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Mackenzie Delta producers, aboriginals ink pipeline agreement Federal loan guarantees being sought to secure aboriginal ownership, but producers cautious about timing; Duncan worried about impact of current gas prices Gary Park PNA Canadian Correspondent
The Arctic gas pipeline spotlight in Canada has swung sharply to the Mackenzie Valley option in a flurry of developments involving governments, industry and aboriginals.
In the last week:
• The Mackenzie Delta producers’ consortium and the bulk of Northwest Territories aboriginal communities along the Mackenzie Valley reached a ground-breaking agreement Oct. 15 that reinforces earlier negotiations offering aboriginals a chance at one-third ownership of a pipeline.
• The Northwest Territories government and the Mackenzie Valley Aboriginal Pipeline Group are seeking up to C$1 billion in either federal loan guarantees, or private investment, to make the equity stake a reality.
• Natural Resources Minister Ralph Goodale accused Alaska Gov. Tony Knowles in an Oct. 15 news conference of trying to “skew” the regulatory process in favor of the Alaska Highway project by using U.S. national energy security to bolster his argument.
• Yukon Premier Pat Duncan, one of the strongest proponents of the highway pipeline, warned on Oct. 9 that current gas prices weaken the chances of the highway route proceeding.
MOU sets stage for partnership The producers’ consortium and groups representing 75 percent of the aboriginal population along the Mackenzie Valley signed a memorandum of understanding Oct. 15 that sets the stage for the largest partnership in Canada between aboriginals and the oil and gas industry.
Nellie Cournoyea, chair of the Mackenzie Valley Aboriginal Pipeline Group, hailed the deal as a milestone for all native people who are anxious to “participate in the economy of the 21st Century.”
But she cautioned aboriginal leaders they will “have to work very hard to be party to this arrangement ... a lot of help is required to move forward in this new way of doing business.”
That view was echoed by K.C. Williams, senior vice-president with Imperial Oil Ltd. — the lead partner along with Conoco Canada Ltd., Shell Canada Ltd. and ExxonMobil Canada in the producers’ group — who said there is much work to be done before a pipeline becomes feasible.
He said the “commercial viability and the final decision to build such a pipeline is years away. It is dependent on many factors.”
Challenging targets set The terms of the MOU open the door to one-third aboriginal ownership of the C$3 billion pipeline, but set challenging targets.
The pact requires the Mackenzie Valley Aboriginal Pipeline Group to negotiate gas volumes that would be incremental to the producers’ initial shipping needs of 800 million to 1 billion cubic feet per day.
It says those volumes would have to come from sources other than existing Mackenzie Delta and Mackenzie Valley discoveries, or from new exploration activity currently under way in those areas.
Outside of the consortium, E&P companies active in the region include Petro-Canada, Devon Energy Corp (which is acquiring Anderson Exploration Ltd., the Delta’s largest leaseholder) and Burlington Resources Inc.
Northwest Territories Premier Stephen Kakfwi told a Yellowknife signing ceremony Oct. 15 the two years of negotiation leading up to the MOU show “our dedication, our commitment to protecting our cultures, our languages, our lands and our wildlife.
“Producers would not enter such a partnership if they did not intend to build a pipeline,” he insisted. “The federal government must now respond to our requests to provide investment for infrastructure, training and business support.”
Federal support sought The Northwest Territories has previously said it needs C$230 million over four years in federal support to improve the region’s infrastructure, including road access to drill sites, and to train workers to participate in drilling activities, pipeline construction and the operation of a pipeline.
Indian Affairs Minister Robert Nault has emphatically rejected any notion of loan guarantees, but Kakfwi has scheduled early meetings with Nault, Heritage Minister Sheila Copps and Intergovernmental Affairs Minister Stephane Dion to press his case. He said oil and gas development in the Northwest Territories is “still a federal responsibility (unlike the provinces, the federal government owns the Northwest Territories’ natural resources). There is no higher profile project in Canada right now. It’s time for (the Canadian government) to step up to the line.”
Kakfwi said the federal government stands to be the greatest beneficiary of a pipeline “because they are going to rake in (royalties). If you want to have a wedding you have to pay the bills, otherwise somebody cancels it.”
The bulk of the Deh Cho First Nations did not join the MOU signing, accusing the federal government of a “major breach of good faith negotiations” in failing to first settle Deh Cho land claims.
But Nault has insisted no aboriginal group will have veto rights over the pipeline route. “The Deh Cho know that is the position of the government of Canada,” he said.
Northwest Territories Energy Minister Joseph Handley said the MOU sends a clear message that development of Delta gas reserves is economically viable “even at today’s (gas) prices.”
Unease in Yukon However, this year’s tumbling prices have produced the first hint of unease in the Yukon, where Duncan told a Whitehorse news conference Oct. 9 that the market rates, expected to drop this winter to US $2.10 per thousand cubic feet from last winter’s average $6.20, no longer make an Alaska Highway pipeline attractive to gas producers.
“One of the key points that people have made in the short days after Sept. 11 was the price of gas,” she said. “Two dollars something doesn’t help pipeline feasibility.”
Foothills Pipe Lines Ltd., the lead proponent of a highway pipeline, has generally projected a threshold average price of US$3-$4 per million British thermal units over the lifetime of the project to make a highway pipeline viable.
Duncan remains hopeful that prices will climb again to the point of making a pipeline viable, but Yukon opposition party spokesmen Peter Jenkins (Yukon Party) and Dennis Fentie (New Democratic Party) suggested Duncan was acknowledging for the first time the highway pipeline was no longer realistic.
Jenkins said that in addition to low prices a market glut will prevent either the highway or Mackenzie Valley projects from proceeding.
Goodale, in Mexico with a Canadian energy trade and investment mission, told a news conference Oct. 15 that he was unhappy with Knowles’ attempts to use U.S. concerns over security of energy supplies to “skew the process in favor” of a highway pipeline.
He said U.S. Energy Secretary Spencer Abraham agrees with him that it is “inappropriate” to “bias” the regulatory process. (See related story in sidebar).
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