Prospects for construction of Canada's Mackenzie Valley pipeline continue to recede as the federal government lays out conditions for supporting the pioneer arctic natural gas development with favorable financial terms.

"It is difficult to imagine any significant progress on fiscal framework discussions in the absence of the proponents reinventing this project," Indian Affairs and Northern Development Minister Jim Prentice told an Ottawa conference. A text of his remarks was distributed in the Canadian gas center of Alberta.

Like the previous Liberal government, Prentice's Conservative regime is willing to support arctic gas development with measures such as granting accelerated construction cost tax write-offs, deferring royalties, taking them "in kind" as gas rather than cash, and committing to shipping contracts on northern pipeline facilities.

Also like the previous Liberal administration, the Conservatives rule out a government ownership share in the proposed Mackenzie Valley pipeline, saying a new equity partner would not take the sting out of escalating costs.

Estimates for the Mackenzie Gas Project's (MGP) production, gathering and pipeline installations jumped this spring to C$16.2 billion (US$14.5 billion) -- more than double the C$7.5 billion (US$6.8 billion) forecast when regulatory applications were filed in late 2005 and nearly quadruple the original C$4.5 billion projection when work began on the scheme in 2000.

The federal government is siding with MGP critics -- and guaranteeing prolonged negotiations with sponsors Imperial Oil, Shell, ConocoPhillips and ExxonMobil -- on critical fronts. Prentice echoed the Mackenzie Explorers Group of producers outside the MGP ownership consortium and the Northwest Territories government by suggesting that the transportation elements of the project need considerable work.

Prentice suggested that the sponsor group's toll and profit expectations for the pipeline look too high. The structure proposed for the Mackenzie Delta gas-gathering pipeline grid may need considerable reworking, he also indicated.

Before the National Energy Board and in a pending appeal to the courts, the explorers group has argued that the gathering network effectively excludes arctic newcomers or at least makes access to transportation services prohibitively difficult and expensive.

If the allegations are true, in the Canadian government's eyes "it is impossible to make a compelling case, or even a strained case, that this project is in the national interest," Prentice said.

The explorers group and the territorial government maintain the Mackenzie project should be a "basin-opener," connecting and encouraging growth in an entirely new production region by ensuring that the gathering and pipeline systems are as open and low-cost as possible.

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