News Release, National Energy Board, 16 December 2010
CALGARY ― The National Energy Board (NEB) today approved the applications for the construction and operation of the Mackenzie Gas Project through Canada’s North.
Well, this is such a surprise! Who could have guessed? Now that this long expensive regulatory flip-flap is at an end, the Mackenzie Gas Project comes back to the fundamentals of what it has always been - a phenomenally expensive undertaking which would allow the holders of gas rights in the north get their gas to markets. That's all the pipeline has ever been - but even those producers have never thought the pipeline was actually so valuable that it was worth the producers themselves paying for it. That's where the rubber hits the road with this one - it will get built when either gas prices rise so high that Imperial/Exxon, ConocoPhillips and Shell will pay for it themselves, or they can successfully lobby/bribe/blackmail the federal government into underwriting the project. It's the same situation with the Alaska Gas Project - no subsidy, no pipeline. Today's limp natural gas prices in North America are nicely analagous to the limp pipeline realities in a few boardrooms in Calgary, Dallas-Houston and the Hague - instead of the proud metal erections which linger in their dreams. A little context: the MGP at 1.2 billion cubic feet (bcf) a day, is about 60% the capacity of the Spectra Energy BC Pipeline - the mainline that brings 2 bcf per day of BC gas from the northeast down to the province's population centres and across the border into the US. The MGP pipeline would source gas from three fields with a combined recoverable potential of 6.1 trillion cubic feet - enough to feed North America's annual demand for natural gas, currently around 28 tcf, for - you got it - 10 weeks.
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The Mackenzie Gas Project includes the 1,196-kilometre long Mackenzie Valley Pipeline, three onshore natural gas fields, a 457-kilometre pipeline to carry natural gas liquids from Inuvik, NWT to an existing oil pipeline at Norman Wells, NWT and other related facilities. The Mackenzie Valley Pipeline would run from the Beaufort Sea to northwestern Alberta, and is designed to carry up to 34.3 million cubic metres (1.2 billion cubic feet) of natural gas per day. This is enough to supply about two-thirds of the six million Canadian households that used natural gas to heat their homes in 2009.
Imperial’s latest estimate, released in 2007, pegged costs for the project at $16 billion.
The NEB attached 264 conditions to the project’s approval in areas such as engineering, safety and environmental protection. Conditions are requirements which must be met. If the project is built, the National Energy Board will monitor the project throughout its lifespan to see to it that the operators meet these conditions.
“Our goal was to encourage public participation and listen to the people so they could help us determine the public interest of the project,” the panel said in their Reasons for Decision.
“We looked at how the project would contribute to sustainability in the way it would affect the people, the land where they live, and the economy, now and in the future. We recognize that the Mackenzie Gas Project would have much larger and more far-reaching effects than previous developments in the North. ”
The NEB began hearing evidence in January 2006 on five applications filed by Imperial Oil Resources Ventures Limited, the Mackenzie Valley Aboriginal Pipeline Limited Partnership, Imperial Oil Resources Limited, ConocoPhillips Canada (North) Limited, Shell Canada Limited and ExxonMobil Canada Properties. Final argument was completed in April, 2010. In total, the Board held hearing sessions over 58 days in 15 communities throughout the Northwest Territories and Northern Alberta. More than 200 individuals and organizations participated in the NEB’s hearing.
If this decision is approved by Governor in Council (Federal Cabinet), the NEB will then issue the appropriate approvals, including a Certificate of Public Convenience and Necessity.
If the proponents decide to build the Mackenzie Gas Project, they would also be required to obtain various permits and authorizations from other boards and government agencies before construction could commence.
The NEB is an independent federal agency that regulates several parts of Canada's energy industry. Its purpose is to regulate pipelines, energy development and trade in the Canadian public interest.
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This news release and the Reasons for Decision are available on the NEB’s Internet site at www.neb‑one.gc.ca under What’s New!
For further information:
Sarah Kiley (Sarah.Kiley@neb-one.gc.ca)
Communications Officer
Telephone: 403-299-3633
TTY (teletype): 1-800-632-1663
Mackenzie Gas Project - Reasons for Decision
"We have decided that the project is in the public interest. In reaching this decision, we have considered the social, environmental and economic effects and listened to the views of Northerners and other parties. Our approval of the applications for the Mackenzie Gas Project depends on the companies meeting a combined total of more than 200 conditions to address the concerns that we heard. If it is built, the National Energy Board and other authorities will continue to oversee the project throughout its life."
We have reached the destination of our journey through the Mackenzie Valley. Over the past six years, we listened to the voices of Northerners and visited their communities. We considered the evidence of those who supported and those who opposed the project. We looked at how the project would contribute to sustainability in the way it would affect the people, the land where they live, and the economy, now and in the future. Our conclusion is that the project is in the public interest and should be approved. Our approval depends on the companies meeting many conditions. The conditions require the companies to undertake a large number of activities and consultations. The National Energy Board will enforce these conditions should the companies decide to go ahead with the project. We examined the benefits the project could bring. We found that they are large and varied. We also looked at the negative impacts. We found that they can be minimized and are acceptable. This allowed us to answer the key question before us, whether the North and Canada would be better off with the project than without the project. We find that the North and Canada would be better off with the project. Our thinking required us to bring together many factors into a single decision. In doing so, we considered:
* the people, especially those who would be most directly affected;
* the land, in the broad sense, including the environment and natural resources;
* the economy; and
* safety, including design, construction and engineering plans.
