Pipeline partners pressing ahead with project

CALGARY — Two major backers of the Mackenzie natural gas pipeline are pressing ahead with their plans for the $16.2-billion project, despite a report suggesting Ottawa may yank its financial support.

CALGARY — Two major backers of the Mackenzie natural gas pipeline are pressing ahead with their plans for the $16.2-billion project, despite a report suggesting Ottawa may yank its financial support.

Imperial Oil Ltd. (TSX:IMO), the lead partner in the long-delayed and over-budget Arctic development, is “aware of nothing new” regarding the federal financial assistance package, company spokesman Pius Rolheiser said Tuesday.

“We’ve been continuing our dialogue with the federal government seeking an appropriate fiscal framework for the project, and that dialogue continues,” he said.

Citing unidentified sources, the National Post reported a federal cabinet committee rejected a financial assistance package proposed by Environment Minister Jim Prentice in support of the pipeline.

Prentice told reporters Tuesday the pipeline’s proponents are still evaluating Ottawa’s offer and are waiting on a long-overdue report on the environmental and socio-economic effects of the project.

The president of the Aboriginal Pipeline Group, which holds a one-third stake in the pipeline, said there’s no evidence whatsoever Ottawa is backing away.

“For us it’s very much business as usual,” said Bob Reid.

“The communication that we’ve had with Minister Prentice’s office would indicate that there’s been no decision taken.”

In January, Prentice announced Ottawa had offered the pipeline’s backers financial support for infrastructure and other costs associated with the project.

To date, financial details of the offer have not been released.

And that’s just the problem, said Doug Matthews, an energy consultant in Calgary who for several years handled the Mackenzie file for the Northwest Territories’ government.

“We never knew what (Prentice) was up to with the companies,” Matthews said.

“We don’t know what was proposed. And we don’t know why it was turned down. And that what seems to be the most outrageous aspect of this whole thing.”

By contrast, Americans have been well informed about what their government is ponying up in support of an even bigger natural gas pipeline proposed for Alaska that threatens to overshadow the Canadian option.

The Alaska pipeline, backed by Imperial Oil’s parent ExxonMobil Corp. (NYSE:XOM) and Calgary-based natural gas shipper TransCanada Corp. (TSX:TRP), comes with federal loan guarantees and other incentives.

The 1,220-kilometre Mackenzie pipeline would carry natural gas from the Mackenzie Delta on the Arctic coast of the Northwest Territories, south to the Alberta border, where it would connect with TransCanada’s network.

Imperial is the lead partner in the consortium, which also includes Imperial’s parent company ExxonMobil Corp. (NYSE:XOM), ConocoPhillips (NYSE:COP), Royal Dutch Shell PLC (NYSE:RDS) and the Aboriginal Pipeline Group.

TransCanada is involved through its investment in the APG, which acts on behalf of aboriginal groups along the pipeline’s route.

Mackenzie’s price tag was most recently pegged at $16.2 billion, well over its initial estimate.

And the regulatory process has been moving at a sluggish pace. A Joint Review Panel looking into the environmental and socio-economic effects of the pipeline is expected to hand down its report in December, years behind schedule.

There are also several other factors working against the Mackenzie pipeline ever becoming a reality.

One is persistently low natural gas prices. On the New York Mercantile Exchange Tuesday, natural gas was fetching US$4.50 per 1,000 cubic feet, a formidable recovery from its seven-year lows below around US$2 reached earlier this year.

Laura Lau, senior portfolio manager with Sentry Select Capital, a Toronto-based money manager, says changes in the natural gas market and a slump in prices have made megaprojects such as the Mackenzie pipeline project unattractive to the energy industry.

“You need much higher gas prices, at least $7 (per 1,000 cubic feet) long term,” she said in an interview with Business News Network, a cable TV business channel based in Toronto.

Another headwind is the discovery of enormous natural gas reserves further south in Canada and the United States that have only recently become accessible with the advent of new technologies.

For instance, the Marcellus shale formation in New York State and Pennsylvania contains several times the amount of natural gas the Mackenzie Delta does, and is located right next door to energy-hungry markets.

“On top of that we’re discovering a lot of natural gas in shale which is much closer to market. So we don’t need the northern gas anymore.”

Lau said the proposed northern pipelines “will be put on the shelf for another decade at least, or two.”

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