The money will be there when the Canadian arctic natural gas project decides to go ahead with construction, the sponsors have learned. “Interest from the banks at the moment is amazing,” said Bob Reid president of the Aboriginal Pipeline Group, which has a one-third interest in the proposed Mackenzie Valley route.

He told an industry conference in Calgary, “Virtually every Canadian bank has been knocking on our doors.” Reid credited the enthusiasm for making construction loans to long and binding contracts to use the arctic pipeline that have been signed by the gas producers in the Mackenzie project: Imperial Oil Ltd. Shell Canada Ltd., ConocoPhillips Canada and ExxonMobil Canada. The contracts were made as the C$5-billion (US$4-billion) Mackenzie Gas Project prepared to take its next step.

The planning has reached the stage where the consortium is laying out the logistics of completing the development. A construction army, forecast to peak at 7,000 workers, will start building the Canadian arctic project in 2006 under a schedule laid out by Imperial and the APG as the senior partners. The producer and the native group own about two-thirds of the proposed C$3-billion (US$2.3-billion) Mackenzie Valley Pipeline. Imperial owns about one-third of the Mackenzie Delta gas reserves involved and will operate the production system.

A construction application will be made to government authorities this summer, said Randy Ottenbreit, Imperial’s northern development chief. He did not rule out timing the turning point to coincide with the Inuvik Petroleum Show, which starts June 15 and draws industry and government delegations from across Canada. The project will only be a sure thing after approvals are obtained and the partners commit the cash, Ottenbreit said, with the one-step-at-a-time caution that is a trademark of Imperial, which is 70% owned by ExxonMobil. But there are already big believers putting money on construction — led by TransCanada PipeLines Ltd., Reid said.

“They’re making an $80-million bet this pipeline is going to proceed,” said Reid, a former senior executive of TransCanada. He was referring to an agreement made by TransCanada to finance the aboriginal group ‘s share in engineering and regulatory work in exchange for one-third ownership in the pipeline. The deal is a loan that covers bills of C$80-100 million (US$62-75 million). But TransCanada agreed to write off the money if the project fails to go ahead, and only to be repaid in installments out of the arctic pipeline’s revenues if it is built.

When asked in an interview how he rates TransCanada’s chances of recovering its money, Reid said: “The odds are very high.” The project is gathering momentum as a result of strong demand for gas, high prices and growing acceptance everywhere of the need to add arctic supplies to the North American pipeline grid, he said.

The acceptance of the project shows in the latest annual reserves report by the Alberta Energy and Utilities Board (AEUB), as well as in the attitude of the banks. The AEUB reported that in 2003, production by Canada’s chief gas province slipped by 2% to 4.8 Tcf, despite record drilling, Many believe that this is a sure sign that reserves are aging and Alberta’s output has peaked. The board predicted production will stay flat in 2004 even though drilling activity will again grow at least modestly, this year to 11,000 wells. After 2004, the AEUB predicts the province’s gas output will resume declining by an annual rate of 2-3% (see Daily GPI, June 4).

While the board booked coalbed methane reserves for the first time, the entry was modest and intended only to get the Canadian industry’s entry into the field on the record. The AEUB’s coal-gas estimate for Alberta was 35 Bcf, with the board adding that the field is still too young in Canada to begin to guess how big it will become. Coalbed methane promoters suggest the resource endowment will eventually be measured in scores of trillions of cubic feet.

The Arctic project will not wait to see if coal gas makes northern supply additions unnecessary. The construction schedule calls for approvals to be received and work to start in 2006 on clearing the 760-mile pipeline right-of-way through the Mackenzie Valley between Inuvik and the Alberta border with the Northwest Territories.

While the initial fieldwork is taking place, contractors will start moving an estimated 750,000 tons of pipe, equipment and other supplies into position for installation along the valley. The construction work force will peak at about 7,000 during the winters of 2007-08 and 2007-09, Ottenbreit said. Gas deliveries are scheduled to start in late 2009.

The job of laying the pipeline will be divided into 10 geographical “spreads” or sections, with five completed during each of the two winters by squads of workers living in portable industrial camps. Some will be on the scale of towns with accommodation for 1,300 workers plus their own airstrips and ports for river barges. The work has to be done in the cold because heavy equipment can only be used when the marshy ground along the Mackenzie River is frozen solid. Digging the long trench for the pipeline and measures to prevent permanent environmental damage from construction activity also work best in cold temperatures.

Aboriginal political issues with the potential to hold up development will be resolved, Reid predicted. “Everyone along the route is supportive of this project,” he said. Three of four First Nations whose territories are crossed by the Mackenzie project – the Inuvialuit, Gwi’chn and Sahtu — belong to the aboriginal pipeline consortium.

The fourth community, the Deh Cho, are limiting their role to observer status in the pipeline group, while they negotiate land claims with the federal government. However, they hope to be full participants by the time construction starts, Reid said. The Deh Cho will be allowed as much time as they need to complete their land negotiations and the industry will not interfere with their political process, Reid and Ottenbreit said.

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