Pipeline dream in peril
COMMENT: What's next? Alaska Gas Pipeline? See tomorrow's post.
John Ivison and Carrie Tait,
Mackenzie Valley plan too costly, sources say
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.