Integrating our findings on these factors is how we reached our public interest decision.
The people
We found that the people of the North in all regions have hopes for better lives and a better future. We believe their aspirations are achievable.
Northerners want to see more people living proud and self-sufficient lives. They want better care for the land. They are looking for stronger communities that can take care of the social problems that come with limited means and rapid change. These economic, environmental and social objectives must be brought together to create the North that many people want. It takes a good economy to take care of the land and the people. We are convinced the Mackenzie Gas Project would bring the Northwest Territories closer to the vision of the North that many people have shared with us.
Some Aboriginal people opposed the project on grounds it could destroy their traditional way of life. Some said they would not get enough benefits from the project to make up for the impacts. Twenty-nine percent of the total length of the pipeline for the project, and 44 percent of the Mackenzie Valley Pipeline, would be in the Dehcho Region. Dehcho leaders and residents urged us not to approve the project until their land claims are settled withthe federal government. The Dehcho said a land claims settlement would be the starting point for talks with the pipeline company on access and benefits.
We note that the Dehcho claims process continues and an interim land use plan is in place for the region. Concerns from Dehcho communities also led to a number of route and design changes that now form part of the commitments the National Energy Board will enforce. A number of our conditions respond to Dehcho concerns such as environmental monitoring and wildlife management.
Leaders of the Inuvialuit and Gwich’in strongly supported the project. Leaders and residents from Colville Lake also said they hoped natural gas discoveries in their area would be developed and connected to the pipeline. Along with the Sahtu, the Inuvialuit and Gwich’in are partners in the Aboriginal Pipeline Group and stand to gain if the project is built. Their share increases if the project expands beyond the volumes already contracted from the anchor fields.
We were told that people in the Mackenzie Delta have waited more than three decades to see their natural gas resources developed, and we should not stand in their way. They said they now have land use plans and governing authorities in place to ensure responsible development.
People told us that social conditions required improvement in many communities, and some said that the project could make matters worse. People spoke often about problems of drug and alcohol abuse and gambling. They were also worried that the existing systems of health, social and policing services could not cope with the influx of project workers. However, many believed the economic opportunities from the project would help address these social concerns and would not make them worse.
We are persuaded that the project would contribute to improved social conditions. Without new economic activity, social conditions are not likely to improve. Economic benefits would include purchases of services, supplies and materials from local businesses, creation.
of jobs, and increased flow of royalties, revenues and taxes. Short term impacts from workers would be addressed by closed camps during construction. Closed camps would avoid unplanned contacts with communities.
The project would contribute to strong, self-reliant communities that continue to take care of the land and the people in the North. This would be a benefit for all Canadians.
The land
Aboriginal people and their ancestors have lived in the Mackenzie Valley and the Delta for thousands of years. Their lives and culture centre on a deep attachment to the land and its resources. We heard various concerns about the effects the project could have on the environment. While any economic development in pristine areas has some negative impacts, our goal is to make sure those impacts are kept to a minimum and avoided wherever possible.
Some people were worried about specific impacts such as noise, odours or disturbance of fish and wildlife. Others urged us to look at the more global impacts of the project and the end use of the natural gas. Some Northerners and environmental groups also urged us to consider the potential impacts of future developments beyond those in the applications before us. In response to these concerns, we have imposed many conditions that will protect wildlife, water, air, and vegetation. We are satisfied that our conditions and the project design would address specific concerns such as the effects of climate change and land settlement due to withdrawal of gas from producing fields.
We consulted with the Joint Review Panel regarding the recommendations they directed to us. They agreed that our conditions fulfilled these recommendations. We also consulted with the parties to our hearing, and they provided comments on our proposed conditions during final argument. Their suggestions resulted in improvements to our conditions.
In addressing the effects of the project we considered the Joint Review Panel Report including the recommendations addressed to us, our own conditions and the fact that the National Energy Board will hold companies
accountable for the implementation of these conditions throughout the life of the project. Moreover, many northern institutions and government agencies would also monitor the project so that companies minimize the effects. On this basis, we find the impacts of the project on the land to be acceptable.
The governments of Canada and the Northwest Territories in their response stated the actions and commitments they were prepared to implement should the project proceed. These are aligned with the outcomes we seek to achieve in the conditions to our approval.
If it were the case that the lack of full implementation of the Joint Review Panel Report means that we should accept that some significant adverse environmental effects are likely, we would find these effects to be justified in the circumstances. We reach this conclusion after looking at all the positive and negative effects this project might have and after concluding that the North is considerably better off with than without the project. These potentially significant adverse environmental effects include impacts on Kendall Island Bird Sanctuary and impacts on woodland caribou
and other listed species without the early identification of critical habitat as part of species recovery strategies and action plans.
