Canadian government leaders promptly shot down the latest report that Ottawa is trying to rescue the stalled Mackenzie Valley Pipeline project by taking over ownership from its sponsoring natural gas producer consortium.

“It has to be driven by market forces,” Natural Resources Minister Gary Lunn told an impromptu news conference after a Toronto newspaper floated the idea for a second time in about a year, claiming it came from unidentified sources knowledgeable about discussions on the fate of the Mackenzie Gas Project. “At the end of the day this is a commercial project.”

A similar dismissal of the takeover theory followed rapidly from the office of Indian Affairs and Northern Development Minister Jim Prentice, who is the chief of a cabinet committee assigned to look after federal interests in the northern pipeline. The cabinet’s attitude has not changed since last time the takeover idea was floated and sunk, except to make it clear that the government is especially not interested in buying into a development made uneconomic by steeply rising costs, an aide to Prentice said.

The recurring vision of a government-built arctic gas pipeline appears to be rooted to a significant degree in wishful thinking among frustrated project supporters, say industry analysts familiar with the Northwest Territories political, economic and aboriginal scene.

Eight years after strengthened gas prices and new native community support spawned an updated version of an aborted 1970s arctic pipeline proposal, territorial leaders are increasingly frustrated over the lack of progress. Parallel regulatory proceedings by the National Energy Board and an environmental Joint Review Panel of federal, territorial and native authorities are nearly 18 months old with no firm dates set for conclusions and decisions.

The main obstacle has been the Deh Cho aboriginal group whose territory encompasses the southern part of the Northwest Territories that the pipeline would have to traverse. While other aboriginal groups have joined in supporting the project, the Deh Cho are holding out for the Canadian and provincial governments to agree to Deh Cho’s complete domination of what they consider their territory (see related story, this issue). Observers point out that there is no significant monetary advantage for the tribe to allow the pipeline to go forward compared to the lucrative payments they already are receiving from extensive diamond mining on their land.

The regulatory marathon was overtaken this spring by a jump in the Mackenzie project costs that more than doubled estimates to C$16.2 billion (US$14.6 billion). Sponsors Imperial Oil, ConocoPhillips, Shell and ExxonMobil announced a minimum three-year construction delay, pushing their completion target back to 2014 at the earliest. As senior partner, Imperial has told markets and the federal government that changing conditions have left the project’s economics definitely “not robust.”

The only officials who have allowed their names to be associated with the government takeover idea are Chairman Fred Carmichael and President Bob Reid of the territorial Aboriginal Pipeline Group (APG), which has a one-third interest in the proposed Mackenzie Valley pipeline (see related story). Both men have chosen their words carefully, saying government participation would be welcome, but neither reported it was seriously under negotiation nor predicted that it will happen.

APG has for about seven years sought — but not yet obtained — a federal government loan guarantee to help it raise its share of the proposed pipeline’s construction costs. In Ottawa, the idea was rejected by the former Liberal government and then the new Conservative administration, but hope was revived as cost estimates rose and the cabinet promised to listen to APG’s pitch.

The territorial government, an ardent supporter of the project, has also revived a 1970s idea of pulling proposed Alaskan and Canadian arctic gas pipelines together into one giant project. Territorial Industry Minister Brendan Bell has urged industry to reconsider an abandoned 1960s and ’70s northern pipeline idea known as “over the top.” The design, opposed by Alaska state leaders as giving up too many jobs and rejected on environmental grounds by Canada, was originally tendered as the most economical way to tap Prudhoe Bay and Mackenzie Delta gas fields by connecting them with a pipeline along the Beaufort Sea coast.

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