|
Mackenzie Delta producers forge ahead on Canada-only gasline
Gary Park
Whatever unease is being voiced by North Slope gas producers, or analysts about the economics of Arctic gas development, the Mackenzie Delta producers are not ready to throw in the towel, said a spokesman for the lead partner, Imperial Oil Ltd.
He said the Delta producers are assessing their basin on its own merits, keeping the focus on producing only onshore gas and are confident a final decision can be made later this year or early in 2002.
The Delta consortium — Imperial Oil, ExxonMobil Canada Ltd., Gulf Canada Resources Ltd. (which is being taken over by Conoco Inc.) and Shell Canada Ltd. — has had an inkling that North Slope producers were questioning the economics of either an Alaska Highway or “over-the-top” pipeline, he said. Alaska gas never factored in But the Delta feasibility study has never made any attempt to factor in Alaska gas.
The more pressing priorities have been to reach agreement with aboriginal groups on a native equity stake in a Mackenzie Valley pipeline, without any consideration of government tax or royalty incentives, the Imperial spokesman said.
He said the producers have drawn no final conclusions on the economics of their project, other than to conclude that development hinges more on natural gas prices 10, 20 or 30 years from now and not today’s values.
Most cost estimates for a Mackenzie Valley pipeline are around C$3 billion to C$4 billion for a system transporting 800 million to 1 billion cubic feet per day.
Word of qualms among the North Slope producers over the economics of their venture has given new hope to the Northwest Territories government, which has been preoccupied over the last three months with the Delta project crumbling amidst aboriginal dissent.
NWT Premier Stephen Kakfwi was emphatic in mid-September that the Delta will come on stream, regardless of any opposition from the native communities, led by the Deh Cho First Nation, which does not expect to decide on its participation until next summer.
“We don’t need every aboriginal group in the territory to sign on for the pipeline to go,” he told the Financial Post. “The aboriginal groups see it and should see it strictly as a business deal. Those who want to own a piece of the pipe should sign on.” Delta cheapest Arctic project He said that “if left to the market” the Delta is the cheapest Arctic project as he urged governments and industry to stick to market fundamentals.
Kakfwi said Alaska politicians have been “posturing and offering tax concessions and other things. Governments are starting to intrude in the free market.
“They need concessions and all kinds of trade-offs to bring Alaska gas to market. You’d think the sensible thing to do is go after Canadian gas first,” he said.
NWT Energy Minister Joseph Handley said there has been recent progress in getting support from NWT native groups. “It looks like it’s falling into place,” he said.
Among analysts, there is agreement that if the North Slope project folds, some the commodity price risks associated with a Mackenzie Valley pipeline would be diminished, while competition for scarce labor and capital would also be reduced.
From the outset, Kakfwi and others have warned that if a pipeline was built first from the North Slope it would drive down North American gas prices and render a Mackenzie Valley pipeline uneconomic.
But Wilf Gobert, an analyst with Peters & Co. in Calgary, cautioned that the North Slope produces may simply be using their leverage to get tax breaks from Alaska and Washington. A risky project Roland George, an analyst with Purvin & Gertz Inc., said he did not think the North Slope project was at the end of the road, but “it might be another curve, steep hill or bump in that road.”
He agreed with producers that a 15 percent return on investment was needed “to make such a risky project work.”
Underlining the importance of the Arctic, George pointed out that additional, large new sources of supply are vital for North America on top of the Gulf of Mexico, Atlantic Canada, the Rocky Mountains and Western Canada. Duncan speaks out Yukon Premier Pat Duncan, an outspoken proponent of the Alaska Highway pipeline, did not immediately comment on the North Slope developments, but she again made her position clear at the Far North Oil and Gas conference in Calgary in late September.
She said an opportunity for development of northern gas was in danger of being lost unless the highway route began development soon the same argument the NWT makes about the Mackenzie project.
“Over-the-top is just that — over-the-top, an unrealistic and ill-considered proposal with no chance of success,” she said, warning that if it were to proceed Canada’s North and its people would be bitterly divided.
Duncan argued that little progress has been made towards the development of the Arctic’s vast gas potential because of the distraction caused by the “over-the-top” promoters.
| 