The economy
We observed that sharing is an important value for Northerners. There are several ways that Aboriginal people and other Northerners will be able to share in the economic benefits if the project goes ahead. There would be the direct benefits from employment, contracting, providing supplies and services, and a general increase in economic activity. The Aboriginal Pipeline Group would share in the pipeline’s profits. Northerners would gain from other programs such as the Socio-Economic Agreement, the Mackenzie Gas Project Impacts Fund, the benefits plans for the development fields and the gathering system, and the benefits and access agreements. Governments would earn revenues from royalties and taxes.
The economic benefits would be real and large. During the four years of construction, the companies proposing the project estimate they would spend about $16.2 billion on the project. This would increase Canada’s gross domestic product by more than $13 billion, and almost $6 billion in labour income would be generated. Governments would gain about $2.9 billion in tax revenues.
During 20 years of operation, the companies estimate they would spend $5 billion to operate facilities. The increase in Canadian gross domestic product from the project during that period could range from $26 billion to $42 billion. More than $2.3 billion in labour income would be generated, and tax revenues would range from $8.8 billion to $12.5 billion. The federal government would also get between $500 million and $1.8 billion in royalties on production.
In the Northwest Territories, the companies forecast that gross domestic product would increase $500 million annually during construction and by a total of between $1.3 billion and $2.1 billion during 20 years of operations. Annual labour income would increase by $120 million during construction and $48 million during operations. Annual revenues to governments in the Northwest Territories would grow by $12 million during construction and $70 million during operations.
Another benefit to Northerners would be the opportunity to use natural gas in their communities. We are directing the pipeline owners to provide laterals to communities upon request, providing certain economic conditions are met.
In keeping with the principle of sharing, our decision also requires that the gathering and transmission pipelines be “open access.” We heard that the North would benefit if the pipelines were open to all shippers, like other pipelines regulated by the National Energy Board. Other companies told us that anything less than open access would discourage them from exploring in the North for additional natural gas resources. We agree with this. We have also provided direction on the tolling and tariff regime that would apply to the mainline and gathering facilities.
With respect to concerns about the design capacity of the Mackenzie Gathering System, we are satisfied that the capacity matches well the capacity of the Mackenzie Valley Pipeline given that other sources of gas could enter the pipeline at various locations, including locations downstream of the Inuvik Area Facility.
As soon as possible—no later than the end of 2011—the companies must file a tariff, reflecting this decision, making it very clear how others may gain access to the system.
We also examined the project based on how well it would serve Canada’s economy. We are satisfied that there is sufficient natural gas in and around the Mackenzie Delta to supply the pipeline, and there is a large enough market to use the gas.
Safety
People sought assurances that the project would be designed to address the unique environment in which it will operate. The engineering challenges in the North include cold temperatures, the presence of permafrost, and the potential for ground movement due to frost heave, thaw settlement, earthquakes and slope instability. We heard concerns about whether there was enough detail available about the design and the land along the pipeline route to allow the project to proceed.
We are confident that the companies are fully capable of designing, constructing and operating the proposed facilities. The Mackenzie Gas Project requires close monitoring throughout the lifespan of the system. We accept the companies’ view that part of the design philosophy is to take action when and if issues arise. Our conditions would require that the pipelines be inspected frequently to monitor their performance based on this approach.
The National Energy Board will conduct its own reviews, inspections and audits to make sure everything is done properly from now until the facilities are no longer needed sometime in the distant future. The National Energy Board will work with others throughout. When facilities are no longer needed, the National Energy Board will ensure there is money available and procedures in place so the surface facilities can be removed and the land restored.
Moving forward
Our decision is subject to approval by the federal government. Also, the companies, governments and Northerners have more work to do to prepare for this project. This work includes detailed permitting by land and water boards, completing benefit and compensation arrangements, and deciding on fiscal arrangements for the project. Our decision is a major step towards allowing
the project to proceed, but it does not mean the project will be built.
Natural gas markets are still recovering from recession. Other forms of natural gas—including shale gas, tight gas, coalbed methane and liquefied natural gas—are competing in the markets that would be served by the Mackenzie Gas Project. Natural gas price trends remain uncertain. We do not agree with those who say these are reasons to deny the project. Our approval gives Mackenzie Delta gas an opportunity to compete. Denial would block that opportunity.
It is up to the companies to decide whether the project makes economic sense for them based on their view of natural gas prices and project costs. They told us they need until the end of 2013 to conclude fiscal arrangements, put their project teams together, do the detailed route planning and engineering, obtain all the necessary approvals and permits and take a decision to construct. They requested an expiration date of 2016 for our approvals.
Northerners told us that it is important to know how the project is progressing after our decision so that they can prepare and
plan for construction. They want to be ready to take advantage of job and business opportunities. We respect these planning needs. By the end of 2013 we require the companies to file an updated cost estimate and report on their decision to build the pipeline. In keeping with these needs, we do not agree with the companies that they should be given until 2016 to begin construction of the project. Actual construction must begin by the end of 2015 for our approvals to remain valid.
Our journey to reach a decision has ended.
K.W. Vollman,Presiding Member
G. Caron, Member
D. Hamilton, Member
December 2010
