Mackenzie Valley gasline deal ‘days, or weeks’ away, says Nault

Gary Park

PNA Canadian Correspondent

A breakthrough to open the way for Mackenzie Delta gas development is close, said Canada’s Indian and Northern Affairs Minister Robert Nault, but the key players are keeping tight-lipped about the nature of any deal.

Speaking to reporters Feb. 10, Nault said “there is no doubt that we’re within a matter of days, if not weeks, before there is an announcement to move forward.”

The Canadian government will “play a very large role in that in the regulatory side,” he said.

Nault emphasized that his government is “very keen to see a northern pipeline go forward. We’ve positioned ourselves to be able to regulate major oil and gas developments in the north. So I think that’s a very positive announcement for everyone.”

But reports circulating that a deal is imminent between the Aboriginal Pipeline Group and TransCanada PipeLines Ltd. are a “little out of whack,” he said.

Speculation building

TransCanada and the APG said the negotiations remain confidential and dismissed as rumor a Feb. 10 report in the Edmonton Journal, which cited unnamed sources as saying Nault was about to announce that TransCanada would put up the money to secure a one-third aboriginal equity position in the pipeline.

Nault said “it’s pretty much speculation” that he planned to be in Western Canada this week to make a specific announcement on a deal.

Industry sources have told Petroleum News Alaska that TransCanada has been going to great lengths to lock up the dominant role in delivering Arctic gas to southern markets, although Calgary-based Enbridge has sent out strong signals that it, too, wants to gain a share of the business.

Brian Prokop, an analyst with Peters & Co., told the Canadian Press news agency last month that a pipeline could be 70 percent debt-financed because of the predictable rate of return, meaning the APG would need only C$300 million in cash to support its one-third ownership stake.

Alaska gasline not likely, says Cambridge Energy

Kay Cashman, PNA publisher & managing editor

That scenario, dubbed the “Rearview Mirror” by CERA in its 200-page report, is predicated on modest economic growth and growing protectionism in the United States and elsewhere as a result of weak economies. Natural gas prices would spike in 2004 as supplies tighten. Coal would remain king and technological developments would play a smaller part than in the other three scenarios.

In the Rearview Mirror scenario, offshore production from eastern Canada by 2005 and new LNG supplies starting in 2006 would help moderate prices.

Mackenzie gas would come on line in this scenario in 2009, followed by North Slope gas in 2017 to meet demand.

The assumption is that less LNG would create the need for more Arctic gas.

CERA says its “scenarios are structured and disciplined ways of looking at the future and demand a logic that ties together a diverse set of inputs and assumptions,” including natural gas prices, demand and technological developments. One scenario is predicated on strong economic growth and equally strong growth in technology. Another includes modest economic growth, new technological solutions and a strong tilt toward environmental concerns with a Democrat in the White House in 2004.

One scenario: GTL the answer

Mackenzie natural gas fares much better under the four scenarios, coming online in three of them — in 2009, 2012 and 2014.

“North Slope gas presents different difficulties,” CERA says. “The large capital cost of connecting these supplies — perhaps as high as $20 billion — means that smaller, more easily digestible projects will continue to slowly push back the time at which this project might get under way. Moreover, the likely impact of such a large supply on market prices means that in most cases the economics that justify the project will be undermined by its completion. Only in the Rearview Mirror scenario does development of the North Slope occur during the study period (through 2020), following a decade of high gas prices. The addition of 2.5 billion cubic feet a day of North Slope gas contributes to a North American price collapse under the Rearview Mirror scenario, from which the market takes years to recover.”

CERA’s report assumes no federal price supports or enabling legislation for Alaska gas, nor does it allow for any change in the state fiscal regime, both of which North Slope gasline supporters say could change the economics of a North Slope gas system dramatically.

Other observations in the report include:

“U.S. dependence on natural gas imports will increase. As domestic supplies of gas in many mature basins decline, the United States will turn increasingly to Canada and offshore LNG to fill the supply gap. … For many remote sources of gas, such as the North Slope of Alaska and the Mackenzie Delta in Canada, significant investments in pipeline are required to bring reserves to market.”