April 2010 Vol. 237 No. 4

Editor's Notebook

The Pipeline That Couldn't

Unless something truly groundbreaking happens, this is going to be the last time I talk about what would have been the Mackenzie Valley pipeline.

I won’t bother rehashing all of the details because they really won’t mean anything anymore. For the record, the Mackenzie Valley pipeline was going to be about 750 miles and transport up to 1.5 Bcf/d of natural gas from Canada’s Northwest Territories, most likely to the province of Alberta for use in the development of the oil sands.

This was a project first discussed in the 1970s but was left dangling for years until 2003 when it was brought out of hibernation with the thought that the then-high prices for natural gas and the fact that Canada was exporting more gas to the United States would make such a project feasible. The estimated cost back then was about $5 billion with expectations that the pipeline would be in operation by 2010, followed about five years later by the Alaskan gas pipeline.

Instead, Mackenzie has never gotten off the ground. One could write endlessly on the reasons why; but for the most part, the project has fallen victim to constant negotiations and renegotiations between the operating companies and the group representing the Native Peoples who live on much the land that would be required for the pipeline. Add to that the steady stream of government hearings that have droned on for years.

Finally last December, at a reported cost of $19 million and a year later than expected, the Joint Review Panel released its findings that solidly endorsed the pipeline project providing a number of environmental concerns are met. From everything I’ve been told, the next step will be for the National Energy Board to simply rubber-stamp the panel’s report. But that won’t answer some very important questions, according to the Calgary Herald.

For instance, there is no fiscal framework that includes the federal government of Canada. If the government has no plans to take an active role in the project, will it be up to the industry to fully fund the project plus the necessary infrastructure, the newspaper asks? When the National Energy Board (NEB) makes its final decision later this year, will it offer any incentives to the developers? I would imagine that any potential incentives would also be subjected to more hearings.

Now there’s another new wrinkle: Imperial Oil, the ExxonMobil affiliate that is the lead proponent of the pipeline, told the NEB on March 22 that it is delaying its final investment decision, pending the NEB’s decision and favorable fiscal terms.

“This revised start-up timing reflects regulatory delays, lack of a fiscal agreement, project restaffing requirements and seasonal constraints,” Imperial said told the NEB.

Not exactly throwing in the towel, Imperial said it would know by late 2013 whether to proceed with the pipeline. If so, the pipeline could be operating by 2018, six years behind original plans, according to the Herald.

Conditions have changed drastically since 2003. With the growth of LNG and new technologies that are economically producing unprecedented amounts of natural gas from unconventional sources such as shale formations, gas no longer is in short supply. Though governments are turning to natural gas as a preferred fuel for environmental purposes, price volatility doesn’t seem to be an issue. Storage is abundant; pipelines are transporting newly found supplies to meet demand; and despite one of the worst winters in recent years, the price of natural gas is falling below $4 per Mcf.

It’s a bit of a conundrum for ExxonMobil, which now views natural gas as a key piece of its business strategy. It’s spending billions to buy XTO Energy, which specializes in unconventional gas production. ExxonMobil is also a partner in the Alaskan gas pipeline with TransCanada. That project is moving forward and would be big enough to fill in the supply gaps that occur when other resources diminish.

So, does anyone really need the Mackenzie pipeline now? It should have been built years ago. As the Herald suggests, “the train has long left the station.”

Sounds to me like Imperial hopes the project plans are also on that train.