Mackenzie Valley pipeline approved -with 264 conditions

CALGARY – The Mackenzie Gas Project has been approved by federal regulators, marking a new chapter in a 30-year pursuit of Arctic natural gas riches by southern producers and a territorial government seeking economic independence.

"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," the panel said in its lengthy decision, which also included 264 conditions that must be met by the developers.

"We recognize that the Mackenzie Gas Project would have much larger and more far-reaching effects than previous developments in the North. "

Supporters of the $16.2-billion pipeline, the largest capital project to be undertaken in Canada, greeted the National Energy Board’s decision Thursday with unabashed enthusiasm.

"This is a great day, not just for the North, but for Canada as a whole," said Bob Reid, president of the Aboriginal Pipeline Group. "It’s been a very lengthy regulatory process, but that’s all behind us now."

The pipeline and development of three major "anchor" fields will bring jobs and hope to the Northwest Territories, much needed infrastructure and spinoff jobs in construction, hospitality and service across Canada, Reid said.

However, approval by the federal energy regulator does not spell sanction by proponents of the $16.2-billion project. The consortium of stakeholders, led by Imperial Oil, continue to seek support from Ottawa to proceed with the pipeline.

"We would need to have sufficient confidence in a fiscal framework agreement with the federal government to allow us to make the decision to restaff the project, to resume engineering work, field work, permitting," said Imperial spokesman Pius Rolheiser.

The earliest Imperial Oil will issue an investment decision on the line will be 2013, Rolheiser said.

Oil and gas producers have been chasing northern resources since the 1970s, reviving the pipeline project in 2000 when natural prices started climbing again and the outlook was for even higher returns.

The Mackenzie project will bring Arctic natural gas down to southern markets via the development of three major natural gas fields and a 1,200-kilometre pipeline.

Millions of dollars already have been spent on the ambitious project that would tap into approximately six trillion cubic feet of recoverable natural gas reserves lodged beneath the Arctic tundra.

But the forces that propelled oil and gas producers in 2000 to revive a project first aired in the 1970s have changed dramatically.

The promise of high natural gas prices on short supply that lured producers to the harsh NWT landscapes has been engulfed by cheap, abundant and easily accessible shale gas.

"Looking out three to five years I would say the economics of such a project would be challenging," said analyst Martin King, with FirstEnergy Capital Corp. "The whole project will be very, very challenged to actually come up with some kind of attractive, positive return to the pipeline group."

Natural gas futures averaged $4.40 US this year, compared with a peak $13 US in 2007. Forward pricing curves indicate natural gas might reach $6 US in January 2016 and likely remain in the $6 range for another three years.

The soft scenario could make it difficult to justify exploiting the reserves without a major rejigging of budgets, King said.

Current market scenarios are sharply different than in 2004 when proponents filed the Mackenzie pipeline application with the NEB.

Prices for the cleaner burning fuel had soared as natural gas-powered generation projects sprang up across North America. At the turn of the new millennium competition for the resource was so fierce among Canadian and U.S. rivals in Alaska, analysts likened the Arctic natural gas arena to a mosh pit.

"The basic challenge of our project has always been that gas from Mackenzie has to compete on a supply cost basis with other sources of supply," Rolheiser said. "Whether that supply is liquefied natural gas, whether it is Alaska gas, whether it is shale gas – it needs to compete on a supply cost basis to get it to the burner tip in your house."

Players in the arena were soon tied down by lengthy regulatory processes and a social-environmental review that took double the time and budget to complete. Investors started backing off, and interest turned to competing Alaska pipeline projects.

In January 2009, then minister Jim Prentice breathed new life in the Mackenzie project when he announced the federal government would provide support, primarily backing infrastructure projects. Further discussions were held behind closed doors, then ceased in April to await the NEB’s decision.

"We are excited for that moment to finally arrive and for us to restart discussions," said Orland Hansen, with the Aboriginal Pipeline Group.

"The people are waiting for this project to start up again since it’s pretty dismal as far as any type of work is concerned. What we hope to do is to impress the people in power about the huge benefits that would come with this project."

The APG, which includes Inuvialuit, Gwich’in and Sahtu nations, holds a 30 per cent stake in the pipeline, backed by TransCanada Corp. Absent but in discussions are the DehCho who hold 40 per cent of the lands the pipeline will go through in southwest NWT, and the only one of the group to yet resolve its land claims with the feds.

In 1978, unresolved land claims prompted a moratorium on oil and gas development in NWT, with Justice Thomas Berger also calling for conservations areas and land use plans to be completed prior to building a pipeline. Soft gas prices kept the project off-line until surging demand sparked new interest in natural gas in the late 1990s.