Mackenzie Valley plan too costly, sources say
John Ivison and Carrie Tait
27 October, 2009
National Post
Ottawa has decided not to proceed with its investment in the $16.2-billion Mackenzie Valley Pipeline, sources said, throwing the future of Canada's largest construction proposal into doubt.
Sources said that Jim Prentice, the Environment Minister, took a major financial assistance package proposal to a Cabinet committee last week and it was turned down over concerns about the project's price tag.
When asked whether a decision had been taken not to proceed with the project, Mr. Prentice said: "There has been no decision made."
Mr. Prentice said that he was not prepared to discuss any Cabinet discussions relating to the pipeline. He said that work is carrying on with the project's fiscal framework and with an environmental review by a quasi-judicial Joint Review Panel, which is due to complete its work by the end of the year.
However, the suggestion that the government may be re-assessing its position comes as news to its potential partners in the project.
Pius Rolheiser, a spokesman for Imperial Oil, the lead partner on the project, said he has not heard of any changes to Ottawa's intentions.
Fred Carmichael, the chairman of the Aboriginal Pipeline Group, another partner on the project, said he has not heard a word from Ottawa.
To this point, the government has been a firm supporter of the project. In the last budget, the government allocated $38-million to government departments to carry out environmental work and regulatory co-ordination.
A 1,220-kilometre pipeline from the Beaufort Sea in the Northwest Territories to markets in Alberta has been the dream of many northerners for 40 years. This year, Mr. Prentice told a business audience in Calgary that the dream "has never been closer."
The Environment Minister has looked after the pipeline file through three Cabinet posts -- Indian and Northern Affairs, Industry and in his current portfolio -- and has described the project as "one of the most important in Canada's economic history" because of its potential to open up Canada's Far North.
However, market analysts continue to question the viability of the multi-billion-dollar project, which would involve building infrastructure such as roads and waterways, and come at a significant cost at a time when gas prices are sagging and the fossil fuel can be found in abundance in Canada and the lower 48 states.
Bob Hastings, an analyst at Canaccord Adams, who has been following the pipeline saga for decades, does not think it will be built.
"The price of gas isn't fantastic and the only thing that has really happened in the last year or so is that we've found a heck of a lot of shale gas close to consumer markets," he said. "And what would you rather do? Buy gas from up in the Northwest Territories, a long, long, long, long, long, long ways away at a very high cost, or get the gas that is just next door?"
"They killed it the last time ... [in the 1970s because] it wasn't economic. The gas price came down, and the same thing is happening today."
While there is an estimated seven trillion cubic feet of gas in the Beaufort Sea, there are also estimates of 1,000 trillion cubic feet of gas shale deposits in Texas, Louisiana, British Columbia and Eastern North America that are more accessible.
Analysts suggest that a number of the partners involved in the project -- Imperial Oil Resources Ventures Limited Partnership, ConocoPhillips Canada (North) Limited, Exxon Mobil Canada Properties, Shell Canada and Mackenzie Valley Aboriginal Pipeline Limited Partnership -- may have come to the conclusion that the numbers do not add up.
"We can get all the regulatory approvals in place, and all that stuff done, but at the end of the day, it is going to be the producers that make these projects move forward or not," said Lanny Pendill, a senior energy analyst with Edward Jones in St. Louis, who also doubts the prospects for a rival Alaskan gasline. "I think they have better opportunities elsewhere right now."
Mr. Carmichael, chairman of the APG, said he believes natural gas from all sources, not just the prolific shale plays, will be necessary to replace "dirty" sources of energy such as coal.
"I would think the government would do an in-depth study of the need" for all sources of the cleaner-burning natural gas before yanking support for the project, he said.
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PIPELINE TIMELINE
1977 Berger Report on the Mackenzie Valley Pipeline Inquiry recommends a 10-year moratorium on pipeline construction until land claims are settled.
January 2000 Aboriginal leaders from the Northwest Territories meet in Fort Liard and throw their support behind a new Mackenzie Valley pipeline. Soon afterward, Imperial Ltd., Shell Canada Ltd., ConocoPhillips Ltd. and Exxon Mobil Corp. agree to look into the feasibility of reviving the project, designating Imperial as the lead partner. Aboriginals get one-third ownership at no cost.
November 2002 Imperial is considering almost doubling the capacity of the Mackenzie Valley pipeline to accommodate high interest from explorers in the Mackenzie Delta. The pipeline is expected to be built as soon as 2007 and cost $3-billion, plus $1-billion for field development.
June 2003 Oil companies and the Aboriginal Pipeline Group lock up a deal that enables them to line up funding to pay for their share of the project. TransCanada Corp. steps up with $80-million in loans to APG, in exchange for an option to buy 5% of its equity stake.
April 2005 Oil companies halt all execution work, frustrated with costly demands from aboriginal communities along the pipeline route and mounting red tape.
July 2005 The federal government says it will spend $500-million over 10 years to address the socioeconomic concerns of the northern First Nations if the pipeline goes ahead.
November 2005 Proponents of the pipeline, now estimated to cost $7-billion, say they have reached an agreement with the Liberal government on fiscal terms that includes some form of commercial government participation. Ottawa is mulling an equity stake, rather than agreeing to fiscal terms that may be perceived as handouts to highly profitable oil companies.
