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Vol. 16, No. 9 Week of February 27, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

MGP’s outlook clouded

File assigned to new cabinet minister; project founders; interest in LNG exports

Gary Park

For Petroleum News

With no fanfare and no formality, Canadian Prime Minister Stephen Harper handed federal cabinet oversight of the Mackenzie Gas Project to newly appointed Indian and Northern Affairs Minister John Duncan.

Meanwhile, interested parties wait for the cabinet to decide whether to give its final stamp of approval to the National Energy Board’s Dec. 16 ruling in favor of the project.

The project’s lead partner Imperial Oil and the Aboriginal Pipeline Group, which has an option to acquire a one-third equity stake in the Mackenzie pipeline, were not informed of Duncan’s new role.

Previously the job was held by former environment ministers Jim Prentice and John Baird, but for reasons that haven’t been explained, the new environment minister Peter Kent was bypassed.

The shuffle coincided with word that TransCanada, the deemed frontrunner to ship gas from the Mackenzie Delta to northern Alberta, has written down C$127 million of the money it contributed to cover regulatory costs incurred by the APG.

In the process, TransCanada Chief Executive Officer Russ Girling said has no further material expenses planned for the MGP.

He said “uncertainty persists” over the MGP’s commercial structure, a construction timetable and the outcome of fiscal negotiations with the Canadian government.

But he insisted TransCanada remains committed to bringing Mackenzie Delta gas on-stream.

Others are taking an outright gloomy view of where the project stands.

Nathan Cullen, natural resources spokesman for the opposition New Democratic Party, told The Hill Times that it is worrisome for the industry partners and those for and against the MGP that the Harper government appears to have dropped the ball.

He doubted Duncan could be familiar with the file and said he will need weeks or months to catch up, “if he ever does,” challenging the government’s selection of “a low-ranking minister” to be in charge of a C$20 billion project.

Kitimat pace quickens

While the waiting game continues for the MGP, the pace continues to pick up around the Kitimat LNG project, adding to a view that future gas production from northeastern British Columbia poses the biggest threat to the economic prospects for Arctic gas development.

Among the latest developments, Nexen, a major leaseholder in the Horn River basin, has added its name to the list of companies looking for ways to hasten development of shale gas resources that are faced with two obstacles — their distance from big North American markets and their viability in a saturated, low-priced environment.

Nexen Chief Executive Officer Marvin Romanow told analysts Feb. 17 his company hopes to line up a joint-venture partner this year to advance its current British Columbia holdings of 300,000 acres and production of 45 million cubic feet per day, copying deals struck by Encana with PetroChina for C$5.4 billion and with Korea Gas; Talisman Energy with South Africa’s Sasol; and Penn West Exploration’s joint venture with Japan’s Mitsubishi.

He said priority will go to a partner able to focus on developing assets over the next 40 years, noting that more gas has been discovered in Horn River alone than in all of Alberta, which has dominated Canada’s gas production over the past 60 years.

Case for single system

Romanow also suggested there is a case to be made for building a single pipeline system to carry oil and natural gas to the deepwater port at Kitimat for export to Asia and overcome some of the challenges to the Kitimat LNG and Enbridge’s Northern Gateway projects, which face varying degrees of resistance from First Nations and environmentalists.

He said a combined outlet to Asia would enable Canadian producers to capture some of the current US$18 per barrel premium for Brent-priced crude over West Texas Intermediate crude.

John Crum, North American president of Apache — which owns 51 percent of Kitimat LNG, with EOG Resources holding the rest — said Feb. 17 that discussions are under way with several prospective Asia-Pacific buyers.

He said that means corporate sanctioning of the C$3.5 billion project is possible by the end of 2011 and exports of 700 million cubic feet per day could start by late 2015 followed by significant expansion.

Gerry Goobie, managing consultant for Purvin & Gertz, said the rapid increase in Asian investment in Canada’s shale gas assets means Kitimat LNG has a “pretty good shot” at going ahead.

But he doubts any other ventures would proceed until Kitimat is built and establishes itself as a successful operation.

Penn West Chief Executive Officer Bill Andrews said his company is “convinced that the sooner we get a connection to the Pacific Rim and have the ability to move some gas there, the better off we’ll be.”

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