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Vol. 23, No. 1 Week of January 07, 2018
Providing coverage of Alaska and northern Canada's oil and gas industry

Mackenzie project dumped

Partnership in Canadian Arctic venture dissolved after 17 years of studies and regulatory hearings were overtaken by global gas glut from shale development and collapse of LNG plans

Gary Park

Petroleum News

Twice in 40 years the dreams of exploiting Canada’s northern natural gas resources have been shattered, only this time there seems to be no hope of a bounce back.

The joint-venture partnership underpinning the Mackenzie Gas Project was formally dissolved on Dec. 22, delivering a crushing pre-Christmas blow to those who might have been clinging to hope that the scheme could be saved. For everyone else, the announcement was a foregone conclusion.

It followed the first setback for gas development in the Canadian Arctic after three anchor fields - Taglu, Parsons Lake and Niglintgak - were discovered in the 1971-73 period, resulting in a federal inquiry into the social, environmental and economic impact of a pipeline along the Mackenzie River Valley. That led to a federal moratorium in 1977 that ended commercial activities until 2000.

Partners comment

Commenting on the break-up of the MGP partnership, Theresa Redburn, senior vice-president, commercial and corporate development at Imperial Oil, the lead partner with a 34.4 percent stake in the consortium, said: “We recognize this is a disappointing day for the people of the North.”

“This is a disappointment to Imperial and the other members of the joint-venture as well,” she said, referring to the Aboriginal Pipeline Group (33.3 percent), ConocoPhillips (15.7 percent), Shell Canada (11.4 percent) and ExxonMobil Canada (5.2 percent).

Most of the partners had already drastically scaled back or sold off assets in Canada’s sickly upstream and shut down operations in Canada’s Arctic, with ConocoPhillips making a one-time writedown of C$525 million in its MGP stake.

A spokesman for ConocoPhillips Canada said the decision to end the joint venture was a difficult one, given the impact on “many organizations and individuals who have advocated for the development of the natural gas resource in the Mackenzie Delta.”

Redburn acknowledged the “considerable investment of time and energy made by the project proponents at the people of the North.”

In dangling a slender thread of hope, she said the North “remains an important potential source of future energy, given the right economic and regulatory conditions.”

‘Just a pipe dream’

With the Northwest Territories government in hibernation for the holiday season there was no immediate reaction from Premier Bob McLeod or any of his cabinet ministers.

But Merven Gruben, the mayor-elect of Tuktoyaktuk, a small community on the shore of the Beaufort Sea, candidly told the Canadian Broadcasting Corp., that “we all knew (the end of the road for the MGP) was coming.”

“The pipeline (to initially deliver 830 million to 1.2 billion cubic feet per day from the Mackenzie Delta to connect in northern Alberta with Canada’s gas pipeline network) was really just a pipe dream. We gambled on it and a lot of people lost.”

He said the Mackenzie Hotel was built in Inuvik in hopes that the MGP would proceed and after initial struggles finally “found its legs, (but) so many other businesses didn’t succeed.”

Gruben’s own construction company was one of the few to benefit by playing a large role in the C$300 million, 86-mile all-season road connecting Inuvik and Tuktoyaktuk that was opened for traffic in November, ending the years of reliance on an ice-road.

He said the remote northern communities might now tap into a gas well drilled off the new highway that could provide them with 100 years of energy supplies, while the prospect of a deepwater port in the Beaufort could be advanced if and when the federal government lifts its latest freeze on offshore oil and gas exploration.

However, Gruben remains especially bitter about the years of studies, community meetings and regulatory hearings related to the MGP that stretched beyond the point where once-economic gas prices evaporated amid a glut of global gas supplies, led by the breakthrough in shale gas development.

Approval time an issue

An Imperial spokesman agreed with that assessment, telling the CBC the co-venturers had not anticipated the length of time it would need for the project to receive approval from Canada’s National Energy Board and a final go-ahead from the Canadian government.

He said that when the formal application was filed in October 2004 it was expected the regulatory process would take about two years to complete. Instead, it took seven years.

With the blame-game in full swing, Kevin O’Reilly, a member of the NWT legislature, who was closely connected with the regulatory phase through a social justice organization, accused the proponents of “poor planning,” resulting in long delays in responding to information requests from government, aboriginal communities and non-government organizations.

But the end result of that procrastination might have been a blessing, he suggested, given that the surplus of gas supplies across North America might have seen the NWT government faced with demands to bail-out a partially completed project.

Compounding the regulatory delays were the signs of disagreements among the corporate partners, notably when ConocoPhillips said it was suspending investment to enable the MGP to “move forward,” pointing to an “inconsistency” in its own and Imperial’s definition of “funding.”

Soaring costs

By 2016, the estimated capital cost of the MGP had soared to C$16.2 billion from C$5 billion in 2001 and even then observers were suggesting the total would likely exceed C$20 billion.

Along with the shrinking demand in Canada for Arctic gas, the gloomy outlook was compounded by the virtual collapse of British Columbia’s extravagant belief in its chances of drawing on billions of cubic feet per day to support LNG exports.

However, in keeping with the eternal-hope that prevails in Canada’s North, some believe the 6 trillion cubic feet of onshore gas reserves in three anchor fields that backed the MGP might eventually find a market.

Duane Smith, chair of the Inuvialuit Regional Corp., told the CBC that the NEB project certificate that extends the deadline for a construction start to 2022 is a source of optimism that the Canadian government might recognize the value to the national and regional economies of northern gas riches.

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