January 2006 The National Energy Board starts regulatory hearings into the project's technical, safety and economic issues. The Joint Review Panel holds parallel hearings on the environmental, socioeconomic and cultural issues. The JRP report will become part of the NEB record. A regulatory ruling on whether the Mackenzie pipeline is in the public interest is expected in late 2007.
March 2007 Oil companies say costs for the pipeline have soared to $16.2-billion because of inflationary pressures that have beset energy projects around the world.
May 2007 The federal Conservative government is also exploring taking an equity stake in the pipeline, after oil companies say the project is effectively dead.
January 2009 Ottawa makes a financial offer to support the Mackenzie Valley Pipeline and share in the "risks and returns."
June 2009 Floyd Roland, the Premier of the Northwest Territories, said a decision on the pipeline is closer than it has been in its history, yet it "feels so elusive, so far away."
National Post
This raises a question about the Alaska gasline project. Will it be judged economic eventually? Looked to me like there sure wasn't room for both the Canadian and Alaskan lines. The Alaskan line could be built to the southern coast of AK with the idea it would be shipped wherever needed (like Japan, China, etc.) - not just to NA. Course there's a lot of LNG capacity around too. TWT.
U.S. News: Palin Successor Focuses on Energy Agenda --- As National Spotlight on Alaska Fades, New Governor Sean Parnell Seeks to Bolster State's Economy
By Jim Carlton
27 October, 2009
The Wall Street Journal
FAIRBANKS, Alaska -- When Sean Parnell was sworn in here as Alaska's 10th governor in July, dozens of reporters from the lower 48 states were on hand to mark the transfer of power from his celebrity predecessor, Sarah Palin.
Returning to this city last month, Mr. Parnell faced just three journalists -- two of them local -- after giving an address at the Greater Fairbanks Chamber of Commerce luncheon.
Mr. Parnell and Alaska have faded from the national spotlight since Ms. Palin surprised the political world in July by resigning as Alaska governor with 18 months left in her term. The former Republican vice-presidential candidate has left Alaska politics behind and has written a memoir, "Going Rogue: An American Life."
"Alaska is in good hands as Governor Parnell continues to move the state forward," Ms. Palin said Monday.
The controversies that followed Ms. Palin after she ran for national office took a toll on her once-formidable approval ratings back home. When she left office July 26, her favorable rating had fallen to 52% from a high of 88% soon after she was first elected in 2006, according to surveys by Dittman Research Corp., based in Anchorage.
Mr. Parnell's favorable rating, meanwhile, stood at 80% as of Oct. 16, according to a Dittman survey of 274 Alaskans, with a margin of error of plus or minus 4.8%.
"It looks good for Sean, so far," said David Dittman, owner of the polling company. "I think he's a refreshing change for most people."
Mr. Parnell, a Republican who was one of Ms. Palin's allies and the state's former lieutenant governor, didn't care to discuss his predecessor in an interview late last month. The 46-year-old brushed aside questions regarding Ms. Palin, saying at one point, "I thought we were here to talk about what I'm doing."
Mr. Parnell has been focusing on how to rebuild Alaska's energy-dependent economy, which has been battered by falling oil prices, and jump-starting a proposed natural-gas pipeline project. While Alaska has only 700,000 residents, the governor's role is nationally significant because the state is home to some of the country's biggest deposits of mineral riches such as oil and gold.
Mr. Parnell faces many challenges. Alaska's economy was hurt by the fall in crude-oil prices from a peak of $145.29 a barrel in July 2008 to $78.68 a barrel Monday. Alaska's unemployment rate has soared to 8.4% in September from 6.7% a year ago. Mr. Parnell also has to step out from Ms. Palin's shadow, said Jerry McBeath, political science professor at the University of Alaska in Fairbanks.
Mr. Parnell has moved to ease the economic pain on Alaskans. He is pushing to extend a one-year suspension of an eight-cent-a-gallon gas tax enacted by his predecessor, for instance. The suspension is set to expire in January.
At the same time, Mr. Parnell is looking at ways to deliver more natural gas around the state, such as by increasing production in the Cook Inlet. Alaska's natural-gas supplies are remarkably constrained to its residents despite the state's abundant reserves, partly because of logistical issues in transporting gas to far-flung places.
To boost the economy, Mr. Parnell is working toward more oil exploration off Alaska's continental shelf, where there are an estimated 27 billion barrels. In September, he flew to Washington to meet with Interior Secretary Ken Salazar and other officials to support an effort begun by the Bush administration to expand offshore drilling, including in Alaska. Though the Obama administration hasn't determined whether to move forward with that plan, Mr. Parnell estimates that as many as 35,000 jobs could be created by opening those Alaskan waters to oil production.
Mr. Parnell is also working to kick-start a proposed natural-gas pipeline project. The estimated $30 billion pipeline, which Ms. Palin licensed to TransCanada Corp. in 2008, would connect the gas reserves of Alaska's North Slope with markets in the lower 48 states. That would provide thousands of new jobs and help offset declining oil production from the giant Prudhoe Bay field.
But the project faces hurdles, including financing amid the recession. Two major energy producers on the North Slope, ConocoPhillips and BP PLC, are pursuing a competing proposal.
Mr. Parnell is also mending fences following Ms. Palin's administration. By January, he plans to move his family from Anchorage to the state capital of Juneau. Many Juneau residents resented Ms. Palin's refusal to relocate there from her home in Wasilla. |
