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Too early to declare winners and losers in Arctic gas development Mackenzie Delta producers embark on four years of paperwork and hearings; pipeline alone could require 500 separate permits; ExxonMobil holds key cards Gary Park PNA Canadian Correspondent
Victory is not a word you’ll hear these days from the Mackenzie Delta Producers Group. For the Delta partners there was just quiet satisfaction on Jan. 7 when the consortium announced it will spend as much as C$250 million preparing a regulatory application for a C$4 billion (US$2.5 billion) project covering field development and pipeline construction..
The various spokesman confined themselves to comments such as “very significant step,” “significant milestone” and “one step closer.”
No celebrations, no rejoicing, no gloating and certainly no sense that the Delta has in any way edged ahead of the North Slope.
Just getting to this point took two years of study, weighing the economics of shipping the first Arctic gas to North American markets and negotiating support from aboriginal communities. It may have been the easy part.
The whole process of filing applications, holding hearings and obtaining approvals could take another four years and involve Canada’s National Energy Board and a dozen other boards and agencies.
Five hundred permits could be needed For the producers, that means a daunting list of studies covering the engineering, environmental and economic challenges of pushing a pipeline through 850 miles of tundra, muskeg, mountain and forest.
By some calculations, the pipeline alone will need 500 separate permits.
“We don’t even know what we don’t know yet,” said a spokesman for Imperial Oil Ltd., the lead partner in the producer group. “This is the phase where you really start to roll up your sleeves.”
On grounds of timing alone, the Delta proponents still trail Foothills Pipe Lines Ltd., which has U.S. and Canadian certification and approvals for the Alaska Highway route dating from 1977 and has spent about C$400 million so far on work the Delta producers are just starting.
“Nothing has changed in terms of the two projects,” Rocco Ciancio, Foothills’ communications manager, told reporters following the Delta announcement. “For quite a long time, we’ve let it be known there will be two pipelines built — one to serve each basin.”
That view was echoed by Roland George, principal with energy consulting firm Purvin & Gertz Inc., who said the Mackenzie Delta, North Slope and Atlantic Canada will all be required to serve growing North American gas consumption. “The real question is when and how,” he said.
Analysts look at ExxonMobil As debate over what could be one of the largest capital projects in North America moves from “if” to “when and how,” many analysts are turning their attention to Exxon Mobil Corp.
Nobody holds more key cards than the world’s largest oil company.
With reserves of 9.04 trillion cubic feet, it has almost one-third of the 1999 North Slope ownership natural gas of 30.9 trillion cubic feet. Phillips Alaska Inc. claims 9.23 trillion cubic feet and BP PLC has 7.29 trillion cubic feet. The remaining 17.4 percent is dispersed among as wide range of companies.
On the Canadian side, the Irving, Texas, company has an effective 58 percent control of the Mackenzie Delta Producers’ Group, which owns almost 6 trillion cubic feet of established reserves in the Taglu, Parsons Lakes and Niglintak onshore fields.
Of the four Delta consortium partners, ExxonMobil owns 69.6 percent of Imperial Oil, a 50 percent partner in the Delta consortium, and owns 100 percent of ExxonMobil Canada, which controls 8 percent of the Delta’s 5.8 trillion cubic feet of proven reserves. That leaves Conoco (merger with Phillips pending) with 25 percent and Shell Canada Ltd. with 17 percent.
Imperial stayed out of debates All through the past two years of raging political debates over the timing of Arctic development, the pipeline route alternatives and the prickly negotiations with aboriginals in the Northwest Territories, Imperial has kept a poker face.
Before it was taken over by Conoco, Gulf Canada Resources Ltd. was the most outspoken proponent of early Arctic development, setting ambitious goals of 2006 for gas to start flowing.
What little Imperial had to say usually involved a phased type of development and no targets beyond occasional suggestions that development could be 15 years or more away.
Imperial kept its profile low, even when analysts started suggesting that the Toronto-based company could be dealt out of the Arctic play if its parent company decided to relegate the much smaller Delta basin to second place.
But ExxonMobil has insisted all along that each project would stand on its merits, although a company spokesman in late 2000 dangled the interesting prospect of the “synergy between the two, which creates very interesting considerations.”
That was interpreted as ExxonMobil hinting at a single pipeline connecting the North Slope with the Delta, using the “over-the-top” option. Since the Jan. 7 announcement by the Delta producers, several analysts have been more than willing to speculate on that prospect.
Over-the-top speculation Bob Hastings, an analyst with Raymond James & Associates, said that if the Mackenzie Valley pipeline is built first that could tip the scales towards an “over-the-top” pipeline on purely economic grounds. By some estimates, an “over-the-top” pipeline feeding into a Mackenzie Valley system would cost US$15 billion compared with US$17 billion for an Alaska Highway line.
Winfried Fruehauf, a pipeline analyst with National Bank Financial Inc., said the momentum has shifted to the Delta in the past year, especially since those producers won support from the majority of aboriginal communities along the pipeline route.
He said there’s still a chance the North Slope and Delta could be combined into one, using the “over-the-top” option.
George echoed that view, suggesting a pipeline from the Delta could see the offshore link across the Beaufort Sea become more attractive.
“The economic imperative, unless there’s some type of political of technical show-stopper, would be to go with the pipeline that’s closest,” he told the Toronto Globe and Mail.
Standalone Mackenzie pipeline But an Imperial spokesman insisted that at no time, during its deliberations, did the Delta consortium “contemplate Alaska gas,.” Instead, the study was concentrated on a standalone Mackenzie Valley pipeline.
“We’re very excited that we’ve been able to get to this phase,” he said. “It’s been a lot of work over the past two years.
“We certainly don’t have rose-colored glasses on when we look at what’s ahead. We know that it’s going to be a lot of work over the next three or four years to get to the next major milestone.” Now, he said, “it’s time to really roll up our sleeves.”
However, if Alaska producers showed any interest in a combined Mackenzie Valley project, the Delta producers would be ready to talk, he said.
The next major move is likely to come from the US$100-million North Slope feasibility study, promised before the end of March, and the response from the North Slope producers to a fresh proposal for the Alaska Highway pipeline. (See related story on page 1.)
Details under wraps Details are being kept under wraps. The only response from the North Slope producers was a comment from BP that it was pleased to receive a “competitive option” that it said would soon be reviewed in a meeting with the distributors and pipelines — Foothills, TCPL, Westcoast Energy Inc., Williams Cos., Enron Corp., Sempra Energy, PG&E Corp., Duke Energy Corp. (about to become a 50 percent partner in Foothills when it completes its acquisition of Westcoast) and El Paso Corp.
Westcoast, Williams and El Paso own a combined 53 per cent of Alliance Pipeline Ltd., the 1.5 billion cubic feet per day delivery system from northern British Columbia to Chicago that is seen as a possible tie-in with an Alaska Highway pipeline, along with the existing TCPL export connections.
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