NGI The Weekly Gas Market Report / NGI All News Access

Hearings on Mackenzie Project Postponed Until 2006

Regulatory hearings on Canada's entry in the arctic pipeline race have been postponed until 2006, prompting the Northwest Territories government to warn that the C$7-billion (US$5.6-billion) Mackenzie Gas Project could be shelved. The lag gives Alaska a chance to take over the North American lead in northern supply development, territorial energy minister Brendan Bell said.

"We can't afford to be caught in that wake," said Bell. "We're concerned about a real, material delay."

In letters to the National Energy Board and the northern gas environmental Joint Review Panel, Mackenzie project leader Imperial Oil said, "Key areas remain unresolved," and it will take until November to decide if enough progress has been made to justify holding regulatory hearings.

The agencies say they need two months to swing into action after the industry consortium says the project is a go. "Benefits and access agreements have not been concluded" with aboriginal communities on the Mackenzie Delta, where gas would be produced, or along the 1,222-kilometer (765-mile) path of the proposed pipeline through the Mackenzie Valley to northern Alberta. "The fiscal framework for the project has not been agreed to with governments," the letters added.

"We would like more clarity," project spokesman Pius Rolheiser said. Unsettled money issues include federal, territorial and aboriginal gas production royalties plus corporate taxes on the pipeline.

The carefully worded document also made it plain that Bell was right when he said he suspects the question hanging over the Mackenzie project is not just when it will happen, but also still whether it will proceed. At age six years, the 21st-Century revival of the aborted 1970s Canadian arctic gas project is becoming a source of frustration to the sponsors and there is talk that they could drop it indefinitely on grounds that the northern population is simply nowhere near ready yet to consent, Bell said.

The letter said the project sponsors "believe that additional time is warranted to determine if these outstanding matters can be resolved. In view of this, the project proponents will advise the NEB and the JRP in November 2005 of our willingness to proceed with a public hearing." Until further notice "the proponents remain committed to the project and look forward to advancing to the public hearing stage upon timely resolution of these remaining key areas."

Rolheiser said, "I wouldn't characterize this as a delay." But he added that the project will review its current schedule, calling for northern Canadian gas to flow by 2010, before any regulatory hearings begin, if they are held. No immediate deadlines were imposed on northern negotiations. But as the letter's wording suggested, the Mackenzie consortium of Imperial, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada does not have unlimited time, he said.

"While we've stated we're committed to using as much time as it takes to do the project properly, everyone needs to recognize that, yes there is some urgency. For Mackenzie Delta gas to be viable, it needs to come to market before Alaska gas, just because of the size of the Alaskan development," Rolheiser said.

Canadian gas would be shoved off the market, and American firms would corner northern project essentials from steel to pipeline construction workers, because the Alaskan megaproject is about four times bigger than the Mackenzie plan. "There will be a fast-track Alaskan project," Bell predicted in a telephone interview from the New Brunswick resort town of St. Andrews, where he raised the northern gas project's concerns at the annual meeting of Canadian energy ministers.

Hurricane Katrina, plus threats of more storm damage to production in the Gulf of Mexico, fanned oil and gas supply concerns in the United States into "what really amounts to an energy crisis," Bell said. Washington already offered loan guarantees to the Alaskan pipeline project, the worried Canadians pointed out. Canada's energy ministers gave the northern gas issue a polite hearing at their annual meeting but made no promises, instead issuing a statement promising a balanced policy of supply and demand management initiatives but making no specific commitments.

Bell agreed that the most difficult northern issues have become negotiating matters between companies and native leaders that have to be resolved on a business basis without government interference. But the territorial government will urge northern aboriginal leaders to recognize they do not have unlimited time to hold out for concessions from the Mackenzie project, Bell said. "The message we need to send is that things have changed. There is a new urgency post-Katrina."

But native communities will not drop a demand for a C$47-million (US$38.4-million) annual pipeline transit fee or property tax that has been a sticking point in the negotiations, said former territorial premier Stephen Kakfwi. He is now a benefits negotiator for the Sahtu aboriginal population in the central Mackenzie Valley and has emerged as a territorial leader in the field. The Deh Cho along the southern 40% of the pipeline are allied with the Sahtu on the transit fees and special payments are also sought by the Gwich'in along northern parts of the route, Kakfwi said. Training, jobs and contracts offered by the gas consortium would only spin off temporary benefits to a minority of the territorial population, he said.

"The majority of our people will just stay dirt poor," Kakfwi predicted. The tax would finance roads, water and sewer services, cultural centers and recreational facilities. "We just want a better standard of living."

The territorial government will work with Ottawa to devise new options for helping the project on top of a 10-year federal commitment, announced in July, to create C$500 million (US$400 million) in northern community development trust funds, Bell said. Independent arbitration could be offered as a way to settle the pipeline transit fee dispute, he suggested.

But Rolheiser and Kakfwi indicated neither side is interested in adding new legal or regulatory procedures. "I'm ready to go," Kakfwi said. The main obstacle against the project is its lack territorial and federal fiscal agreements rather than native leaders who obtained the trust funds from Ottawa while also persuading the Deh Cho to drop a protest lawsuit and co-operate with development. "The fact is we're about a year or year-and-a-half behind schedule," Kakfwi said. "It would be too bad if the project's stalled. Everybody has to take responsibility and Imperial will have to take 50% of the blame."

©Copyright 2005 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.