Costs are up by 40% and an aboriginal lawsuit clouds the outlook for the regulatory process, but strong supply needs and prices convinced the Mackenzie Gas Project to press ahead by filing construction applications last week.

A C$2 billion (US$1.5 billion) increase in the price tag to C$7 billion (US$5.8 billion) includes new facilities, added delivery capacity and results of the first engineering work done to move the development beyond the concept stage, spokesman Hart Searle said. The construction application “demonstrates our commitment,” said the president of senior Mackenzie consortium partner Imperial Oil Resources, J. Michael Yeager said.

About C$200 million (US$150 million) has been spent on preliminaries so far and the total will rise to C$400 million (US$300 million) by the time of the final decision on whether to go ahead with construction in 2006 or ’07, project spokesman Searle said.

Yeager said “the Mackenzie Gas Project represents a significant opportunity for Canada — employment, and business opportunities for aboriginal and non-aboriginal people of the North and other Canadians, revenues to governments, and new supplies of natural gas for North American markets.”

A target date of 2009 or 2010 was set for completion of the Mackenzie Delta production system and Mackenzie Valley Pipeline by up to 7,000 construction workers. The mammoth development, the largest industrial project ever proposed for the Canada’s Northwest Territories, is also forecast to create 1,400 jobs for northern residents during the two years it would take to build. When completed, the installations are expected to require only about 150 staff and specialty contractors to operate.

The proposed Arctic gas supply network would have 25 to 46 wells on the Delta and 175 kilometers (110 miles) of gathering pipelines to connect the inlet to the 1,220 kilometer (765 mile) main line between Inuvik and northwest Alberta.

New facilities in the expanded plan include a plant to extract liquids from the gas abut 20 kilometers (12 miles) east of Inuvik, and a separate 475 kilometer (300 mile) stretch of pipeline to take the byproducts to the northern inlet of Enbridge Inc.’s Norman Wells oil pipeline.

Adding the liquids pipeline raises the system’s overall capacity by about 50%, Searle said. The gas line would carry 1.2 Bcf/d initially, up by 20% or more from early versions of the plan launched five years ago. The load would grow to 1.9 Bcf/d by adding compressor power as the project stimulates new gas exploration and development. A long lineup of producers snapped up drilling leases in a territorial auction of prospects earlier this year.

The territorial government repeated its support for gas development, but guarded language in the latest encouragement implicitly acknowledged hesitations over environmental and social effects among the region’s predominantly native population, plus outright opposition to the current structure of the regulatory process by one major aboriginal group.

Territorial Resources Minister Brendan Bell said the government “supports the development. We have complete confidence that the regulatory process provides the assurance required to uphold Northwest Territories interests.” But Premier Joe Handley added there is more to the commitment than business boosterism to be easily satisfied by spreading construction contracts and jobs around.

The government “remains committed to the fundamental principles that resource development projects in the Northwest Territories must be environmentally and economically sustainable and that the benefits of northern development must accrue to northern residents,” Handley said.

Outside the North, the Mackenzie project is enthusiastically supported by government and industry, especially in the mainstay gas supply province of Alberta where the participants are based. The Arctic development would spin off investment of C$266 million (US$200 million) and 8,000 person-years of work in Alberta, says a study by the Western Centre for Economic Research at the University of Alberta in Edmonton. The province would also gain improved supplies of gas liquids as raw material for petrochemical plants, the center says.

While the Mackenzie project’s sponsors called the applications “a major milestone” for a plan with a pedigree dating back to the 1970s, the industry group emphasized construction is not yet a sure thing.

The final decision will depend on gas market conditions and results of the regulatory process, said the consortium of Imperial Oil, ConocoPhillips Canada, ExxonMobil Canada, Shell Canada and the Aboriginal Pipeline Group.

The project schedule anticipates two years of hearings and study by the National Energy Board and a joint review panel of federal, territorial and Aboriginal environmental authorities. Squads of officials, lawyers and interveners were expected to immediately begin scrutinizing about 8,650 pages of documents in the applications.

No guesses were made about the length or outcome of a lawsuit to halt to the environmental review filed last month by the Deh Cho native community along the southern 40% of the pipeline route. Negotiations on benefits agreements are underway with the Inuvialuit and Gwich’in in the Delta and northern Mackenzie Valley, Searle said. Overtures are being made to the Sahtu in the central valley and the Deh Cho. “We have an open door,” he said.

The Inuvialuit, Gwich’in and Sahtu oppose the Deh Cho protest lawsuit as shareholders in the Aboriginal Pipeline Group with settled land claims (see related story). The Deh Cho have observer status in the group but are holding back from fully buying in while their land claim negotiations continue with the federal government.

“We are a step closer to delivering long-term benefits,” said Aboriginal group chairman Fred Carmichael. ConocoPhillips president Henry Sykes said “co-operation needs to be maintained and broadened” for the Mackenzie project to make it into construction. Public consultation by the sponsors is already “unprecedented in Canada,” ExxonMobil production manager Tim Cutt said. “Considerable challenges still remain,” added Shell exploration chief Ian Kilgour.

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