Canada’s northern pipeline project has become a case of never say never, with the senior sponsor promising to keep on trying to launch construction but setting no dates.

ExxonMobil Corp. Chairman Rex Tillerson, quizzed about the Mackenzie Gas Project’s (MGP) fate at a Calgary conference, classed it among the industry’s largest, longest-range and most difficult schemes. Tillerson has been intermittently involved with attempts to start producing and transporting Arctic natural gas since 1987, or for two-thirds of the 32-year career he began with Exxon in 1975.

Tillerson poured cold water on frustrated speculation in the Northwest Territories that dissatisfaction with Imperial Oil’s slow progress on the MGP will prompt Exxon to take over by buying out about 20% of shares in the Canadian company that it does not already hold.

Exxon remains content with the performance of the only affiliate it does not own outright and satisfied with an ownership structure dating back more than 100 years ago, Tillerson said.

Imperial is the MGP’s senior and operating partner, with Exxon taking a back seat as an investor in the Canadian company and a minority participant in the Arctic development program in its own right. The MGP is the second incarnation of Canada’s northern pipeline project since the mid-1970s.

In the late 1980s, when Tillerson had his first role in the scheme, a consortium led by Imperial made what turned out to be a false second start by obtaining an export permit for Arctic gas from the National Energy Board (NEB). At that time owners of Mackenzie Delta and Beaufort Sea discoveries — including current MGP partners Shell Canada and ConocoPhillips Canada (then Gulf Canada) — stopped short of crafting a production and pipeline project.

The MGP “has not been put on the shelf,” Tillerson told a news conference after addressing a blue-chip conference of business and government leaders at the Spruce Meadows equestrian center on Calgary’s southern edge in scenic foothills of the Rocky Mountains. “It’s still being actively worked on.”

Talks on fiscal terms will continue with Canadian governments, the Exxon chief said. Items under discussion range from deferrals of gas production royalties to loan guarantees for northern aboriginal community ownership of one-third of the proposed MGP. But Canada’s federal government has ruled out acting on apparent Northwest Territories appeals for partial public ownership as well, and Tillerson gave no sign that industry will try to change Ottawa’s mind.

“At the end of the regulatory process we are going to go back and see where we are from an economic viability standpoint,” Tillerson said. He predicted that marathon parallel reviews by the NEB and a northern environmental panel will take another year to complete.

“We will get to the end of that and see what the outcome of the regulatory review process is, in terms of what conditions are imposed on that project, in order for us to meet the requirements.”

Cost forecasts for the MGP have about quadrupled, to C$16.2 billion (US$15.4 billion), since the project was conceived seven years ago with a price tag tentatively estimated in the area of C$4 billion (US$3.8 billion). The new forecast, made last spring, prompted the Arctic consortium to delay the project’s completion target date by at least three years until 2014. Even that schedule can only be kept if economic conditions are highly favorable, the group also indicated.

By late spring Imperial was describing a new key condition at pipeline hearings: Arctic gas will have to be competitive with tanker deliveries of liquefied natural gas to terminals under construction or advancing through the regulatory process in Canada as well as the United States.

Tillerson described the current cost forecast, however, as still only a best guess made to satisfy requirements of a regulatory process that includes determining economic effects of projects. The latest figure is an “extrapolation” derived from cost increases experienced elsewhere in the industry, the Exxon chief said.

A similar exercise in refining cost estimates will eventually be required for the larger Alaska gas project where recent guesswork has ballooned forecasts into the US$25 billion area, Tillerson added.

©Copyright 2007Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.