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Mackenzie Valley gas pipeline takes big leap forward Producers move to ‘project definition’ phase; say start-up is 6 to 8 years away; analysts say Delta now leads, but slope producers see no impact on their plans Gary Park PNA Canadian Correspondent
A group of four foreign-controlled Mackenzie Delta gas producers has embarked on the regulatory stage of Arctic gas development, a move many analysts say has propelled the Northwest Territories ahead of the North Slope in an undeclared pipeline race.
The Mackenzie Delta Producers Group announced Jan. 7 that it will spend up to C$250 million on the “project definition” phase aimed at filing plans with Canada’s National Energy Board and 11 other regulatory agencies sometime in 2003.
The group indicated it could take six to eight years to complete the application, hold public hearings and bring the gas on stream at a cost of C$3 billion for a pipeline and C$1 billion to develop existing gas fields.
But K.C. Williams, senior vice-president of Imperial Oil Ltd. — the lead partner in the consortium — cautioned that a number of obstacles could yet derail progress.
While insisting the newest phase “demonstrates the confidence of the producers’ group” that the project is “potentially commercial,” he said an ultimate decision will hinge on “natural gas markets, construction costs and regulatory and fiscal certainty.” Partners control 15.8 trillion cubic feet of gas The Delta partners, who control 5.8 trillion cubic feet of onshore gas, are Imperial (69.6 percent owned by ExxonMobil Corp.) with a 50 percent stake; Conoco Canada Ltd. (a unit of Conoco Inc.) with 25 percent; Shell Canada Ltd. (78 percent owned by the Royal Dutch/Shell Group), with 17 percent; and ExxonMobil Canada (a wholly-owned subsidiary of ExxonMobil), with 8 percent.
A spokesman for Imperial said “this is really where we start to put some meat on the bones,” as the proponents move from their two-year feasibility study to start drafting technical, engineering and environmental data in support of regulatory filings.
For now, many of the closest observers of the Arctic gas debate say the Mackenzie Delta has edged ahead of the larger, more costly North Slope scheme.
Winfried Fruehauf, a pipeline analyst with National Bank Financial Inc. in Toronto, said he would put the Delta’s chances of starting deliveries before Alaska “at somewhat better than even odds right now.”
It looks like the Mackenzie Delta is “in the lead,” said Roland George, a principal with energy consulting firm Purvin & Gertz Inc.
William Lacey, an analyst with FirstEnergy Capital Corp. in Calgary, said the Delta consortium would not be taking a C$250 million “plunge” into the “project definition “phase “unless they think there’s something feasible at the end of the process ... but it’s not a slam dunk.” Delta could trip scales in favor of over-the-top Bob Hastings, an analyst with Raymond James & Associates, suggested the Mackenzie decision could also tip the scales in favor of an “over-the-top” route from the North Slope to the Delta because a pipeline would already be in service along the Mackenzie Valley.
Even so, Hastings cautioned that the project economics remain uncertain in today’s depressed gas prices. “This is not a horse race that has been won or is even close to being won,” he said.
Fruehauf suggested that if the Mackenzie project is first to market, development of the North Slope could be stalled.
He said the Delta would have a “first-move advantage,” by locking up qualified construction workers. Alaska team says Delta decision will have no impact A spokesman for the Alaska Gas Producers Pipeline Team said the Delta decision should not have any impact on the North Slope project.
He said the partners are in the final stages of a one-year, $100 million feasibility study, which the sponsor companies — BP, Phillips Petroleum Co. and ExxonMobil — expected to evaluate results and announce their plans “in the next few months.”
“Quite frankly, it’s two different projects, two different entities,” he said.
Yukon Economic Development Minister Scott Kent, whose government is a strong backer of an Alaska Highway pipeline route, was equally certain there was no reason why the Delta project should affect Alaska.
Fruehauf said that considering the lead time needed for the project, much could change, including the possibility that the two projects could be combined into the “over-the-top” route.
Nellie Cournoyea, chair of the Mackenzie Valley Aboriginal Pipeline Corp., said “everyone will take the project a little more seriously now. We’re committed and (the producers) are committed.”
The aboriginal group has a chance for a one-third equity stake in the pipeline provided it can arrange for shipments of 400 million to 500 million cubic feet per day that are over and above the 800 million to 1 billion cubic feet per day the Delta consortium expects to produce initially. Mackenzie gas could feed oil sands Current plans are for the 850-mile Mackenzie Valley pipeline to extend from the Delta into Alberta, where natural gas would be fed into TransCanada PipeLines Ltd.’s existing grid to eastern Canada and the U.S., while liquids would be stripped from the gas and included in Enbridge Inc.’s oil pipeline from Norman Wells, Northwest Territories.
Wilf Gobert, an analyst with Peters & Co. in Calgary, pointed out that Alberta’s oil sands, which use gas as feedstock for extraction and processing operations, could absorb much of the initial Delta output.
Imperial, Conoco and Shell are all major oil sands players and, alone, are estimated to need about 550 million cubic feet per day of gas. The overall oil sands sector may require up to 1.5 billion cubic feet per day of gas by 2010.
Northwest Territories Deputy Premier Jim Antoine said the Delta producers’ announcement is a vital step towards construction of the line and an economic lift for the region, with the equivalent of 23,161 jobs lasting one year during peak pipeline construction, 40,000 permanent jobs for the gas industry and C$70 billion in federal royalties from the development.
“This is what we’ve been waiting for,” he said. “It’s something new, something exiting, something innovative for people in the North.”
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