Sponsors of Canada’s arctic natural gas project have beaten off a challenge from within the industry by winning a cost-saving decision from the National Energy Board. The NEB, in a ruling on a hotly-contested move by newcomers to the northern Canadian gas scene, refused to declare the Mackenzie Gas Project’s 190-kilometer (120-mile) Mackenzie Delta gathering grid a common carrier subject to open-access and tariff regulation.
The decision went against the Mackenzie Explorer Group of companies, which have extensive drilling rights and plans to break into northern exploration. That group includes Anadarko Canada, BP Canada, Chevron Canada, Devon Canada, EnCana and Nytis Exploration. The Canadian arctic old guard sponsoring the Mackenzie project — Imperial Oil, Shell Canada and ConocoPhillips Canada (formerly Gulf) — kept control of the project’s design.
In a ruling that turned on legal interpretation of two Canadian statutes, the NEB decided different standards apply to long-distance pipelines and industry operations entirely inside the Northwest Territories. While the 1,200-kilometre (750-mile) Mackenzie Valley Pipeline will be subject to common carrier regulation, the Mackenzie Gathering System or MGS retains its status as a private, purpose-built field facility.
Aside from insisting on legal rights, the project’s sponsors also warned that it can ill afford to shoulder any additional demands. Costs have steadily risen to about C$7.5 billion (US$6.8 billion), and the current estimate is expected to be revised upwards after a review currently in progress. The arctic newcomers sought design changes to anticipate future exploration successes and production projects, saying the Delta gathering system should be considered part of a “basin-opening project” that launches gas development in a new region by the entire Canadian industry.
On the way to winning the legal ruling, the northern gas old guard promised not to try and use control of the Delta gathering system to make the region their exclusive territory. The Mackenzie project owners pledged to accommodate added production as and when newcomers are ready to sign service contracts on the Delta grid.
As senior Mackenzie project partner, Imperial also assured the NEB that the gathering system will eventually mature into an independent operation with a separate ownership structure. Prospective users of the gathering network are being offered part ownership, Imperial said. The plan calls for contractual arrangements to evolve that require the gathering grid to follow an agenda set by a management committee representing all partners in the system.
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