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Gold/Mining/Energy : APXR - Apex Resources Group, Inc. -- Ignore unavailable to you. Want to Upgrade?

To: rrufff who wrote (88)	2/7/2006 9:42:12 PM
From: jbbooks	Respond to of 112

Ruff, below is a link to a recent interesting regional article on the pipeline from the Globeandmail. According to the author, the project will get built. There is just quibling about who will pay for it. JB theglobeandmail.com 2/7/2006 Call Imperial's bluff on aid for Mackenzie ERIC REGULY Three days after the federal election, Imperial Oil warned that its beloved Mackenzie Valley pipeline project was on the verge of extinction even before it had been approved. Rising costs, falling gas prices and competition from liquefied natural gas players led the company to conclude that "Mackenzie economics are thin," a senior Imperial executive said at an Alberta energy conference. The unsubtle message to the new Tory government: Pay up. Imperial, Canada's second-largest oil company and the lead partner in the $7.5-billion pipeline proposal, has, naturally, tried to lower the pipeline project risk by shifting some of it to the taxpayer. It may have worked. A few months ago, Imperial and pipeline buddies ConocoPhillips and Shell Canada nailed the doomed Liberal government for a package of "fiscal enhancements," also known as subsidies or corporate welfare. Rock-bottom royalties on the gas going into the pipeline were the main feature. The value, according to Imperial, was about $1.2-billion. Ann McLelland, the defeated Liberal deputy prime minister from Alberta, did not confirm the figure, but said the feds were prepared to assume "some of the project downside risks." Imperial expects the Tories and freshly minted Natural Resources Minister Gary Lunn to make good on the project sweetener. If Imperial gets lucky -- Mr. Lunn is a westerner -- the feds might even improve on it. Given that the minister has been on the job less than 24 hours, his views on corporate subsidies in general and the Mackenzie pipeline in particular are probably not well developed. But if there were ever a case to leave the taxpayer on the sidelines, this is it. If the pipeline economics are "thin," as Imperial says, why not wait until the economics turn fat? The gas won't rot in the ground if it's not developed this year, or in a million years. If cheaper gas can be obtained elsewhere, take it. Far better to deplete another country's reserves than your own. Imperial, though, doesn't want just any gas. It wants Mackenzie gas because it's pleasingly close to the oil sands, one of the biggest single gas consumers on the planet. Theoretically, every molecule of gas shipped from the Mackenzie region to Alberta could be consumed by the oil sands operators. They burn gas to create steam, which is injected underground to heat and loosen the tar-like guck so it can be pumped to the surface. Imperial's Cold Lake project alone consumes 100 million to 150 million cubic feet of gas a day. Imperial and colleagues want you to believe the oils sands' consumption is largely irrelevant in the greater scheme of things. Currently, the oil sands burn one half to 1 per cent of North American gas supplies (note they avoid saying how much of Canada's supply that represents). As the oil sands expand to fulfill George W. Bush's dream of weaning the United States off Middle East crude, the consumption figure is expected to rise to as much 2 per cent of North American supply by 2030. That's an enormous quantity of fuel. The difference between current and forecast gas consumption is somewhere between one billion and 1.5 billion cubic feet a day, equivalent to the proposed daily capacity of the Mackenzie pipeline. True, the Mackenzie gas will enter the North American gas grid for all to use. It's equally true that the oil sands could soak all of the extra supply. Until technology is invented to heat the oil sands without burning gas, access to existing and new gas supplies is crucial. Without it, the oil sands projects can't expand just as suburban housing developments cannot be built without sewage and water systems. The Mackenzie pipeline is not an option. Eventually, it will have to be constructed. If that is the case, why do the pipeline partners require Ottawa to help fund it? Imperial's request for handouts is all the more dubious when you consider the pipeline was originally conceived when gas prices were much lower. In the 1990s, the average price was $2.10 (U.S.) per million British thermal units. Yesterday, the price was about $8.33 and had gone as high as $14 last autumn. As the price goes up, the entire Mackenzie project -- the main pipeline, the gathering systems, the producing fields and the exploration efforts -- can only make more economic sense. Imperial has a market value of $41-billion (Canadian) and made a profit of $2.6-billion in 2005. Imperial is controlled by Exxon Mobil, which has a market value of $387-billion (U.S.) and made $36-billion last year. Yet, they want taxpayers to chip in for the pipeline. It's time to call Imperial's bluff. You can bet the project will get built even if the feds take a pass.