Work on the C$7 billion ($5.6 billion) Mackenzie Gas Project was suspended on Thursday, with its sponsors calling time out to seek clarification of industry, government and aboriginal roles in Canadian northern development.
The announcement came only days after an official with the Government of the Northwest Territories in Canada met with officials of the U.S. Department of Energy, State Department, industry and others in Washington, DC last week to "make the case" that the Mackenzie Pipeline project "is coming," and to urge them to oppose subsidies for the proposed Alaska natural gas pipeline.
After spending more than C$350 million ($280 million) and building up a staff of 275 employees and contractors over the past five years, the Mackenzie project still has too many loose ends for regulatory hearings to start on schedule this summer, the consortium said.
A tide of rising aboriginal and community expectations across the Northwest Territories swamped efforts to focus on developing Mackenzie Delta production and a 1,220-kilometer (762-mile) pipeline through the Mackenzie Valley to Alberta, senior project partner Imperial Oil Ltd. said.
"We are months and months behind," Imperial senior vice-president Mike Yeager said. "We can't have more months and months of slippage."
At the Canadian Embassy in Washington last Monday, Brendan R. Bell, minister of industry, tourism and investment for the Northwest Territories, was optimistic about the Mackenzie project. The Mackenzie line is in the "queue now [and] it's in the regulatory process. We want the U.S. government to recognize the significance of this project and to understand that we can bring natural gas to market," he told reporters.
But the cosponsors said that too little progress has been made on land access and benefits agreements with communities along the pipeline route or a schedule for regulatory proceedings involving a dozen northern authorities. Only regulatory paperwork, chiefly information exchanges, and discussions with federal, territorial and aboriginal authorities are continuing. The project suspended field work and construction preparations such as pipeline route surveys, detailed engineering and recruitment of contractors.
No target date was set for ending the work suspension by resolving the northern regulatory and community issues. The project might still have a chance of making its target in-service date of 2009 or 2010, but only if the sociocultural matters can be cleared up with dispatch, Yeager indicated.
The Northwest Territories' Bell appeared certain that natural gas would flow on the Mackenzie line in 2010, well before the Alaska gas pipeline goes into operation. He said the Alaska pipeline will not be a competitor with Mackenzie.
The consortium of Imperial, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada briefed government and native officials before announcing the halt. But northern leaders said they suspected the action was a political ploy timed to gain advantages over arctic communities by stopping work long enough for a federal election to change the government in Ottawa.
The reaction highlighted the extent of demands being placed on the gas project in a region that has come to see it as an answer to generations of economic and social problems -- and as a vehicle for pursuing political agendas.
"They may delay only until the [Canadian] Conservatives get in, hoping the Conservatives will try to expropriate lands and bully this thing through," said former territorial premier Stephen Kakfwi, now a land negotiator for K'ahsho Got'ine First Nation in the Mackenzie Valley. He was referring to a crisis in Ottawa, where a scandal-plagued minority Liberal government is in danger of falling this spring.
Kakfwi accused Imperial of squandering goodwill it originally had in northern aboriginal communities. He added that the goodwill could only have been kept by letting aboriginal communities have roles in all phases of designing, building, owning and managing the pipeline.
"We started off together and we're certainly not together today," the former premier said.
Territorial First Nations wants a guaranteed C$40 million ($32 million) annual profit from the pipeline, plus power for communities on the route to levy surcharges and a 1% property tax.
"We want to have revenue from the non-renewable resource development. We want to put some in the bank, and we want to spend some right now on housing, language programs and cultural programs," Kakfwi said.
The industry consortium accepts obligations to contribute to community programs directly related to the gas project such as education, occupational training, employment and local business development, Yeager said. Gas producers also expect to pay normal royalties and taxes, he added. But "broader issues" raised by northern communities are preventing the project from advancing.
"There are expectations and demands placed on our project that are far beyond its scope." He refused to disclose details but said northern benefits and compensation demands are greater than expectations in other areas of industry operations such as Alberta by "many, many multiples."
The consortium is also determined to stay out of northern political and aboriginal rights disputes that have erupted into lawsuits against the federal government by the Deh Cho, a coalition of Dene and Metis communities along the southern 40% of the pipeline route.
"Those things we do not get involved with," Yeager said. "We do not get in that line of fire."
The Deh Cho fight is among the worst hazards jeopardizing the entire Mackenzie project, as a quarrel over the territorial balance of power that makes the pipeline a pawn in a marathon political conflict. No deal is on the horizon after months of on-again, off-again peace talks described as futile by the aboriginal side.
"The distance between the parties is pretty far," said Christopher Reid, a Toronto lawyer who has been chief negotiator and counsel for Deh Cho First Nations since 1999. "It's the slowest process of negotiations I've ever been involved in," the veteran of 18 years in aboriginal law told an industry conference held by Insight Information Co. "That's unfortunate," Reid added in acknowledging the conflict jeopardizes plans by three other aboriginal groups who share one-third ownership in the proposed pipeline.
The Deh Cho are prepared to roll out a northern red carpet to welcome construction of the natural gas megaproject -- but only if the federal government accommodates concerns raised by lawsuits filed last fall in the Federal Court of Canada and Northwest Territories Supreme Court, Reid said. The federal government fights every Deh Cho move, he added.
In the latest round, the government is appealing a recent ruling by a federal court trial judge requiring disclosure of documents on formation of the northern project's environmental review panel, Reid said. The Deh Cho lawsuits seek power to appoint two of seven panel members, and a halt to the review or withholding of final project approval until the case is decided. The dispute over the composition of the environmental panel is in turn a symbol of larger Deh Cho demands for virtually independent aboriginal government over their territory.
Federal and territorial governments could help by establishing mediation or arbitration procedures for sorting out disputes that are available from more developed legal systems elsewhere in Canada, Yeager said. Prolonged but fruitless attempts to make land access and benefits agreements have soured northern views of the gas project, said Arthur Tobac, president of K'ahsho Got'ine Land Corp. in Fort Good Hope.
"Here in the community a lot of people are scared of the pipeline," said Tobac. "They'd rather not have to deal with it."
No deadline was set on clearing a path for work on the pipeline to resume. The corporate participants are not yet thinking about alternative investments if the Mackenzie project is aborted for the second time since northern aboriginal and political conflicts stopped its first incarnation in the 1970s, Yeager said.
The Aboriginal Pipeline Group, a coalition of three of the four Mackenzie Delta and Mackenzie Valley native nations, called for all concerned to cooperate on keeping the project alive. The appeal underlined high northern expectations of the gas development.
"We remain committed," the pipeline group chairman Fred Carmichael said. "Without this project there will be no job creation, business opportunities or income for aboriginal people. It continues to represent a significant opportunity for the people of the North to reduce their reliance on government."
In addition to backing the Mackenzie Pipeline project, the Northwest Territories' Bell said he was in Washington last week to dissuade U.S officials from considering subsidies for the long-line pipeline from Alaska' North Slope to the Lower 48 market. Subsidies would be "market distorting," damaging to the natural gas industry, and "unnecessary for U.S. taxpayers," he said.
Bell believes the "potential" exists for there to be "additional subsidization" for the Alaska gas pipeline in the final congressional energy bill. "We're worried about the floor price subsidy" for Alaska producers who will transport their gas over the line, he said.
The controversial idea of a floor price was considered by the 108th Congress in its energy bill, but it was struck from the measure and hasn't been raised publicly since then.
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