Mackenzie go-ahead seems likely

By Claudia Cattaneo
National Post
27-Sep-2006

CALGARY - With both sides set to resume negotiations on fiscal terms for the Mackenzie Valley Pipeline, the federal minister responsible for the project has issued a strong vote of confidence that it will go ahead.

Indian Affairs and Northern Development Minister Jim Prentice said he expects formal talks between Ottawa and oil companies to resume shortly, after lead partner Imperial Oil Ltd. stepped away over the summer to re-examine the entire project, including cost estimates that are expected to escalate, the number of construction seasons it would take to build it, and project parameters.

"I am confident that this is a very good project, that it's good for Canada, that it's good for North American energy self-sufficiency," Mr. Prentice said in an interview from Ottawa. "This is a very significant piece of infrastructure, of historic proportions, which will have a fundamental change on the oil and gas economy in Canada. So it needs to be viewed over a long-term perspective.

"At this point, commodity prices have softened, but we have still strong fundamentals for gas, and the need to open up this basin in the North, and the infrastructure is key to that."

Project proponents, which also include ConocoPhillips, Shell Canada Ltd., Exxon Mobil Corp. and the Aboriginal Pipeline Group, want to secure fiscal terms before they give the green light to the venture, which would move to market natural gas reserves stranded in the North.

Last year, when the 1,325-kilometre natural gas pipeline's cost was estimated at $7.5-billion, former Deputy Prime Minister Anne McLellan said the oil companies were looking for breaks from Ottawa worth $1.2-billion.

They are expected to ask for more concessions when talks resume, reflecting cost escalations. Imperial is expected to announce new estimates by the end of the year. Observers said it will probably cost more than $10-billion to build the project, given cost overruns in energy ventures across Western Canada.

Mr. Prentice, who said he continued to meet over the summer with Imperial executives, including CEO Tim Hearn, would not say what Ottawa is prepared to do to improve the fiscal framework.

"They will bring forward a proposal and we will consider and respond to it," he said. "There have been a number of issues on the table before, and we will see what they have to say."

"The government can't change the fundamental marketplace economics," he said. "What we can do is fulfil the management responsibilities that I took on, and there are specific things that we can and are doing."

Ottawa has hired Andrei Sulzenko, one of the architects and principal negotiators of the Canada-U.S. Free Trade Agreement, to manage the file, including ensuring proper interdepartmental coordination.

The federal government is also in the process of creating a five-member board of directors for the Crown corporation that will be responsible for the $500-million in socio-economic funding made available to the people of the North to alleviate the development's impact.

He said Ottawa is continuing negotiations to provide support to the Aboriginal Pipeline Group, the aboriginal enterprise with a one-third ownership in the pipeline, though its preference is to not provide loan guarantees to help it fund its share of the pipeline's cost.

Another form of support under discussion with the group is for Ottawa to take its royalties from the project in kind, and make a shipping commitment to the APG, but no decisions have been made, he said. As well, Ottawa is making progress on a land claim settlement with the Deh Cho First Nations, the only aboriginal community opposed to the project.

Mr. Prentice said Deh Cho support is not needed for the pipeline to move ahead.

Under current plans, Imperial plans to build the pipeline over three winters starting in 2008. Last week, Northwest Territories Premier Joseph Handley suggested the pipeline could be built in one year, reducing its cost, with the construction of a federally funded, $700-million highway to the Arctic Ocean that would facilitate the movement of people and equipment.

"The whole relationship between the pipeline and the road is in my mind unclear at this point and it really is the project proponent who has to answer the question of whether the road would be of assistance or not," Mr. Prentice said.