Energy Ink

Why Joe Oliver should heed Shell’s Arctic farewell

The shadow of the Mackenzie Gas Project looms over West Coast exports

July 18, 2011

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Natural Resources Minister Joe Oliver was adamant this past week in calling for accelerated federal reviews of major energy projects. “You don’t undermine regulatory independence, necessarily, by putting time frames on decisions,” Oliver told the Calgary Herald on Friday. The comment needed no context. Pipelines required to realize growth projections in Alberta’s oil sands now routinely encounter tremendous opposition. (One presumes any outlet to Canada’s West Coast will emulate the experience of TransCanada Corp.’s embattled Keystone XL expansion, the Gulf Coast link that has been under review in one way or another since 2008.)

Yet there is a bigger precedent in regulatory marathon running, a distance contest that last week claimed one of its major participants and in the process added a concrete dimension to ongoing discussions about the need for a national energy strategy. Shell Canada Ltd. is now actively looking for buyers interested in its Arctic natural gas holdings, mere months after the long-awaited Mackenzie Gas Project received federal approval from the National Energy Board. The Canadian arm of Royal Dutch Shell Plc has set an August 31 deadline for bids on its Niglintgak property, which contains an estimated 840 billion cubic feet of gas, as well as its stake in the Arctic delivery scheme.

The pipeline, which has been held up at various stages since Justice Thomas Berger first proposed a 10-year halt to development in a 1977 federal inquiry, received conditional approval last December. What impact Shell’s withdrawal will have as proponents Imperial Oil Ltd., ExxonMobil, ConocoPhillips Canada and the Aboriginal Pipeline Ltd. Partnership look to negotiate favorable financial terms with Ottawa to see the $16.2 billion pipeline built remains unclear. “There’ll be plenty of interest” in acquiring Shell’s stake, Aboriginal Pipeline Group chairman Fred Carmichael told the Globe and Mail.

He is understandably bullish on the northern conduit. The Aboriginal Pipeline Group has the opportunity to own as much as a one-third interest in the Mackenzie line, provided it gets built. That remains a question mark, even more so now that Shell, following the industry pattern, has given up on the project in favor of developing natural gas trapped in the shales of northeastern British Columbia, possibly as future feedstock for a coastal liquefied natural gas terminal.

Even Arctic boosters are realigning their portfolios amid the shale gas tide that has overrun North American markets. Calgary-based MGM Energy Corp., fresh from a first-quarter net loss of $4.3 million blown largely on drilling dry holes in the north, predicted in April that the Mackenzie line could be up and running as early as 2016, well ahead of the 2018 in-service date projected by proponent ExxonMobil.

Now, the spin-off firm created in 2006 for Arctic assets accumulated by Paramount Resources Ltd.  plans to spend $2.5 million exploring shale plays farther south in the central Mackenzie Valley, within 10 to 30 kilometers of existing oil pipeline infrastructure. “We underestimated just how big a mess this project was going to be,” MGM chief executive Henry Sykes told Alberta Oil in April, describing the Mackenzie pipeline. As Gateway begins what many anticipate will be years of regulatory wrangling, it’s an oversight Joe Oliver would do well to heed.

 

 

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