Delays could kill Arctic Canada pipeline: report
Wed May 11, 2005 5:47 PM GMT-04:00
reuters.ca
By Jeffrey Jones
CALGARY, Alberta (Reuters) - Land-access disputes between oil firms and northern Canadian native groups must be solved in six to 12 months or the companies may drop plans for a C$7 billion ($5.6 billion) gas pipeline to focus on U.S. liquefied natural gas projects, a top analyst said Wednesday.
Of the two major Arctic gas projects being proposed in North America, the Mackenzie Valley pipeline faces the biggest risk of being canceled due to its high-profile delays, said Tristone Capital analyst Chris Theal, author of a new 50-page report on the prospects for northern frontier gas.
Mackenzie partners Exxon Mobil, ConocoPhillips and Royal Dutch/Shell are also proposing several terminals to "regassify" LNG in the United States to help make up for declining domestic production.
"You've got lower risk from an execution standpoint, I'd say the cost certainty is somewhat better, particularly from a labor standpoint, and the 'first-mover' advantage is hugely material at this point," Theal said.
"Most of these are coming on prior to 2010, so ahead of the window for Mackenzie."
The Mackenzie project was thrown into limbo two weeks ago when lead partner Imperial Oil Ltd. said the group was halting detailed engineering and contract awards, blaming spiraling cash demands from aboriginal communities in the Northwest Territories, and red tape.
The line would ship up to 1.9 billion cubic feet a day to southern markets from the Mackenzie Delta on the Beaufort Sea coast.
Imperial said it took the step partly because native groups demanded hundreds of millions of dollars from the companies in exchange for access to their lands, partly to fund social programs and infrastructure. It urged the federal and territorial governments to deal with these issues.
In his report, Theal said construction costs, due to soaring steel prices and a tight labor market, are escalating as delays persist.
Besides the Mackenzie Valley line and a spate of LNG proposals, oil companies are planning a $20 billion pipeline to major U.S. gas markets from Alaska.
With estimated North American gas demand increasing by an average 1.2 percent a year, and output from conventional fields slipping by 1 percent, new sources will have to add 26 billion cubic feet a day by 2020, the report predicted.
The same players proposing Canadian and Alaskan pipelines have plans to build LNG terminals with an overall capacity of 13 bcf to be on stream by 2010. More are earmarked for later.
Senior officials from the Canadian and Northwest Territories governments are meeting with all players to find a way to break the logjam facing the Mackenzie Valley pipeline.
On Tuesday, the governments announced Ottawa would provide millions of dollars in interim funding to northern communities for social and economic projects in an effort to ease the demands being placed on the project partners.
But Theal said only a new deal allowing the territory to collect and retain much more tax and royalty money itself will solve the problem. The governments said on Tuesday they were close to a draft deal on so-called devolution of powers.
"The government has to step in and show the Northwest Territories and the First Nations a direct stream of royalty and tax revenue that would provide them certainty," he said.
"That would also provide the producers certainty in the context of what the implications of cost are for them prior to this thing actually happening."
Imperial said it hoped for a solution to the land access and benefits disputes before a hearing slated for autumn. |
