At hearings in the territorial capital of Yellowknife, the Mackenzie Gas Project’s (MGP) senior partner, Imperial Oil, told the National Energy Board completion of the project could be postponed for a year until 2012. Despite another delay in the arctic pipeline project, natural gas supplies are growing on the “near frontier” of northeastern British Columbia, which is already connected to North American markets.

The Mackenzie project setback resulted from a surprise decision by the parallel environmental Joint Review Panel of federal, territorial and aboriginal agencies, the NEB was told. The roving panel added about four months to its hearings schedule, extending the marathon that started in January out to next April in order to visit eight more communities. The only explanation given by the panel was that it simply needed more community hearings and time to complete its work properly.

In the long run, some industry analysts suggested privately that the extension could be a blessing in disguise at least on the regulatory and legal front. By the time the panel wraps up its work no one in northern Canada will be able to appeal to the courts on due-process grounds that rights to be heard were denied.

MGP plans to announce a revised schedule this fall, along with new cost projections. A review is under way, following rough estimates that costs have jumped at least 7% to C$7.5 billion (US$6.75 billion) from C$7 billion (US$6.3 billion) since construction applications were filed last fall.

The arctic project’s agenda continues to specify production developments on the Mackenzie Delta only by owners Imperial Oil, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada. Their fields are forecast to produce about 800 MMcf/d, while the associated Mackenzie Valley Pipeline is still expected to open with initial capacity of 1.2 Bcf/d. But no companies have stepped forward yet to take the extra capacity, creating a possibility that the initial pipeline might be downsized by cutting compressor power.

The plan still calls for the pipe to be laid with built-in ability to grow eventually to 1.9 Bcf/d. Imperial told the NEB that the MGP owner group suspects no arctic drilling newcomers have stepped forward to book pipeline service because none have enough confidence yet in their reserves to commit to long-term transportation contracts. Results of revived arctic drilling programs in recent years remain largely confidential.

But there is no doubt that the Canadian industry has been successful with prolonged drilling programs in northeastern B.C., the starting point for the Alliance Pipeline to Chicago. B.C. supplies have hit a record high, provincial Energy Minister Richard Neufeld announced. B.C. reserves reached 15.8 Tcf by the end of 2005, according to the latest review done for the British Columbia Oil and Gas Commission, located in the regional industry capital of Fort St. John.

The total was up 14% since the end of 2004 and 51% greater than B.C.’s reserves at year-end 2000. At current production rates the industry gas inventory in B.C. would last 15.9 years, the commission calculated. The B.C. reserve-life index has risen for three consecutive years.

The industry drilled 1,418 wells in 2005, about 11% more than in 2004 and 60% more than in 2001. Field activity shows no signs of dropping off significantly. B.C. targets largely survived the cut when the nation’s second-biggest producer, Canadian Natural Resources Ltd., this week lopped 50% off its gas drilling program for the rest of this year and switched the money to oil prospects.

The cut will be concentrated on shallow and coalbed methane drilling that suffer the worst when gas prices retreat even temporarily due to low well production rates and rising industry costs, CNRL said. The company holds two million acres (3,125 square miles) of drilling properties in northeastern B.C. and drilled 199 wells on them in the first six months of this year.

Wells aimed at positioning the company for 2007 drilling campaigns will continue to be drilled this fall. While CNRL’s heaviest investments are in oilsands projects and its long-range strategy calls for a majority of its production eventually to become light oil, the company said it is not about to give up properties, technology and know-how that made it a 1.4 Bcf/d-plus leader among Canadian gas producers.

The gas budget paring is a change in activity timing rather than a decision to exit the field. No cuts were made in budgets for the underpinnings of future drilling campaigns, land acquisition and seismic exploration. Watch for more switches in emphasis down the road as pricing relationships between gas and oil change. “We’re focused on returns, not on volume growth,” CNRL president Steve Laut said.

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