A deal to restructure the Mackenzie Gas Project (MGP) to wrest control from a producer group appears to be close at hand, and TransCanada Corp. and the Aboriginal Pipeline Group (APG) are said to likely be the parties in charge of the project going forward.
The proposed MGP pipeline would ship as much as 1.9 Bcf/d across 750 miles from the Mackenzie Delta south to the Beaufort Sea Coast. However, the project has suffered delay after delay, with its fate tied to efforts of a consortium led by Imperial Oil Ltd., which includes Shell Canada, ConocoPhillips, ExxonMobil Canada and the APG. Earlier this year Imperial said the economics of the pipe were “not robust,” and the group has since been renegotiating MGP’s options with the Canadian government (see Daily GPI, Sept. 4; April 10).
Calgary-based energy analyst Daniel Shteyn of Desjardins Securities fueled speculation that the stalled project now was back on track. In a note to clients, Desjardins lifted its price target for TransCanada, citing the increased chance of progress on the MGP. The prospect of the producer-led consortium stepping aside in favor of a group led by TransCanada and the APG “makes us want to cheer,” Shteyn wrote. “The proposed restructuring increases the likelihood that the project will ultimately proceed…A TransCanada-sponsored project would make financial support by the government more politically acceptable.”
TransCanada had no comment, but during a third quarter conference call CEO Hal Kvisle was asked about progress on the MGP.
“We’re discussing a whole range of different things, and TransCanada has always been willing to contribute as best it can,” Kvisle said. “We have a lot of construction expertise in building pipelines, we have a lot of cold weather expertise and a very good working relationship with the producers and the APG. We’re all working together to bring this project to fruition and that’s all I can say.”
According to Canada’s National Post, TransCanada would take the lead on the MGP with 60% ownership of the pipe, and the APG, which represents North Canada aboriginal groups, would hold the remaining stake. The new partnership would seek assistance to build the pipe from the Canadian government in the form of loan guarantees and shipping commitments.
“If it ever proceeds, the executives will be giving themselves high-fives,” Shteyn wrote. “TransCanada is in the business of operating pipelines. That’s what they do best. Presumably the capital cost control would be there, even better than Imperial Oil could do.” He noted that it also would be “politically easier for the government to support a TransCanada-led consortium than if the project was led by Imperial Oil at a time of $100 per barrel oil prices.”
Another impetus to moving the MGP forward is the progress on Alaska’s long-delayed gas pipeline project late last month (see Daily GPI, Dec. 3). TransCanada also submitted an application to be part of the Alaska gasline. If the Alaska gasline moves forward, it could provide the “political will” to get the MGP off the ground, according to First Energy analysts.
“The Canadians will not want to see Alaska gas passing through Canada when Canadian Arctic gas is stranded,” First Energy analysts wrote in a note. The MGP is slated to be completed about four years before the Alaskan one so they would not have competing construction seasons, they noted.
Canada’s National Energy Board completed hearings on the MGP in November, and all of the MGP stakeholders are expected to meet with federal officials in the next few days, according to the Post. A board meeting of the APG is scheduled for Dec. 15, and an announcement could be made before Christmas, the newspaper indicated.
“All the parties except for the feds have come to an agreement,” a source told the Post. “I don’t think the feds have signaled they are willing to do the loan guarantees yet. That may be the ask.”
The Post indicated that the MGP’s so-called “Plan B” would be for the producers in the consortium to become shippers on the pipe with long-term commitments. Whether they would be compensated for the money they’ve spent on the project to date was not clear.
“The restructuring talks have been cloaked in secrecy, partly because of Ottawa’s anger about previous leaks that stirred a hornet’s nest over the politically sensitive topic of the government aiding a private-sector energy megaproject,” according to the Post. Another source told the newspaper that even if the MGP plan is restructured, the government “is not sure it wants its role in the project to be firmed up before a possible spring federal election.”
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