Arctic natural gas boosters are braced for disappointments as prices, politics and regulatory complications overtake projects — especially in Canada.

Completion of the proposed Mackenzie Valley pipeline will likely be set back until 2012, Northwest Territories Industry Minister Brendan Bell predicted. “It really amounts to a one-year delay,” Bell said in a telephone conference call from Anchorage, AK, where he reviewed the northern gas outlook with Alaska Commissioner of Natural Resources Mike Menge.

“We are concerned,” Bell added. Postponements are bound to worsen difficulties posed for the Mackenzie Gas Project by rising construction costs and soft gas prices, he warned.

“The impact of what we’re seeing in the oilsands is not something we’ll be immune to,” Bell said, pointing to labor shortages and increasing prices of materials such as steel that continue to drive up Alberta industry expenses. In the case of the Alaska pipeline project, Menge said “we continue to work along the edges but it’s slow going right now.”

Both the U.S. state and the Canadian territory have much left do to carve out a North American market niche for their expensive resources, he suggested. “We have to make northern gas competitive,” Menge said, pointing to rival forces such as increased imports of liquefied natural gas, “demand destruction” caused by high prices, and attempts to revive coal and atomic power.

In Canada fear of a delay started with a five-month extension until next April, announced early this summer, of public hearings by the Mackenzie development’s environmental joint review panel of federal, territorial and aboriginal agencies.

The fear firmed up into a prospect when the project tentatively raised its forecast price tag by 7% to C$7.5 billion (US$6.75 billion) and announced a review of all expenses to come up with a reliable figure. A new cost prediction and construction schedule will be unveiled sometime this fall but no firm date has been set yet for finishing the review, project spokesman Pius Rolheiser said.

Discussions with the federal government on support such as northern gas royalty deferrals and financial assistance for aboriginal partners in the pipeline remain on hold until the review is complete, Rolheiser said. The plan has not been set back farther by the drop in gas prices by more than 50% since the National Energy Board and review panel began parallel hearings on the Mackenzie proposal last winter in Inuvik, he added.

“We’re talking about a project that comes on stream after the end of the decade and will operate for 25 years or more,” Rolheiser said. “We would be shortsighted and foolhardy if we based our economics on prices for this year or the next quarter.”

But big market movements, especially changes for the worse that last for months, have at least an “emotional impact” on industry, said Alaska’s Menge. “It causes people to slow down and check their economics,” the state official said during the conference call with Bell. Project sponsors are bound to pore over data and methods used in making forecasts of costs, benefits and profits, Menge said.

In Alaska, where the official target for completing the U.S. arctic gas project is now 2016, he added that politics play a significant role. Elections in November, followed for sure by a change of government in December because Gov. Frank Murkowski lost the Republican nomination, are having “significant impact on the proceedings,” Menge said.

In the Northwest Territories the roving environmental review panel’s hearings extension to visit more arctic communities did not help, Rolheiser said. “Obviously delays in the hearings will clearly, negatively impact the project schedule,” he said.

Bell said he hopes the project review will generate an “expedited” or accelerated construction schedule. But Rolheiser said sponsors Imperial Oil, Shell Canada and ConocoPhillips Canada are still expect the job to take three years.

The fate of the plan for a Mackenzie Delta gas production network plus a 1,200-kilometer (750-mile) pipeline to Alberta still depends on final regulatory decisions no longer expected until late 2007 at the earliest, then a final review by the project’s sponsors, Rolheiser said. “If we didn’t believe it was a doable, viable project, we wouldn’t be continuing to work on it,” he said.

“Is it a sure thing? No, it isn’t. It hasn’t been a sure thing from day one.”

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