The Mackenzie Gas Project has long been the poster child for the cost of drawn-out regulatory approvals in Canada. Some say the three-year extension of the timetable may even have scuttled hopes of producing Arctic natural gas.
But it’s only now that an industry executive close to the project has put a cost on the delay.
Hal Kvisle, who retired 18 months ago as chief executive officer of TransCanada, which has the rights to build and operate a pipeline along the Mackenzie River Valley, estimates the regulatory tangle added C$3 billion to the main pipeline, raising that price tag to C$8 billion — about half the project’s total cost.
Speaking earlier in December to the Canadian Senate’s Standing Committee on Energy, the Environment and Natural Resources, he listed the cost escalation is one of three factors that have undermined the flimsy hopes of seeing the MGP proceed.
And that regulatory gridlock is being blamed by Lorraine Mitchelmore, Canadian president of Royal Dutch Shell, for eroding Canada’s ability to sell its oil and natural gas into fast-growing new markets.
“We are the only major oil and gas exporting country in the world that does not have access to global markets,” she said. “The level of opposition to (TransCanada’s) Keystone XL pipeline shows that access to our next-door neighbor, the United States, is not a given any more.”
Mitchelmore said the petroleum industry has been complaining about red tape for years, with no result.
She blamed the Canadian government for a seven-year process to win conditional approval for the Mackenzie pipeline, noting that the proponents must still obtain about 45,300 permits before construction can start. (Shell is currently seeking a buyer for its 11.4 percent stake in the MGP).
“Canada needs to get (access to Asian markets) within this decade, while there is still a strong demand for our products,” Mitchelmore said. “Missing the opportunity today may mean missing it forever.”
Growing urgency
Another of Canada’s most-respected industry leaders, Murray Edwards, vice chairman of Canadian Natural Resources, said there is growing urgency to speed up pipeline approvals as Alberta producers face running out of export capacity by 2015 or 2016.
He said Canadian governments must adopt single-stage regulatory approvals to so that projects no longer have to deal with both federal and provincial regimes.
“The existing regulatory system in Canada … has become too complex, too inconsistent and too uncertain as legislative and administrative layers have been added over time,” Edwards said.
“The lesson of Keystone XL means we must get the regulatory process right, for the sake of the economy and for the sake of the environment,” he said.
To achieve that, governments, producers and pipeline companies must “urgently work together in a tightly coordinated effort” to find solutions, such as mandated deadlines for regulatory approvals, a system that limits regulatory review to one level of government and new rules relating to engagement with First Nations.
Kvisle: Delay in drilling
Kvisle said the regulatory red tape has deterred producers from drilling for additional gas reserves to supplement the 5.8 trillion cubic feet that has so far been found on the Mackenzie Delta, but is not enough to fill the proposed pipeline over a 300year operating life to make the MGP economic.
He said the delays have also given time for a massive quantity of shale gas to flood North American markets.
“This has created a huge supply of gas in Western Canada that now means the Mackenzie pipe would deliver gas to a market that’s probably already oversupplied with gas. And that’s going to be a big challenge.”
David Emerson, chairman of the Energy Policy Institute of Canada and a former Canadian government cabinet minister, said Canada’s regulatory process is “fatally flawed,” given that private sector backers are asked to gamble hundreds of millions of dollars “without knowing if they’re going to get an approval, or when they’re going to get an approval, or even any indication as to the likelihood of an approval.
“It is just no way to become a global leader in this area that we believe is so fundamental to Canada’s economic future,” he said.
Ottawa approves Total project
Canada’s Natural Resources Minister Joe Oliver, the government’s most outspoken advocate of securing export markets outside North America, gave some hope to those calling for faster approvals when he announced on Dec. 8 that Ottawa had approved a 100,000 barrel per day oil sands mine to be operated by France’s Total.
Noting the regulatory phase took six years, he said approval of the C$9.5 billion project for the Joslyn lease in northern Alberta should have taken no more than two years.
He said it is a “telling example of the need for a more efficient and effective regulatory system. It is crystal clear that we need to put an end to unreasonable delays — delays that can jeopardize the viability of Joslyn and harm our reputation as an attractive place to do business.”
Jean-Michel Gires, the head of Total’s Canadian operations, said it was difficult having to explain to his head office “why we had to go through a six-year process, but, nevertheless, we did survive.”
“We definitely welcome the fact that authorities at both the provincial and federal level want to reconsider (the process),” he said, asking: “Why not one regulator?”
Cost of waiting
The cost of waiting was mirrored in a research report by FirstEnergy Capital that noted the cost of Devon Energy’s Jackfish 1 oil sands project was C$700 million to bring on stream in 2007, Jackfish 2 cost C$1.1 billion to complete in 2011 and Jackfish 3 will cost C$1.3 billion when it starts production in 2014.
But the present-day realities have put an added squeeze on the contentious Northern Gateway pipeline project by Enbridge with word from a joint review panel accommodating 4,300 interveners at public hearings scheduled to start in January will likely delay an approval decision until late 2013, more than a year behind the original schedule.
Enbridge Chief Executive Officer Pat Daniel said his company does not expect the revised timetable will add significant costs to the current C$5.5 billion price-tag.
Taking a low-key view of developments, amid controversy over negotiations with First Nations, which have been offered a 10 percent ownership stake in the project, Daniel said “it’s important for everyone who has issues or concerns around Gateway to be heard and this will be a very, very thorough and expansive regulatory process.”
Oliver said that although a number of groups are opposed to oil sands-related projects and some are “gearing up for a big fight” because of their opposition to the use of hydrocarbons, “we have confidence in the (Northern Gateway) regulatory process and we expect it to move ahead.”
He also said the “nation-building” attempt by the Canadian government to link the oil sands with Asian markets will not be stopped by protesters threatening to use civil disobedience to prevent pipeline construction.
—Gary Park
