Forecast costs of Canada's arctic natural gas pipeline project have jumped 116% and the beleaguered scheme's sponsors have pushed the target date for starting deliveries back at least three years.
The Mackenzie Gas Project's (MGP) senior partner, Imperial Oil, announced Monday a new price tag of C$16.2 billion (US$13.8 billion). It was the second time the forecast has virtually doubled since the attempt to revive Canadian arctic gas development began about eight years ago.
The announcement, which followed about a year of engineering reviews to bring the plans up to date, also warned that "project timing is uncertain but production start-up is no sooner than 2014 and is conditional on progress on regulatory and fiscal matters."
When the MGP's attempt to proceed with a reincarnation of the dormant 1970s Mackenzie Valley pipeline project began, total costs of the production, gathering and delivery system were projected at about C$4 billion (US$3.4 billion). The plan called for deliveries to start as early as 2007 or 2008.
The cost estimate nearly doubled to C$7.5 billion (US$6.4 billion) by the time formal regulatory applications were filed in late 2005, and the start-up target receded to 2010 or 2011.
The new cost estimates include C$7.8 billion (US$6.6 billion) for the proposed 1,200-kilometer (750-mile) Mackenzie Valley Pipeline, C$4.9 billion (US$4.2 billion) for Mackenzie Delta production installations, and C$3.5 billion (US$3 billion) for a Delta gathering system.
The new estimates, combined with continuing regulatory headaches that have been the chief culprit behind delays and cost escalation, prompted company officials to describe the current state of confidence that the project will ever go ahead as "not robust." But hope of eventually advancing into construction has "absolutely not" been abandoned and efforts to move the cumbersome northern regulatory system along will continue, the arctic gas consortium said.
The project remains bogged down in a variety of technical, procedural, legal and potentially constitutional proceedings before the National Energy Board, the environmental Joint Review Panel of federal, Northwest Territories and aboriginal authorities, and at times Canada's courts.
The sponsors -- Imperial, ConocoPhillips Canada, Shell Canada, ExxonMobil Canada and the Aboriginal Pipeline Group -- also continue marathon negotiations on financial terms with the federal government.
The last time the government disclosed a count, the consortium was asking for about C$1.2 billion (US$1 billion) in financial help such as deferred royalties on Mackenzie Delta gas production and cost-sharing on northern infrastructure requirements. But that number is expected to go up, potentially at the same steep rate as the doubled construction cost estimate.
At recent review panel hearings in the Alberta capital of Edmonton, Imperial witnesses emphasized that the arctic project will only go ahead if its deliveries are competitive against liquefied natural gas imports projected to be available from new terminals by the time the northern supplies reach markets.
The testimony, coupled with the new cost and timing forecasts, prompted immediate predictions by Canadian industry analysts that the arctic project will simply be quietly shelved, possibly except for attempts to obtain regulatory approval. Approvals could include an extended period for construction to start, or would at least set a precedent for the next attempt to tap discoveries the consortium has been attempting to produce since the late 1960s.
Labor, materials and infrastructure costs have escalated at about the same rate as expenses elsewhere in the surging Canadian oil and gas industry, which has been going through rapid inflation since rising crude prices and favorable government policies set off a multibillion-dollar oilsands development rush in northern Alberta over the past four years.
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