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Mackenzie Project Delayed a Year; Initial Service Expected in 2011

Canadian arctic natural gas will stay frozen off North American markets for an extra year. The first planned northern pipeline construction season has been lost to slow government and native negotiations, the Mackenzie Gas Project told regulators last week.

A new schedule for the C$7-billion (US$6-billion) production and pipeline proposal sets back the date for starting deliveries by 12 months to late 2011. Even the later target will only be met if the northern regulatory process becomes efficient, says the consortium of Imperial Oil, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada.

"Timely action will be required to maintain the schedule," project spokesman Pius Rolheiser emphasized in an interview. The revised agenda, outlined in letters to the National Energy Board and the parallel environmental Mackenzie Gas Project Joint Review Panel of government and aboriginal agencies, calls for a prompt start on public hearings in January. All concerned have to avoid further episodes of sluggish negotiations like the slow progress on land access and benefits agreements that stalled the project from April through November this year, the producers said.

"Significant expenditures and commitments by the project proponents, as well as timely actions by other parties including governments and regulators, will be required to maintain this schedule. Investment decisions to maintain this schedule will be subject to review as the regulatory process proceeds." To stay on track, the project says it needs roving panels of the regulatory agencies to finish planned mobile hearings in multiple communities across the Northwest Territories then grant approvals by September of 2007.

A final decision on whether to proceed into construction is expected as soon as the regulatory decisions are made, in the summer or early fall of 2007 or in time to use the first available arctic work season. The northern environment demands a brisker pace than the authorities have set since the revival of the aborted 1970s arctic gas mega project began more than five years ago, Rolheiser indicated.

Most northern work can only be done in winter. Operations on marshy terrain on the Mackenzie Delta and along the proposed Mackenzie Valley Pipeline rely on the ground to freeze hard enough to support heavy equipment on temporary ice roads, drilling pads and construction sites.

The new plan calls for a start in January of 2008 on pipeline right-of-way clearing, site preparations and C$2.2 billion (US$1.9 billion) in Delta gas production facilities. Pipeline construction is scheduled for the winters of 2009-10 and 2010-11. The overall plan, and especially the schedule, is not made easier to carry out by an engineering review that shaved about 4% off the forecast C$4.8 billion (US$4 billion) cost of the northern pipeline and reduced its environmental "footprint."

Savings of C$178 million (US$151 million) were made by dropping one of four proposed compressor stations and by route adjustments. The pipeline's length is shortened by 26 kilometers (16 miles) to a new total of 1,194 kilometers (746 miles).

But the overhaul did not significantly change the time required for construction or project needs for about C$2.8 billion (US$2.4 billion) in aid still under negotiation with the government in Ottawa, Rolheiser said. No deadlines were set for finishing a package expected to include C$1.2 billion (US$1 billion) in royalty incentives or federal investments plus a C$1.6-billion (US$1.4-billion) loan guarantee to cover the northern Aboriginal Pipeline Group's one-third partnership share in construction costs.

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