The Mackenzie Gas Project has brought all non-regulatory work to a halt, citing “insufficient progress on key areas critical” to the C$7 billion plan for developing Canada’s Arctic gas.
Lead partner Imperial Oil said the co-venturers will stop activities such as geotechnical data gathering, a start on detailed engineering and advance work on contracting for construction.
The 200 full-time employees engaged in the project will be diverted to regulatory issues, which Imperial Senior Vice President Michael Yeager said require substantial progress to allow formal regulatory hearings to start by late summer or early fall.
He indicated that the consortium has been swamped with requests from aboriginal communities of a socio-economic nature “that are far beyond anything we were expecting.”
He said the cost of meeting just the benefits and access demands would be “many, many multiples” greater than comparable projects elsewhere in Canada.
Yeager also said the proponents want confirmation of a clear, firm regulatory review process, given that only 250 approvals have been received so far and thousands more are needed.
“We have to understand when the hearings will start and how they will be run to give us a schedule to plan our work around,” he said. “We must have a foundation on which the project can go forward.”
Yeager said the project is already “behind schedule” and can no longer cope with “more and more months of slippage.”
He said the Mackenzie Gas Project consortium is eager to participate in education, job training and business development programs to benefit aboriginals, but requests from the Deh Cho First Nations are “far beyond” normal taxes and royalties.
Fred Carmichael, chair of the Aboriginal Pipeline Group, which stands to take a one-third equity stake in the pipeline, said his group remains committed to the project because of the “significant opportunity” it represents for northern residents to reduce their reliance on government.
Without it, he said there will be no job creation, business opportunities or income for aboriginal people.
Spending has exceeded C$350 millionYeager said spending on the project has already exceeded C$350 million, but was unable to estimate how much spending will be lost because of the work shutdown.
The surprise announcement came after a week of veiled warnings by Imperial and Shell Canada, which openly voiced concern about the impact of regulatory delays, rising costs and aboriginal demands.
Tim Hearn, Imperial’s chief executive officer, issued a grim prognosis April 21 when he stepped up earlier warnings that time being lost in the regulatory process was putting a cloud over the 2009-2010 start-up target.
“My concern primarily is keeping it on schedule,” he told reporters after Imperial’s annual meeting in Toronto.
He said the consortium is working “really hard” with government to inject more discipline into the process.
But the longer the delays in launching public hearings the more Hearn is concerned that the finely balanced construction schedule will be thrown out of kilter.
Shell Canada, a 25 percent partner in the Mackenzie Gas Project, added fuel April 26 by disclosing that the owners were taking steps to “address a number of challenging issues that are impeding the (regulatory) process and increasing pressure on the overall project cost and schedule.”
Since the partners filed their initial 6,500-page regulatory application last October they have been swamped with about 3,000 questions, most from the Canadian government.
Some of the questions are “legitimate,” others a duplicates and many make no sense, Hearn said.
“We want to answer all the legitimate questions and all the required questions, but we are trying to clear out some of the inefficiencies and unrequired bureaucracy,” he said.
Can project move to next stage?Now the critical test for the partners is to determine “whether we can effectively move it along to the next stage and see if we have really got a viable project,” he said.
Delays at this juncture could multiply later, because of the difficult terrain and the narrow window for construction in Canada’s north, Hearn said, noting that two or three months now could translate into a year of lost time later.
The hardest-nosed opposition is coming from the Deh Cho, who, in addition to taking legal action, are building an ever-stronger challenge to the pipeline.
A mid-April meeting of Deh Cho delegates showed many communities fear the social impact of a pipeline will outweigh any economic benefits.
Roy Faban, chief of the Hay River Reserve, said his community is not ready for the project at a time when the Northwest Territories government has failed to come to grips with existing social problems.
Julian Landry, the Kakisa community’s energy adviser, who has tracked 30 years of oil and gas activities in the Cameron Hills area of the Northwest Territories, said it is not the three years of pipeline construction, but the next 10 years that will have the most “devastating affect” on the region.
Deh Cho Grand Chief Herb Norwegian, while insisting the door is not closed on the pipeline, said that the interests of his people come first and if the project collapses because those concerns are not resolved he is ready to take the blame.
Stephen Kakfwi, a negotiator for the Sahtu and former premier of the Northwest Territories, told the Canadian Broadcasting Corp. that an impasse in negotiations between Imperial and the aboriginal groups could be resolved if there was an agreement to distribute C$40 million a year in pipeline property taxes and gas surcharges to communities along the route.
He suggested the same formula could apply in the Yukon if an Alaska pipeline is built across that territory.
As debate has dragged on, with more voices echoing Deh Cho concerns, some have suggested the only answer is for a referendum in the Northwest Territories.