Before the corks are popped and the bubbly pouring, let us recall that this pipe has been declared "dead" more times than Elvis Presley. At the end of the Berger Inquiry from the 1970's, there was a moratorium placed on this pipe until A) final agreements [sic] were established with all nations from the Valley; B) protected areas and proper environmental plans for the rest were laid out. The Dehcho do not have a deal, and their own land use plan is being blocked by the Federal Government-- the other nations of the Valley have only a tiny area on a couple arms of Great Bear Lake/the Sahtu to show thus far. Perhaps we need more than a moratorium, lest we play table tennis with the Fed every time the price of gas changes. Save the Mackenzie Valley-- stop the MGP for good.
Now, wait until local energy is interested in the nuclear option, rather than the "no more oil" option. Prepare yourself for the renaissance of the Candu Reactor-- or, perhaps, 20 of them.
--M
Costs nudge Arctic gas into inaccessible territory
Gordon Jaremko, The Edmonton Journal
Published: Monday, April 16, 2007
EDMONTON - Arctic natural gas has become an energy counterpart to the Northwest Territories' diamonds marketed as Canadian ice in the United States.
New details of the increased $16.2- billion price tag for the Mackenzie Gas Project, filed with the National Energy Board, explain why officials of senior partner Imperial Oil have taken to calling its economics "not robust."
Transportation tolls projected for the proposed 1,200-kilometre Mackenzie Valley Pipeline work out to $2.89-$3.04 per gigajoule. That is about triple the current tariff for sending Alberta gas east on the TransCanada system to Canadian buyers and export points in Ontario and Quebec.
The pipeline consortium offers Arctic gas shippers the $2.89 low end of the forecast toll range as an incentive to sign 20-year transportation contracts. The $3.04 high end includes a 15-per-cent penalty for making only 15-year commitments.
Construction costs forecast for the new line from the Mackenzie Delta to the top of the TransCanada system in northern Alberta escalated to $7.8 billion. That is about 60 per cent more than the 1999 cost of building the Alliance Pipeline to Chicago from northern British Columbia and Alberta.
The calculations are not based on outrageously high profit expectations. The Mackenzie project consortium of Imperial, Shell Canada, ConocoPhillips, ExxonMobil Canada and the Aboriginal Pipeline Group seeks industry-standard returns for transporting Arctic gas.
The consortium wants to earn 10.67 per cent on its equity or owners' cash that would be spent to build the Mackenzie line. Returns on debt or money borrowed for construction would be 5.3 per cent, a figure chosen as a reasonable expectation for interest rates.
With the financing split set at 70-per-cent debt and 30-per-cent equity, the overall return sought for the northern pipeline project comes out to 6.91 per cent.
Over a two-decade period following the first full year of service, currently scheduled to be 2015, the tolls are projected to drop gradually into a range of 93 cents to $1.08 per GJ.
Rates, following customary practice in the pipeline industry, would gradually go down as construction costs are paid off, shipping volumes grow and the line is depreciated.
But the proposed Mackenzie Valley pipeline is only one link in the Arctic gas chain. The Mackenzie Delta is a big place and projected costs of moving gas from production sites near the Beaufort Sea coast to the Inuvik inlet of the pipeline at the chief Delta town of Inuvik also are imposing.
From the remotest sites reached by the Mackenzie project's proposed production gathering system, transportation costs are forecast to run as high as 98 cents per GJ. There are also gas compression and processing fees.
While aboriginal rights disputes contributed to announced delays of the Mackenzie project, industry factions are in a lengthy duel over the worsening cost outlook.
Potential Arctic producers that do not belong to the Mackenzie project consortium have lodged a court appeal after losing earlier rounds before the NEB.
The northern newcomers seek conversion of the proposed Delta gathering pipeline network, now structured as a private partnership of the gas producers that own the Mackenzie project, into a public utility with regulated tariffs.
The gathering system is projected to cost $3.5 billion. Other major costs include $1.2 billion for an Inuvik plant, to be covered by charging processing fees, and $950 million for a liquids byproduct pipeline.
Costs of Delta production systems proposed by the Mackenzie project owners have also ballooned. The new forecast is $4.9 billion -- or as much as initial forecasts for the entire Arctic production and pipeline development when it was proposed eight years ago.
At current gas prices in the range of $7 to $8 per GJ, the forecast costs of getting Arctic production just as far as the Alberta entry point to the established gas grid would eat up more than half of the sales revenues.
Northern exploration, production and operating expenses are formidable, too.
MGM Energy Corp., a fledgling specialist in northern gas spun off by Paramount Resources, estimates new Delta wells will cost an average $21 million each. Even in the more accessible central Mackenzie Valley, MGM warned investors who bought its stock that it takes $5 million or $10 million just to drill one well.
Results of MGM's first drilling season were a chilling reminder that there are no guarantees of success in the Arctic. The two wells in the firm's 2006-07 Delta program came up dry.
In the best tradition of northern enterprise MGM president Henry Sykes said the firm still has an Arctic drilling program and will keep trying, with three more wells planned for next winter.
gjaremko@thejournal.canwest.com
© The Edmonton Journal 2007
