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Vol. 15, No. 18 Week of May 02, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Milestone for Mac gas line

Formal regulatory hearings end with NEB promising a decision in September

Gary Park

For Petroleum News

Whether — to draw from the Second World War utterances of Winston Churchill — this is the “end of the beginning, or the beginning of the end,” there is no question that one milestone has been passed.

Canada’s National Energy Board and its Joint Review Panel have wrapped up public hearings into the proposed Mackenzie Gas Project, more than four years after they started and millions of dollars over original cost estimates for a process that the participants agree has caused frustrating delays.

But the hopes of some that Canada is still on track to commercially develop its Arctic natural gas (and perhaps its oil) resources are not yet dashed.

And the final words of NEB Chairman Ken Vollman in Inuvik on April 22 amounted to a welcome pledge.

“Now we have our work cut out for us … (but) you can expect to receive our decision, with reasons, in September 2010,” he said.

If, indeed, the NEB meets that deadline, and makes its recommendations on the economic and engineering aspects of the MGP, the venture will be ready to enter its next phases, including a negotiated fiscal agreement with the Canadian government, permits from the NEB and sanctioning by the corporate partners.

Sticking points

But there are just as many sticking points, covering decisions by the NEB on a permit sunset clause, pipeline tolling, access to the Mackenzie Valley pipeline by producers outside the main proponents (Imperial, Shell Canada, ConocoPhillips Canada, ExxonMobil Canada and possibly the Aboriginal Pipeline Group), and whether the Canadian government can negotiate a land settlement with the Dehcho First Nations, whose traditional territory covers about 40 percent of the pipeline route.

During the final few days of hearings, Imperial lawyer Don Davies left no doubt that “there must be sufficient progress on a fiscal framework (with the federal government) before the proponents re-staff the project team and resume engineering permitting and field work. And it means the major project permits must be received before the proponents make a decision to construct.”

He viewed as unreasonable requests by the Northwest Territories government and the Inuvialuit Regional Corp. for the NEB to force Imperial and its partners to decide by Dec. 31, 2013, whether or not to start construction.

Davies said the proponents are requesting a deadline of Dec. 31, 2016, “in order to reasonably manage uncertainty and we continue to believe that request is reasonable, notwithstanding the collective frustrations of all of us.”

“Clearly, there is frustration about delay,” he said. “It is a frustration, I can tell you, that is shared by the proponents. But I can also tell you that the proponents do intend to proceed in the step-wise fashion set out in the project schedule.”

Davies said a 2013 sunset clause would not force the proponents to speed up their decisions, nor would the 2016 sunset clause “cause the proponents to drag their heels.”

Assurance before expenditures

Davies said the proponents also need a reasonable assurance before making the “considerable” expenditures needed to reach a construction decision that permits will not expire before work can start.

He also wondered how long it would take for northern regulators to review the project permit applications.

“If we were to use the Dehcho geotechnical program application as a precedent, the answer would be seven years and counting and, while we wouldn’t suggest that that’s the norm, is does illustrate the uncertainty of making timing predictions,” he said.

“When you layer that on top of how long it will take to finalize a fiscal framework with the government of Canada, the uncertainty only gets greater.”

Nellie Cournoyea, chair of the IRC and a former premier of the NWT, argued the project should not be held up by the Dehcho, saying that First Nations group “does not have the right to purposely put impediments in our way for no reason at all.”

While conceding that pipeline construction would significantly impact all regions along the pipeline route, once the pipeline was completed the impacts would be “minimal,” except for regions that have either anchor fields or additional hydrocarbon reserves that could be fed into the pipeline.

Frustrations understood

Gwich’in Tribal Council President Richard Nerysoo said he understood the Dehcho frustrations and offered to work with the Dehcho to move negotiations forward.

He said the MGP could help create a “sustainable economy in the North, especially within the Dehcho, the Sahtu and Mackenzie Delta region. We don’t think that the pipeline itself is the answer to all our problems, but it is a big opportunity for us.”

Several participants in the final hearings said the pipeline would open up new fuels sources for Canada and North America as well as easing the NWT’s dependence on federal transfer payments for 70 percent of its revenues.

Cournoyea had a blunt message for “physically distant and economically comfortable special interest groups,” such as environmentalists, to end their opposition.

“If and when you can offer comparable economic opportunities to our communities and can provide tangible support to address those environmental and social issues we deem to be important to our future, only then will our hospitality be extended,” she said.

L.E. Smith, representing the Aboriginal Group, said many producers have left the North because of uncertainties and delays.

“The North does not need more moratoria; it does not need any more regulatory delays; … it needs to enhance economic opportunity as soon as possible,” he said.

Land claim settlement

Dehcho Grand Chief Sam Gargan said the MGP should not proceed until First Nations resolve the unsettled land claim and a land-use and resource management plan for Dehcho territory.

He said the Dehcho have “repeatedly been subject to direct and veiled threats (over the last decade) of false deadlines, as well as attempts to undermine and intimidate our leadership in an effort to get the Dehcho to take an ownership stake in the Aboriginal Pipeline Group.”

Gargan said he hopes the Dehcho claims can be resolved by 2013, suggesting that is more than enough time, while Dehcho chief negotiator George Erasmus said an agreement in principle could be in place by summer 2011.

Chad Friess, with UBS Research, said the economics of the MGP remain the largest problem, when gas prices are currently at C$4 per thousand cubic feet and tolls would be nearly C$3. Although nobody expects gas will remain at its current level, it is tough getting approvals to commit to large capital projects when there is no certainty about when prices will improve.

Bob Hastings, an analyst with Canaccord Adams, said he was not surprised by Imperial’s request for a 2016 sunset clause, given that shale gas in the U.S. and British Columbia is so much closer to storage and markets than Mackenzie gas that would carry high tolls.

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