Ending the impasse on the Mackenzie Gas Project will cost the Canadian government C$100 million a year to cover social and economic spending along the pipeline route, the Northwest Territories government and aboriginal leaders have decided.
Northwest Territories Premier Joe Handley conceded that the government “may find the number high,” but he said the gas project could return up to C$30 billion to Ottawa over its lifetime.
A spokesman for Deputy Prime Minister Anne McLellan said the government would accept the figure as a starting point, but needed a detailed breakdown of how the money would be spent.
However, any chances of a settlement will be sidetracked if the Liberal government of Prime Minister Paul Martin is defeated in the House of Commons, forcing an election campaign that will stretch into late June.
The C$100 million figure was agreed to on May 13 when Handley and leaders of the Inuvialuit, Gwich’in and Sahtu communities met in Calgary. (See Mackenzie updates on page A1 of this issue of Petroleum News.)
Deh Cho in separate talks
The Deh Cho, who have refused to become a full partner in the Mackenzie project, did not attend the meeting.
Instead, their leaders were holding separate discussions with federal officials in Yellowknife in a bid to advance land claims and self-government talks.
The C$100 million represents a 10 percent increase in the annual Northwest Territories budget, of which C$800 million comes directly from the federal government.
Handley said 75 percent would go directly to his government and 25 percent would be distributed among the four First Nations groups.
While conceding that socio-economic impacts from economic development in the Northwest Territories are a “territorial government responsibility,” he said the territory does not have the means to cover housing, education, health and infrastructure costs because it doesn’t get a full share of resource revenues.
Nellie Cournoyea, a former Northwest Territories premier and chief executive officer of the Inuvialuit Regional Corp., said indications from the federal government that it is willing to return some of the money it collects from northern resources would go a long way towards addressing concerns that have been raised over 20 years.
Still issue of municipal services
Richard Nerysoo, head negotiator for the Gwich’in, said money from Ottawa would be “very helpful in dealing with the social-economic consequences of the project.”
But he said the Mackenzie consortium and First Nations must still negotiate access agreements and Imperial, as the lead Mackenzie partner, must agree to make one-time payments to cover the costs of municipal services in communities along the pipeline route.
On that front, there have been hints from Imperial that it is preparing a financial offer that would be divided equally among the four aboriginal groups.
Liseanne Forand, an assistant deputy minister at the federal Department of Indian Affairs and Northern Development, told reporters earlier in May that the success of any Imperial offer will hinge on whether it takes full account of native concerns and how Imperial hopes to proceed.
“There’s no question that money is a big topic between all those talking about this,” she said.
Forand and deputy minister Michael Horgan have been actively meeting with Imperial, TransCanada and Northwest Territories government officials to seek a road ahead.
LNG could grab capital
But the continuing shaky outlook for the Mackenzie Gas Project has attracted warnings in a new report that industry spending could be diverted from the Arctic venture to liquefied natural gas. (Editor’s Note: See full story on Tristone report in May 15 issue of Petroleum News.)
Tristone Capital, a Calgary-based investment dealer with an office in Houston, warned in its 50-page study that unless there is a resolution of economic and timing uncertainties within a year, Mackenzie Delta gas could be stranded for a decade or more.
“Given U.S. national energy security needs, the Mackenzie Delta project is the most vulnerable to seeking capital allocated away to LNG projects,” Tristone said.
The decision on April 28 by the Mackenzie proponents to halt field work because of costly demands by aboriginal communities and slow progress on the regulatory front sets the timetable back by a year and possibly two, the report said.
“There is no ownership by the federal government to put in the mechanisms to make the Mackenzie Delta happen,” said Christopher Theal, Tristone’s managing director of institutional research.
He told reporters that the announcement by McLellan to help fund northern social programs and remove a roadblock was merely a “baby step” when the government needed to be taking “big leaps.”
He said federal leaders should be urgently seeking a deal with all of the stakeholders, with special emphasis on reaching land access and benefits agreements with First Nations.
Tristone noted that the backers of the two northern gas projects — Imperial Oil, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada in the Mackenzie and ExxonMobil, BP and ConocoPhillips on the North Slope — are involved in plans to build and operate LNG receiving terminals that could bring 13 billion cubic feet per day over the next five years.
Another 10 terminals have received approval to add an additional 7 billion cubic feet per day by 2020.
Those plans pose the greatest threat to completion of the Mackenzie project, Tristone suggested.
Tristone now estimates the Alaska Highway pipeline carries a price tag of US$18 billion, compared with an earlier estimate of US$19.4 billion in 2001 dollars that has been modified because of revised input costs and scope of the project.
If the Alaska government can strike a fiscal deal with the North Slope producers this year, the Canadian regulatory dispute will be the only obstacle standing in the way of Alaska gas reaching the Lower 48.
“Think of the issue we would have if (the Alaska pipeline is a matter) of U.S. national security interest and Canada is the bottleneck,” Tristone said.
But Theal is far from certain that issues with Yukon First Nations have been settled, despite confident claims by TransCanada.
Because they have yet to negotiate land claims the Kaska and White River First Nations, like the Deh Cho First nations in the Northwest Territories, may feel their greatest opportunity to reach a deal comes before a pipeline is under construction.
