CALGARY — TransCanada Corp. (TSX:TRP) is “absolutely committed” to the building a pipeline through the Northwest Territories, despite concerns over the project’s viability, the head of North America’s largest natural gas shipper says.
“We’ve been really working hard with our sleeves rolled up to try to get this project to the finish line and be able to go ahead some time in the next couple of years,” Hal Kvisle said in an interview Wednesday.
“We’re absolutely committed. We think it’s the right project for our company and the country.”
The 1,220-kilometre Mackenzie pipeline would carry natural gas from the Mackenzie Delta, near the Beaufort Sea in 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 its U.S. parent 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 in 2007, more than double 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.
Further casting doubt on the pipeline was a report last month that said a federal cabinet committee nixed a financial assistance package in support of the pipeline proposed by Environment Minister Jim Prentice, Ottawa’s point-man on the project.
“That story was a big surprise to us. I immediately travelled to Ottawa, talked to a number of different people, and really found no basis in fact,” said Kvisle.
Mackenzie will need a jolt of federal money to get off the ground, much like other Canadian “basin-opening projects,” like the Hibernia offshore platform in Newfoundland.
“Back in 1958 without some active involvement with the government of Canada the TransCanada pipeline, the mainline itself, never would have been built,” Kvisle said.
“It took a government of Canada push for a couple of years to get it to go ahead, and after that the government has never again been involved in the TransCanada Mainline.”
It said Wednesday that it expects earnings before interest, taxes, depreciation and amortization to grow from $4 billion this year to about $6.5 billion in 2013 — an increase of 60 per cent.
Funds from operations of $3 billion this year are expected to grow 50 per cent to $4.5 billion four years from now.
Arctic gas — from both Mackenzie and a much bigger line TransCanada plans to build in Alaska — will be needed to replenish supplies of natural gas in North America.
“To meet flat demand, with no growth in demand at all, the producing community needs to replenish 20 per cent of the productive capacity every year,” Kvisle said.
For now, however, production of natural gas in Western Canada is down sharply as the recession dampens demand.
In response to the lower volumes, TransCanada previously warned that the cost for producers to ship their gas eastward from Alberta would rise by around 50 per cent next year.
However, it expects volumes to recover the following year, when production from shale gas formations in northeastern B.C. ramp up.
“TransCanada has of course expressed a willingness to work on a number of different angles to get through this transition period until the shale gas comes and until there’s a rebound in conventional drilling,” said Kvisle.
The main thing TransCanada could do to ease the pain for producers is to defer some costs over a number of years, instead of recovering all of them at once.
“That will all work itself out over time and we just need to make sure that we do everything that we can to lessen the impact on the producing community in western Canada. It’s their volumes that we need.”
The company operates North America’s largest natural gas transmission network, with 59,000 kilometres of pipe stretching across the continent.