All the economic and political stars would have to be in alignment for even the relatively modest Canadian version of arctic natural gas development to make it into construction, says the senior partner.
Randy Ottenbreit, Mackenzie Delta manager at Imperial Oil Resources, laid out the tall order at a well-attended conference for industry, government and aboriginal leaders held in Calgary by the Canadian Institute.
“It’s not good enough for some of these factors to exist. We must have all of them,” Ottenbreit said. He posed the multibillion-dollar question for the Northwest Territories that can only be answered by the Delta consortium of Imperial, Shell Canada, ConocoCanada and ExxonMobil. “When will Mackenzie gas be commercial?”
He outlined eight tests that a production and pipeline project will have to pass, including:
Ottenbreit said the Delta group regards its commitment this winter to carry out a C$250-million (US$155-million) “definition stage” as a big step forward. But he stressed that the arctic project will still face a clear, separate decision stage before construction begins.
The Delta group will only make up its mind after receiving regulatory approvals, including land access as well as training, employment, and business benefits agreements with northern communities. Any and all conditions attached to the package will be considered when it comes to the decision, Ottenbreit said.
While territorial leaders interpreted the statement as encouraging, veterans of the Canadian industry’s northern campaigns since the 1970s detected a clear note of caution. The Delta project sounds closer to reality but not by much, observed one pillar of the Canadian industry’s northern ventures, who asked not to be identified. “It’s always been 10 years out.”
The schedule laid out by Ottenbreit suggested that if all the conditions are met without any delays or doubts to hold up the decision, Canadian arctic gas could flow in six to eight years. The agenda includes three to four years for the project definition stage, then three to four years of construction.
Ottenbreit said the next steps will include submitting a formal preliminary information package to territorial, federal and aboriginal authorities this year. The Delta group has set a target of 2003 for filing a complete development application.
At the same time as the engineering, regulatory and community-relations work proceeds, the consortium intends to look for additional support within the industry. Rather than attempting to recruit additional members, the group plans to find out if other companies will support arctic development by making commitments to the pipeline.
Ottenbreit said there may be two “open-season” auctions of capacity for the proposed Mackenzie Valley pipeline: one to generate declarations of support as a guide to how much capacity to design, and a second to nail down binding transportation service contracts.
The group’s Niglintgak, Taglu and Parsons Lake discoveries on land in the Delta alone are forecast to produce at a combined rate of 800 MMcf/d to one Bcf/d, requiring a relatively small project using pipe 28 inches to 30 inches in diameter, Ottenbreit said. Potentially greater traffic is already apparent. Although the commitment remains in the early stages of development concept, a memorandum of understanding on an ownership partnership with the Mackenzie Valley Aboriginal Pipeline Corp. calls for native volumes of 400-500 MMcf/d.
The partnership agreement also neither includes nor prohibits gas from Alaska, if the parallel U.S. group of BP, Phillips Petroleum and Exxon Mobil wants a route through the Mackenzie Valley, Ottenbreit said. The possibility of a mixed stream was not considered in two years of preliminary studies to date because the Delta group wanted to avoid making its plans dependent on the Alaskan consortium.
About the only plan rejected by the Alaskan and Mackenzie Delta groups alike is the controversial “over-the-top” or arc proposal by Arctigas resources of Houston and Calgary. The Delta group concluded “we don’t think it’s practical,” Ottenbreit said. The Canadian consortium was unimpressed by the financing plan, which calls for aboriginal ownership and for all the pipeline’s costs to be covered by loans secured against ironclad transportation service contracts signed by the gas producers. “We don’t think you could do it, and even if you could, it would be an inordinate burden on the producers,” Ottenbreit said.
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