Clip:
"If the project in its current form is indeed on its last legs, it's nothing to be proud of. It would be one of the first energy megaprojects in Canada to fold at such an advanced stage due to cost increases, aboriginal sabotage and federal red tape.
Optimists believe it's been Exxon Mobil's aim all along to build an over-the-top link from Alaska's natural-gas fields in Prudhoe Bay to the Mackenzie pipeline, rather than build two gas pipelines from the Arctic. The Alaska plan remains mired in even more uncertainty than its Canadian counterpart. Alaska legislation now forbids an over-the-top pipeline."
National Post: MGP Defeated, Alaskan Over-the-Top Pipeline an "optimistic scenario".
http://www.canada.com/nationalpost/...
Other pipeline agendas in play?
Claudia Cattaneo, Financial Post
March 13, 2007
Imperial Oil Ltd.'s new $16.2-billion cost estimate for the Mackenzie Gas Project is so shockingly high it may indeed show Canada's oil-and-gas sector is teetering on a cliff.
But more likely, there are other agendas at play here that suggest the estimate is way over the top. Here are three possibilities:
- Imperial and its partners -- parent Exxon Mobil Corp., Conoco Phillips, Shell Canada Ltd. and the Aboriginal Pipeline Group -- are inflating costs in anticipation of tough negotiations on fiscal terms with the federal government.
- This project is dead. The partners are simply going through the motions while they secure regulatory permits from the National Energy Board, expected by early next year, just so they have something to show for the $600- million they have spent so far. Then they're off to better things.
- The Mackenzie Gas Project will be combined in some way with the proposed competing Alaska pipeline, whose cost, if what is going on with the Canadian pipeline is an indication, is now reaching the US$40-billion to US$50-billion range.
The Calgary-based integrated oil company, the lead partner in the pipeline, revealed the stunning new cost estimate yesterday after crunching numbers for nearly a year.
It's higher than any tally estimated so far by industry analysts. It is set against the $4-billion estimate unveiled by Imperial chief executive Tim Hearn in September, 2002, which then climbed to $7-billion when the partners filed for regulatory approval in 2004, making it the largest cost increase for a large oil and gas project in Canadian history. And it's not over yet. The cost estimate reflects 2006 dollars and could climb from here.
Imperial's projection was received with widespread skepticism yesterday.
"These are their numbers. Who can even call them on it?" said one observer. "They could have said $36-billion, for all I know."
Proponents of the project may want to show they are facing gigantic costs while they bargain for fiscal enhancements with the federal government. Discussions with Ottawa have been off and on for a couple of years.
Over the next few weeks, they'll get down to the wire. According to former deputy prime minister Anne McLellan, they asked for incentives worth $1.2- billion in 2005. Randy Broiles, senior vice-president at Imperial, wouldn't quantify yesterday what the project now requires to make it economic, other than noting "the risk is now greater than it was in 2005."
Ideas under discussion include lower royalties and taxes, favourable depreciation rates, federal spending on infrastructure and the government helping to secure shipping commitments on the pipeline. The previous Liberal government talked about taking an equity stake in the project in exchange for benefits, an idea Imperial initially opposed but that is still floating around.
By coming up with a big price tag, the oil companies may be hoping that all those who want the project to move forward -- from aboriginals in the North to small exploration companies in Calgary -- will put pressure on the government to do its part.
The problem is that the federal minister responsible for the project, Jim Prentice, is apparently not keen to cough up big dollars. In an interview with the Financial Post in January, Mr. Prentice, Minister of Indian Affairs and Northern Development, said the pipeline "has to make sense on business principles if it's going to proceed. It's not going to proceed as a social project." He reiterated that message yesterday.
Contrast that with Mr. Broiles' view: "We would say that with the right fiscal framework, we think it can be economic and it can make sense for the co-venturers, for the federal government and the people of Canada."
Ottawa has another problem: An election is in the air, so it's hardly a good time to hand over help to highly profitable oil multinationals.
The other possibility is Imperial and its partners know the pipeline is dead. After all, if, according to Imperial, this project was skinny at $7.5-billion, how can it be still alive at $16.2-billion? Analysts who looked at the new costs yesterday concluded it wouldn't compete with liquefied natural gas projects, or that it would require very high natural gas prices to generate low returns.
But with regulatory reviews nearing completion, it would be bad timing for proponents to shelve it. It makes more sense for them to get their permits, then put it on hold. Suspecting that's a possibility, both the NEB and Northwest Territories Premier Joseph Handley are proposing an expiry date for the permits, so that if Imperial doesn't move forward, others can take over.
If the project in its current form is indeed on its last legs, it's nothing to be proud of. It would be one of the first energy megaproject in Canada to fold at such an advanced stage due to cost increases, aboriginal sabotage and federal red tape.
Optimists believe it's been Exxon Mobil's aim all along to build an over-the-top link from Alaska's natural-gas fields in Prudhoe Bay to the Mackenzie pipeline, rather than build two gas pipelines from the Arctic. The Alaska plan remains mired in even more uncertainty than its Canadian counterpart. Alaska legislation now forbids an over-the-top pipeline. Mr. Broiles beat around the bush when asked by an analyst about the possibility yesterday.
Still, it would be inconceivable for the bright minds at Exxon- Mobil, which owns 70% of Imperial, not to take a broad view of Arctic gas.
With costs this high, why build two uneconomic projects when one can do the job for both basins?
