Mackenzie Gas Project teaches how not to regulate development
Mackenzie pipeline’s woes prompt plea for a regulatory break by Alaska project
Plans for the Denali project call for 1,600 to 2,000 kilometers of new pipeline in Canada. The amount of construction depends on selection, not yet made, of a final destination. Costs, widely forecast to run well into the range of $20-$30 billion, are under review. The route crosses the Yukon, B.C. and part of Alberta. All along the way, the NEB filing acknowledges that the project will also encounter a large number of aboriginal societies, including communities where land and mineral rights are contested between native and government authorities.
The Denali partnership plans to start an auction of its proposed pipeline capacity before the end of 2010. Construction applications will be prompt if customers step forward for the project’s intended space of about four billion cubic feet of gas per day. The partners are keeping their options open about connecting Denali to TransCanada PipeLines Ltd. in Alberta or building an entirely new route all the way to the lower 48 United States.
“This project is not a slam-dunk. It’s far from that,” Denali president Bud Fackrell warned government and industry officials who attended an annual spring arctic gas conference held by the Canadian Institute in Calgary.
BP and ConocoPhillips can raise the money for an Alaska pipeline that will be the largest private capital project ever attempted, Fackrell predicted. Even after stock exchanges melted down since mid-2008, the market value of the two companies is still about $200 billion. “It’s going to take this kind of financial strength.”
Alaska also has the resources. About 35 trillion cubic feet of gas is on hand without even looking for it as a stockpiled side-effect of the 1960s Prudhoe
Bay oil gusher. Geological surveys rate the state’s potential for additional gas discoveries at 100 to 200 trillion cubic feet, or up to five times more than Alberta’s remaining reserves.
TransCanada’s older claimant for rights to build the megaproject is far from the only rival Denali faces. To fill up any Alaskan pipeline, Fackrell pointed out Arctic supplies will have to fight for a six to eight per cent share of the U.S. market against other American production, Canadian exports, and imports by both countries of liquefied natural gas aboard a growing global tanker fleet. “This is a competition right now.”
After spending $55 million and building up a staff of about 100 in Alaska since its mid-2008 launch, the fledgling Denali project this spring opened a Calgary office and set to work on its proposed legs across the Yukon, B.C. and Alberta. At ConocoPhillips’ Canadian subsidiary, Meyers says it is conceivable that Alaskan gas will catch up to the Mackenzie scheme. Barring more regulatory delays or failure of parallel organizational and financial negotiations with Ottawa, he rates conflict between the Canadian and American projects as still unlikely.
“That’s a low-probability scenario,” he says. He also predicts that Canadian and American Arctic gas will both be needed eventually, regardless of which pipeline is completed first.
But the partner in the benched Mackenzie project urges the government part of Canada’s energy team to pull itself together. “We’re going to have to find a way to do this faster without sacrificing environmental, aboriginal and community concerns.”
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