In one remote corner of North America natural gas still fetches a price that covers its costs, including drilling and pipeline construction. On the Mackenzie Delta an environmental assessment is beginning on a supply project called Ikhil for Inuvik, the biggest town in the Canadian land of the midnight sun.
As the operating arm of the Ikhil Joint Venture — a partnership of native community-owned Inuvialuit Petroleum Corp. and two Calgary firms, AltaGas Ltd. and ATCO Midstream — Utility Group Facilities Inc. proposes to drill a gas well and install 28 kilometers (17 miles) of pipeline on the arctic Delta next winter.
The project is necessary to replace supplies lost because a subterranean water aquifer flooded one of two wells that have supported the world’s most northerly gas utility since it started up in 1999, says the Ikhil group.
Costs of the scheme partly depend on regulatory rulings and are not yet fully known. But a summary of Delta gas service rates describes the economic driver. Last winter, more than 800 Inuvik gas customers paid an average of C$19.30 per gigajoule (GJ) (US$$20.26/MMBtu), or nearly 10 times the wholesale cost of gas elsewhere in North America.
The Canadian arctic town is far beyond reach of competing gas supplies, at its latitude of 68 degrees North or 1,200 kilometers (720 miles) above the top of the continental pipeline network. The utility’s competition is liquid fuels that arrive via truck or barge marathons on arduous, expensive delivery routes.
It takes 26 liters (seven U.S. or six Canadian gallons) of liquid fuels to replace one gigajoule of natural gas. In Inuvik last winter, the delivered cost of oil products averaged more than double Ikhil gas rates: C$43.36/GJ (US$45.53/MMBtu). Propane fetched C$56.66/GJ (US$59.49/MMBtu).
By mainstream industry standards the Ikhil operation is tiny. Winter gas consumption is only about 2 MMcf/d, with deliveries made by 50 kilometers (30 miles) of transmission pipe and 45 kilometers (27 miles) of distribution lines. But the Mackenzie Delta wells-to-burner-tip utility has been the subject of intense industry and government study as a miniature prototype for northern energy development that Canadian business, political and aboriginal leaders hope to achieve eventually.
The Ikhil venture has provided “design, construction and operational learnings,” concluded a report by Calgary-based North of 60 Engineering Ltd. for the dormant Mackenzie Gas Project.
Installing the facilities showed, for instance, that industrial work can be done in winter work seasons on hard-frozen ground with no lasting disruption to the arctic environment. Drilling pads and access roads are built like outdoor skating rinks that melt away harmlessly when spring comes to southern Canada.
The Ikhil pipeline has carried gas reliably without creating leak hazards by causing damage or melting in the permafrost of permanently frozen arctic ground that could in turn jeopardize the steel structure. Restoration and re-vegetation have made the surface of the right-of-way all but invisible.
The Mackenzie Delta gas utility also taught lessons on the regulatory front that have been put into a reform package that is being hotly debated by the Canadian Parliament in Ottawa.
The lessons were recorded in a report on the Ikhil experience that was done for the National Energy Board and Canada’s federal Department of Aboriginal Affairs and Northern Development by Kavik-Axys Inc., an Inuvialuit community-owned environmental consulting firm with offices in Calgary as well as its home-base of Inuvik.
The study covered performance by a northern Canadian maze of 13 federal, Northwest Territories and aboriginal agencies that Ikhil had to satisfy in order to receive all its required approvals, licenses, permits, authorizations and agreements. The regulatory review process took two years in 1995-1997, well before the onset of the current wave of eco-resistance to fossil fuel projects.
The native-owned environmental consulting house advised industry to make thorough community consultation programs a standard business practice and urged the authorities “to develop and agree on harmonized processes for both screening and more detailed reviews.” Kavik-Axys said, “This would build on ongoing harmonization already in place and should include: The setting of maximum timelines for specific stages of the federal regulatory review process.”
The recommendation will be enacted by a reform package that the Conservative regime in Ottawa aims to enact by summer, using the full power of its year-old majority in Parliament. A range of regulatory time targets will be set. Efficiency is being made a priority, with the number of regulatory authorities being cut down to two from dozens and even the most complex reviews of the largest projects being given a two-year completion deadline.
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