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ConocoPhillips: Northern Pipelines Will Be Needed

As a partner in the Mackenzie Gas Project, ConocoPhillips Canada is vowing to make the frozen northern pipeline go ahead if the hibernating Canadian regulatory apparatus revives to make an approval decision. Kevin Meyers, president of the subsidiary of ConocoPhillips, told for reporters at its Calgary head office that Canadian arctic supplies still have a good chance to beat Alaskan gas to markets in the Lower 48.

"We're safely far ahead of them in the process," Meyers said. "There is a scenario -- it's an unlikely one -- where we could slip. That's a low-probability scenario."

Convergence of the Alaskan and Canadian arctic development schemes has the potential to cause problems and make the Mackenzie plan lose its edge, he said. But as an owner of gas reserves in both jurisdictions and a partner in the bigger Denali Project's Alaska pipeline scheme as well, ConocoPhillips remains convinced that all the northern supplies will eventually be needed, Meyers said.

"We'd move forward" if the Canadian regulatory structure accelerated its glacial pace and handed down an approval decision with conditions that let the project stay economic, he predicted.

Nearly a decade after its birth as a revival of an aborted 1970s proposal, the Mackenzie project remains up to two years away from an approval decision. The National Energy Board (NEB) long ago finished the evidence portion of its hearings. The head of the NEB panel on the case, Ken Vollman, has retired since the hearings wrapped up. He has kept his Mackenzie assignment into retirement and has vowed to spring into action to finish the job as soon as possible.

The holdup is a parallel environmental and socioeconomic review by a joint review panel (JRP) representing about a dozen other federal, aboriginal and Northwest Territories agencies. The JRP's hearings dragged on for months longer than the NEB sessions and its report has been repeatedly delayed, currently until late 2009 but still with no firm date set for completion (see NGI, March 9). The NEB can only hold the final argument stage of its Mackenzie project review after the JRP's findings are reviewed by the federal government then released to participants in the case.

The delay has infuriated supporters of the northern project and especially an Aboriginal Pipeline Group that holds a one-third interest in the proposed 1,200-kilometer (750-mile) Mackenzie Valley delivery route and originally counted on starting to receive its share of shipping tolls by now from planned initial deliveries of 1.2 Bcf/d. But the JRP has not responded to appeals to speed up the process, except to say its duty is to do a thorough job. National Environment Minister Jim Prentice, head of the federal cabinet's northern development committee, is working with peers in other Canadian jurisdictions on devising a brisker regulatory apparatus but has said the Mackenzie process cannot be changed retroactively.

"It is hard to be too positive about that regulatory process," said Meyers. "It's probably not best-in-class by a far means."

He indicated that the Mackenzie consortium -- which also includes Imperial Oil, Shell Canada, ExxonMobil Canada and TransCanada Corp. -- hopes that parallel project governance and financial risk-sharing negotiations with Prentice will be efficient.

ConocoPhillips Canada is braced for a prolonged low on the gas price cycle, with Meyers predicting the slump could last as long as two years. But he said current gas prices will not be the deciding factor on whether to proceed farther on the northern project, which is currently forecast to cost C$16 billion (US$13 billion) with the price tag about evenly split between the pipeline and production facilities on the Mackenzie Delta.

"We still believe the long-term gas price will sustain a project for the Mackenzie," Meyers said, adding that the same goes for the Alaska project. "We believe we need both lines. It is not the next five years. It is 10, 20 years into the future. We believe North America needs the gas from both of these basins."

The Canadian aboriginal ownership group, meanwhile received a C$3 million (US$2.4 million) federal government grant to keep it alive over the next year. The native consortium's president, Bob Reid, recently disclosed its funding from TransCanada to cover its share of planning and regulatory costs has reached C$140 million (US$112 million). The money has flowed as an advance that only has to be repaid if and when the Mackenzie pipeline is built and starts to collect toll revenue.

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