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First Gas Tapped and Delivered in Canadian Arctic

First Gas Tapped and Delivered in Canadian Arctic

Canada's Far North was the scene Friday (Sept. 10) of a natural-gas industry version of the small step for man but giant leap for mankind on the moon 30 years ago.

An elaborate ceremony in Inuvik, the principal town of the Mackenzie Delta, inaugurated the first gas production in the Canadian Arctic. The project is tiny compared to the multibillion-dollar production and pipeline mammoths that were envisaged in the 1960s, '70s and early-'80s banner times of exploration on the Delta and offshore in the Beaufort Sea. But the development, as well as the ceremony, drew a cast of Canadian stars.

Representatives of the Canadian Association of Petroleum Producers, Enbridge Inc., Altagas Services, Gulf Canada, Chevron Canada, Shell Canada, Koch Oil and every government level involved turned out to praise the Ikhil Gas Project as a breakthrough and early start on much bigger things.

Ikhil was a C$40-million (US$27-million) exercise in putting two 13-year-old Delta wells on production and building a 30-mile pipeline to replace diesel fuel at Inuvik's power station and eventually provide home-heating service to a population of 3,300. The project started when Inuvaluit Petroleum Corp., an economic development arm of its namesake aboriginal community, bought the Ikhil field and its estimated 14 Bcf of reserves from Gulf. It grew up into a successful trial run at exploiting gas resources in a physically forbidding and formerly hostile area that CAPP described as "a showcase of how industry and aboriginal groups can work together to bring about commercial developments."

While IPC kept the lead role, one-third interests were bought by Altagas (a leading Alberta "midstream" processing operation) and Enbridge (a partner in Alliance Pipeline Project, owner of Toronto distributor Consumers' Gas Co. and a partner in a new gas distribution franchise awarded by New Brunswick). Gulf and Shell continue to hold multitrillion-cubic-foot Arctic gas discoveries, while Chevron is leading an accelerating drilling and development effort in the southern Northwest Territories.

While the gas companies set no target dates for reviving dormant plans for a Mackenzie Valley pipeline, all stressed that they want to be sure they stay in good standing in the north for the day one comes together. Ikhil also was rated as a productive field trial of solutions for a major engineering problem awaiting northern developers, installing buried gas pipeline in permafrost.

There were other signs that interest in Arctic gas development is reviving. Bidding closed the day before the Inuvik ceremony on an auction of new Delta drilling rights. The signals also included a new study of Mackenzie Delta-Beaufort Sea gas by the Calgary arm of the international energy consulting house of Purvin & Gertz Inc. for 16 Canadian and U.S.-owned corporate sponsors. The study reached no startling new conclusions. It repeated previous forecasts that a large-scale development "could be feasible under a wide range of plausible circumstances" but that "there are major challenges" such as the region's remoteness and costs as well as overall market conditions. Purvin & Gertz estimate that benchmark Henry Hub prices have to reach US$2.50 per MMBtu and reliably stay there on a sustained basis to support a major northern gas development. But on top of strong North American demand, rising prices for Canadian production and a northern gas-resource endowment estimated at 64 Tcf, Purvin & Gertz cited increasing native interest in resource development among factors favoring a revival of interest in the far north.

Ikhil helped foster a new image of the industry in the region's ruling native community as a helper rather than a pillager. Residents of Mackenzie Delta communities got half the project's construction jobs. Inuvik residents are forecast to save C$20-$25 million (US$13.5-$17 million) over 15 years thanks to the substitution of gas for diesel fuel imported from Alberta.

The project, whose motto is "From the North, for the North," also boasted environmental benefits: a 32% decrease in greenhouse gas emissions and reduced diesel engine noise. The project predicted the switch to gas will reduce carbon-dioxide emissions by 12,600 tons per year - an amount that would take 3,000 football fields of forest to convert into oxygen.

Gordon Jaremko, Calgary

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