Do we want Pipeline Canada?

By Terence Corcoran
National Post
18-May-2007

The Mackenzie Valley gas pipeline, for decades a glimmering mirage on the horizon of Canada's northern economic future, may soon become the nightmare of Canadian energy policy.

Having just sold off Petro- Canada, ending that particularly disastrous episode in national energy history, the Harper Conservatives are floating the idea of taking control of a new national project, Pipeline-Canada. As a Crown corporation, Pipeline- Canada would contract out construction of the $16.2-billion project to Trans-Canada Pipeline.

If this were to happen, rest assured that it would not really be an energy policy. It would be, above all, a native buy-off policy, a job-creation policy, a make-work program and a political strategy to secure votes and seats in Parliament.

But as an energy policy, the benefits are far from obvious. A government-funded pipeline megaproject would do nothing to help establish Canada as an "Energy Superpower." But it could set Canada up as an Energy Superloser. With a $16-billion construction cost, the latest estimate, it poses a monumental risk to the government.

Even if work started today, completion wouldn't happen until 2014 at the earliest, and by then the gas might not be needed in the United States, the primary market.

Gas is a major potential source of electric power, and 10 or 15 years from now Mackenzie gas is unlikely to have any advantages. By 2014 and after, other sources of energy are expected to be on the market, driving the price of gas down and rendering Pipeline- Canada uneconomic. Liquified natural gas (LNG) could be landing in massive quantities in the United States, coal gasification is under intense development, as is another coal technology, thermo-energy coal burning. And who knows what chaos climate regulation will bring?

If the private sector doesn't want to bear the risk, as it clearly doesn't, why should the government? Jim Prentice, the Minister of Indian Affairs, is playing a key role in the pipeline rescue, and northern jobs and native issues are said to be the main driving force behind the mounting pressure on Ottawa to rescue the pipeline from reluctant oil companies.

It would be a sad day for Canada if Ottawa were doing this to buy off native groups that have long stood in the way of the pipeline. One hopes, as well, that Mr. Prentice is not responding to First Nation leaders who are threatening economic disorder and a National Day of Action if aboriginal discontents and land claims are not soon on track for settlement.

Caving into blackmail is hardly the road to civil peace. It could also involve turning over Mackenzie gas royalties to local aboriginal groups.

If Pipeline-Canada were to build the Mackenzie line, it implies a fat settlement as Ottawa then assigns cash flow from gas sales to aboriginal groups. That removes some of Ottawa's native support costs and transfers the burden to the oil industry and gas consumers.

Also likely to play a public role in any Ottawa rationale will be northern economic development. Back when he was in opposition and hounding the Liberals to get the Mackenzie pipeline built, Mr. Prentice liked to talk up and circulate studies showing the major benefits that would flow from its construction.

Numbers reached the sky: $52-billion in total revenue, $57- billion in new GDP, 157,000 person years in direct and indirect jobs, and up to 400,000 in additional person years of employment.

That was when the cost of the pipeline was estimated at only $7-billion. At $16.2-billion, all those numbers can be blown up to double the original estimates. The more Ottawa sinks into a pipeline, whatever its merits as an investment, the bigger it can make the benefits look on paper.

All such calculations, however, are economic fabrications designed to generate political support. They are no reason to spend the money if the project itself is too much of a risk and a potential economic disaster.

Spending $16.2-billion would certainly set the Tories up for comparison with the Liberals. Former Calgary Liberal MP and deputy prime minister Anne Mc- Lellan still boasts on her Web site that the Liberals had "committed nearly $800-million to facilitate construction of the [Mackenzie] project by private sector sources."

If Ottawa does take up control and funding of the Mackenzie Valley project, Mr. Prentice, if he dares, will be able to claim that the Conservatives out-spent the Liberals by 20 times -- adding another winning claim to the growing Conservative list of Liberal firsts, and dragging the Tories into another dangerous national energy program.