.

But he emphasized that failure to make progress on the commercial negotiations with time running out meant that “going to the NEB was the only action we had left.”

Scott insisted MEG remains “very supportive” of MGP and views the filing of its motion “very much as business as usual.”

He said MEG is anxious not to cause any delays in the current rounds of public hearings.

Hearing scheduled June 2

The NEB has scheduled June 2 in Yellowknife to hear arguments from those who have filed submissions.

Scott said that whatever decision the regulator makes will be assessed at that time.

What the group wants is clarity on the regulatory framework to speed up future development of gas discoveries outside the three Mackenzie Delta anchor fields owned by Imperial, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada, he said.

It also believes that if the Canadian government is going to put public money into the Mackenzie project “there should be benefits for the public,” Scott said.

The previous Liberal government said it was open to sharing some of the project “downside risks” by possibly accepting gas in lieu of royalties, guaranteeing gas in excess of that available from the anchor fields, offering a “profit-sensitive” royalty scheme or making federal investments in some of the project components — options that the new Conservative government is still pondering.

The current design capacity of the gathering system dedicates 830 million cubic feet per day from the anchor fields, leaving 245 million cubic feet per day for MEG members and other third-party producers. The mainline has an initial capacity of 1.4 billion cubic feet per day.

Gathering system could be bottleneck

But MEG said in its filing that Imperial appears to view the gathering system as one to serve the anchor fields, with only “limited extra capacity for non-owners on whatever terms (Imperial) may choose without regard for their requirements as resource developers in this new basin.”

In contract, MEG looks on the gathering system and main line as a chance to open the basin and offer an open-access transmission system, which require a “single” pipeline to be regulated under the NEB Act.

The MEG position has been endorsed by the Inuvialuit Regional Corp., whose overall job is to manage 5,000 square miles of the Western Arctic covered by a land claim settlement, and explorer Mosbacher Operating.

The Inuvialuit said the public interest requires that tolls charged for the gathering system be “just and reasonable” without any unjust discrimination in charges, provision of access to the pipelines or related services.

The aboriginal corporation is anxious to see an “orderly development and production of the full resource potential of the region.”

Unless MEG members gain access to the gathering system there could be a proliferation of pipelines in a sensitive environment, it has suggested.

However, there has been a split in MEG ranks, with Apache Canada asking the NEB to reject the group’s motion.

As a potential shipper on the Mackenzie gas and gas liquids pipelines and a potential owner and operator of the gathering and processing facilities, Apache said it is directly affected by the orders requested.

Apache said it has a 50 percent working interest with Paramount Resources on about 430,000 acres in the Colville Lake area of the Northwest Territories that could require spending up to C$650 million to build facilities to interconnect with the pipeline.

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