NGI The Weekly Gas Market Report
Canada’s northern pipeline sponsors did not answer the big question raised by the project’s recent mammoth cost increase, but they earlier disclosed where to look for clues. Can the Mackenzie Gas Project (MGP) be built for its new price tag of C$16.2 billion (US$13.7 billion)?
The new estimate is up 130% from C$7 billion (US$6 billion) when full construction applications were filed in October 2004. The latest cost figure is more than triple original hopes that C$5 billion (US$4.3 billion) would do the job when the revival of 30-year-old plans to tap 1960s and ’70s Canadian arctic gas discoveries began in 1999.
Senior project partner Imperial Oil described the main hurdle faced by the project when its environmental review panel held hearings in Edmonton during late February. Northern production must compete with other supplies led by the strongest emerging new source, ocean tanker deliveries of liquefied natural gas (LNG), testified Imperial executive Randy Ottenbreit.
The competition, although still little noticed in western Canada except among industry experts, is at hand and formidable. Imperial, while urging federal and territorial authorities to consider help such as favorable taxes and support “infrastructure,” made no guarantee that any amount of potential government aid would be enough to make arctic gas economic as its competition grows. While the northern pipeline hearings drag on into their second year, up to 700 construction workers are building Canada’s first liquefied gas import terminal in New Brunswick.
Enter Canaport LNG. The new unloading, storage and conversion facilities for gas were approved with little environmental or other fuss as additions to the nation’s biggest refinery, Irving Oil Ltd.’s 250,000 b/d plant at Saint John. The site already receives 400,000-ton-plus oil tankers.
Canaport’s contribution to gas supplies is identical to the volumes promised by the Mackenzie project. The Saint John terminal will put up to 1.2 Bcf/d on the market when operations begin in late 2008. Capacity to grow to 2 Bcf/d is being built into the site.
The LNG import facilities are a bargain compared to the Mackenzie scheme. The New Brunswick development will cost a total of C$1.1 billion, (US$935 million) or only 7% of the arctic project’s increased price tag.
Canaport is being built for C$750 million (US$638 million). Its link to the North American gas grid — Brunswick Pipeline, a 145-kilometer (90-mile) spur to the Maritimes & Northeast system in New England awaiting National Energy Board (NEB) approval — will cost C$350 million (US$298 million). The new price tag on the arctic project’s proposed Mackenzie Delta “anchor fields” or production sites alone is C$4.9 billion (US$4.2 billion).
Another C$3.5 billion (US$3 billion) will be needed to build the gathering network that connects the Delta wells to the Inuvik starting point of the proposed MGP. The new construction estimate for the 1,200-kilometer (750-mile) pipeline to the Alberta top of the established gas grid is C$7.8 billion (US$6.6 billion).
Western Canadian industry analysts and governments have tended to discount prospects of LNG competition because tanker import terminals are notoriously slow projects due to community resistance inspired by safety and environmental fears. The MGP hearings testimony and new cost estimates confront the Canadian conventional wisdom with a question that is not easily answered. How is arctic gas any different from LNG when it comes to executing projects?
In the project’s new cost and schedule report to the NEB, Imperial indicated it no longer hopes even to start receiving multiple regulatory approvals required for northern construction before 2008.
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