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Mackenzie Pipeline Needs Open Access Rules, Producers Claim

The most active independent Canadian producer in the Northwest Territories has joined the industry chorus saying the limping Mackenzie Gas Project needs more work, as review of the plan continues before the national Energy Board.

"Key development issues" remain unresolved by the C$7 billion (US$5.6 billion) plan for a production system on the Mackenzie Delta and a pipeline through the Mackenzie Valley, Paramount Resources Ltd. said in a filing with the NEB.

Top priority needs to be given to "equitable, fair and open access" to the proposed pipeline, Paramount said. The company has large exploration interests in the central Mackenzie Valley, production in the southwestern Northwestern Territories and growth ambitions across the Canadian North.

Paramount insisted that open access to the Mackenzie delivery system must include a liquid-byproducts line as well as the main gas delivery system proposed by the MGP.

Paramount said the project has evaded access issues by applying for the liquid-byproducts line under an antique and obsolete statute that predates the energy deregulation era, the Canada Oil and Gas Operations Act.

The old legislation "contains none of the usual regulatory provisions dealing with access, tolls or reporting requirements," Paramount said. As a result, MGP owners Imperial Oil, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada "have not submitted a facility application that provides transparency or openness regarding access and tolls and tariffs. In contrast, their position on a number of issues, including access to the natural gas liquids pipeline and a code of conduct, is a throwback to a past era of closed negotiations, with terms and conditions imposed by the pipeline operator."

Paramount echoed complaints that the MGP is deeply flawed due to its emphasis on interests of the project owner group, that have also been fired off to the NEB by drilling partner Apache Canada, Mosbacher Operating, and the Mackenzie Explorers Group (Anadarko Canada, BP Canada, Chevron Canada, Devon Canada, EnCana, Nytis Exploration and Petro-Canada).

"The fact is that this application contains few, if any, innovative measures that might be viewed as helpful in facilitating northern resource development by parties other than the producer-owners," Paramount said.

Two months after the MGP suspended field operations to try settling aboriginal benefits and land access disputes, the Canadian independent producer urged the project to work overtime on recapturing some momentum.

"It is critical . . . that developments in the Mackenzie Valley are not unduly delayed," Paramount said. "While there may be other options for oil and natural gas producers if this application is delayed or dismissed, it is in the best interest of the North that the project be approved to allow orderly development and to minimize duplication of facilities."

Construction should happen now because "there is a unique window of opportunity...every effort should be focused on getting this backbone system implemented, built and operating in a timely manner," Paramount said.

"Forecast supply and demand conditions...are such that natural gas from the Mackenzie region will face a minimum of competition." A delay of any more than two years in the scheduled in-service target of 2010 creates great risk that American development will overtake and swamp Canadian arctic gas, Paramount suggests.

"Following 2012 additional gas is expected in the form of the Alaska project and a significant number of liquefied natural gas projects proposed for various regions in Canada and the United States. These projects, with their substantial threshold gas volumes, may cause adverse market integration for a delayed MGP project."

But there is no sign of a breakthrough for the MGP. An initial flurry of high-profile discussions between the project consortium, territorial authorities, the federal government and aboriginal leaders petered out into silence. The MGP meanwhile faces an avalanche of criticism by aboriginal and conservationist groups that its plans are incomplete in parallel northern environmental proceedings before a Mackenzie Joint Review Panel of federal, territorial and native agencies.

Industry sources say that behind the scenes of official optimism, the mood was sober in private networking at a recent annual northern gas industry convention in Inuvik which in previous years glowed with confidence that northern gas development is at last at hand.

Field contractors and employees on the MGP planning staff continued to talk about the Canadian Arctic's great potential. But there is growing anxiety over the stamina of the upper management of the project owner companies that have been trying for six years to advance the MGP against apparently hardening resistance.

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