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Yukon Resources Ruled Out of Mackenzie Pipeline Project

The C$7 billion (US$5.6 billion) Mackenzie Gas Project has put out a message that discoveries have to be big -- or very near its route -- to qualify for connection to its proposed pipeline for Canadian arctic production.

Northern conditions of long distances, rugged environments and high costs prompted MGP to rule out a branch line for even an 80 Bcf known deposit of marketable gas, with prospects of growing significantly, in the Yukon Territory as uneconomic.

In proceedings before the National Energy Board, the Yukon government went to bat for production development in its jurisdiction by raising possibilities for a link between stranded discoveries in its Eagle Plains Basin and the MGP's pipeline route through the Mackenzie Valley.

In an exchange of documents, MGP agreed that at least in theory "the region is close enough in proximity to the Mackenzie Valley pipeline corridor to be considered as a potential supply source for the pipeline." But in practice Eagle Plains -- an area near the remote destinations of the 19th-Century Klondike gold rush -- is rated as not yet ready for inclusion in MGP supply sources by the project's geological consultants, GLJ Associates Ltd.

The MGP said "the current recognized resource potential is insufficient to support a separate, connecting pipeline. The Eagle Plain fields, located approximately 300 kilometers (180 miles) from the planned Mackenzie Valley Pipeline route, are uneconomic to tie in on a stand-alone basis."

MGP, led by ExxonCorp.'s 70% owned Imperial Oil, estimated the necessary feeder pipeline would cost C$375 million (US$300 million) or C$1.25 million per kilometer (US$1.7 million) per mile. In the Canadian north, MGP estimates producing gas wells cost C$6 million (US$4.8 million) apiece. An 18-kilometer (11-mile) flow line to hook up a Yukon well would cost C$13.5 million (US$10.8 million). Processing and compression facilities are forecast at C$5.5 million (US$4.4 million).

Putting a single-well Yukon gas field into production would cost an estimated total C$25 million (US$20 million). The figure likely errs on the low side, and possibly by a wide margin. "These costs assume that infrastructure such as power, living quarters, airstrips and roads are already in place in the region," the MGP said. For most of the Yukon and Northwest Territories, that is anything but a safe assumption.

Translated into unit costs for the amount of marketable Yukon gas known to exist to date, development expenses work out to C$5.40 (US$4.32) per Mcf. Then the forecast MGP toll alone for delivery to the start of the established Canadian pipeline system in Alberta is C$1.40 (US$1.12) per Mcf.

"The most important factor relevant to the determination of whether the Eagle Plain area would become economic is the discovery of sufficient gas resources in large enough fields to justify development," the MGP concluded in its NEB filings.

The Yukon government is far from giving up hope that enough gas is in its territory to be tapped eventually for addition to the flows the MGP plans to take out of the Northwest Territories. Considerable encouragement was given by a special report from the Geological Survey of Canada, requested by the Yukon from the federal agency. The document estimates the gas potential of the little-explored Eagle Plains region as most likely 6 Tcf -- an amount equal to the anchor fields for the MGP on the Mackenzie Delta and possibly as much as 12 Tcf.

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