Northwest Territories Energy Minister Brendan Bell is urging Canadian and American producers alike to get on with arctic pipeline projects, warning them that waiting could make them uneconomic because of overseas imports of liquefied natural gas (LNG).
“The clock is ticking for both projects,” Bell said as he led a trade mission to Anchorage from Yellowknife for talks on the Alaska pipeline and the Mackenzie Gas Project. “We are both racing against shortages of labor, the cost of steel and the addition of liquefied natural gas supplies from offshore,” Bell said in a speech summarizing his message to Alaskans, Alaska Gov. Frank Murkowski and to aboriginal corporation managers.
The Canadian and American northern gas projects are not in competition with one another, he emphasized. Instead, he described the mammoth developments as “queued up nicely and sequenced well,” with the Mackenzie proposal now in the regulatory hearings stage, timed for construction in 2008-11, followed in an orderly fashion by the Alaskan project. The benefits of a natural progression include opportunities for the developments to learn from one another’s arrangements with aboriginal communities, share cold-climate engineering experience and build up a standing army of northern construction workers, he said.
Northern regulatory and government authorities also have much to learn from one another, including how to keep the industry interested while obtaining the greatest practical economic and community benefits, Bell said on a conference call. The collapse April 3 of an oil project offshore of Newfoundland sent a message that needs to be understood by northerners in both Canada and Alaska because they share tendencies to have unrealistically high expectations, Bell warned repeatedly.
Chevron Canada, ExxonMobil Canada, Petro-Canada and Norsk Hydro Canada announced they shelved the C$5-billion (US$4.25-billion) Hebron project due to “significant and fundamental gaps” in discussions with the Newfoundland government “on fiscal terms and benefits.” The province’s demands were understood to range from high production royalties to potentially an outright ownership share.
The Hebron consortium long described its project as the least likely candidate to be generous. The reserves involved are a low grade of heavy crude requiring extra production technology and fetching discounted prices — an offshore counterpart to the initial bitumen output of Alberta’s oilsands mines which qualify for an incentive royalty rate of 1% until construction costs are paid off. Bell said Newfoundland leaders, like many northerners, appeared to assume the energy supplies are so valuable at current and forecast prices that development will happen regardless of demands placed on the industry.
High expenditures on engineering and regulatory stages in big projects also encourage northerners to believe gas development consortiums cannot pull back, he observed. “But we’d be naive to think that way,” Bell said. “You want to maximize benefits to your jurisdiction. You want to get the best deal. But you want to balance that with reality,” Bell said. “Capital is mobile. Companies will move to other opportunities. We have to recognize they can go elsewhere,” the territorial energy minister said. “Having said that, we aren’t going to give away the resources either,” Bell insisted.
But he added that northern realism has to include recognition that LNG will pose genuine competition for arctic gas. “We have to step up to the plate with these two (Alaskan and Mackenzie) gas projects and [we] don’t want to wait around for LNG to come.” As Bell’s mission made the rounds in Anchorage, his suspicions that LNG development is nipping at northern projects’ heels were confirmed at the National Energy Board’s Calgary head office. Maritimes & Northeast Pipeline sent the NEB a notice saying it intends to file no later than early May a construction application for a new branch line to collect gas from the first Canadian LNG import terminal to be built.
Titled the Brunswick Pipeline Project, the MNE plan calls for completion by late 2008 of 90 miles of 30-inch diameter pipe to its mainline to the northeastern United States from Irving Oil’s Canaport LNG terminal under construction at a refinery near Saint John, New Brunswick. MNE also has a second LNG import plan waiting in the wings, a 34-mile stretch of 30-inch pipe to pick up gas from Anadarko’s Bear Head LNG terminal near Port Hawkesbury on the northeastern Nova Scotia coast. The Bear Head plan also calls for completion of the new pipe in 2008, although the schedule is not yet as firm as the Brunswick project’s plans.
The message to arctic gas projects is clear, Bell said repeatedly on the week-long territorial trade mission to Alaska. “We’ll see more LNG. A challenge to gas prices lies ahead. The overall economics are not going to get any easier.”
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