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"Little Hope In the Mackenzie Gas Project"

Little hope in the pipeline

Repeated delays of Mackenzie Valley gas pipeline have Inuvik seeing red

By Claudia Cattaneo, Financial Post
July 2, 2009

Inuvik, N.W.T. -- The conversation in this town of 3,500 in the Western Arctic should be about aboriginal self-sufficiency, environmentally responsible Northern development and a new clean-energy storehouse with immense potential. After all, the proposed $16.2-billion Mackenzie Valley natural-gas pipeline project was supposed to be under construction by now.

Instead, the talk is about the regulatory bungling, federal government inaction and fading industry interest in what would be one of Canada’s largest infrastructure projects.

Meanwhile, a new threat has emerged: Big gas discoveries in shale rocks that are cheap and closer to customers, making the pipeline an even tougher proposition by the time all hurdles are cleared, perhaps two years from now, perhaps longer.

“The Mackenzie pipeline appears to be frozen, not just in the ground, but in red tape,” Floyd Roland, N.W.T. Premier, said at last month’s Inuvik Petroleum Show, reflecting the dark mood, despite the 24-hour daylight embracing this community on the shore of the majestic Mackenzie River.

Not a shovel has been sunk into the permafrost after nearly 10 years of planning. Meanwhile, the cost — financial and human — has been huge: $700-million to $800-million has been spent by the oil and pipeline companies — Imperial Oil Ltd. and parent Exxon Mobil Corp., Royal Dutch Shell PLC, ConocoPhillips Ltd. and the Aboriginal Pipeline Group (APG) — to get to this stage. Hundreds of millions more have been invested by exploration companies looking for gas to fill the pipeline. Then there are the millions spent by Northern businesses on services and infrastructure to support the project, including attracting and training workers who are still not needed.

It’s not the first time the region has been teased by the promise of wealth from its stranded hydrocarbon deposits.

There was the first Mackenzie gas pipeline proposal that was spiked in the 1970s by Justice Thomas Berger, who ordered a 10-year moratorium to allow for the settlement of aboriginal land claims. There were exploration booms in the 1970s and 1980s that withered with the end of government subsidies and low energy prices.

While no one has yet declared the latest attempt to build a pipeline from the Arctic to Alberta dead, there’s dread in the region, said Willard Hagen, chairman of the Mackenzie Valley Land and Water Board.

It was only four years ago that this frontier town, a cluster of townhouses on stilts, government offices, small businesses and a popular bar called The Trapper, was brimming with enthusiasm over the start of regulatory hearings.

The region’s two aboriginal groups, the Inuvialuit and Gwich-in, and most along the pipeline route, were enthusiastic supporters of the project and stepped up for one-third ownership through the APG.

There were many critics, from environmental organizations to people worried about the impact of too much development on the small community, to members of the Deh Cho, a militant band in the Central Mackenzie Valley that held back support while negotiating its land claim. But they have since faded.

The biggest stumbling block turned out to be the Joint Review Panel (JRP), a board of seven independent members appointed in August 2004 by then-federal environment minister Liberal Stéphane Dion. Intended to combine aboriginal and federal regulators with oversight over the pipeline route, the JRP took on a life of its own. Unrestricted by deadlines, members have repeatedly postponed their report, stretching to 47 months a job they were supposed to do in 10. At last count, the cost of their work was more than $18-million.

The JRP is now expected to file its report by December, but there is no confidence it will actually deliver. The panel has not explained why it’s taking so long.

Jim Prentice, the federal Environment Minister, who is responsible for the pipeline, has also expressed frustration, but has not interfered. PermaFrost Media, an online publication that follows the pipeline’s progress, is seeking to find out, through an access-to-information request, how much JRP members are getting paid and how.

Meanwhile, negotiations with the federal government for fiscal terms that started under the previous Liberal regime have moved at a snail’s pace and are cloaked in secrecy. MGM Energy Corp., the last oil company to explore in the region, in May halted any further activity.

Those on the front lines cannot contain their angst. Oilman Henry Sykes, president of MGM, labelled the project a “national embarrassment.”

“There is no doubt [the JRP] are incompetent,” said Tom Zupko, president of New North Networks Ltd., an Inuvik-based communications company and the publisher of PermaFrost Media.

Russell Newmark, CEO of E. Gruben’s Transport Ltd., a major Inuvialuit contractor that started as a dog-sledding haul company, complains the JRP is “like a cork stuck in the pipe.” The regulatory process has dragged on for so long any decision will be outdated by the time it comes out, he says.

“The thing that compounds the misery is that … people have come up with better ways of doing this, but nobody is putting them forward because it could mean another review. That’s the JRP. It’s cast a pall over any activity we want to do.”

The setback has been tough on the North’s fragile economy.

Mr. Zupko, the son of a bush pilot and a nurse who grew up in Inuvik, expanded his business to provide phone, radio and data communication services to pipeline construction crews and oil and gas companies exploring in the North. He has now been forced to slash his staff from 20 to eight.

“I wouldn’t say that I have lost hope, but it’s becoming a lot more challenging for everybody involved,” said Mr. Zupko. “I am not making any kind of investment on the basis of a project going ahead. And nobody else is, as far as I know.”

Mr. Newmark’s company, owned by the Gruben clan of Tuktoyaktuk, is the majority owner of the Mackenzie Hotel, a 98-room showcase built at a cost of $14-million to accommodate oil and gas workers coming North to work. He said regulation of the pipeline has been so cumbersome it will frustrate any future activity.

“Essentially, you are saying to anybody who wants to do economic development in the North: ‘Put in an application and in five years we will tell you if it’s any good or not’, ” he said.

Carmen Loberg, CEO of NorTerra Inc., the Edmonton-based parent company of Canadian North Airlines and Northern Transportation Co. Ltd., owned jointly by the Inuvialuit and the Inuit of Nunavut, said it had hoped to see a fourfold increase in its marine business and a “staggering” increase in air traffic demand.

Now, it’s challenged to maintain flight frequency in the North, and demand for its marine business is languishing.

“We had a lot of success training people for jobs that don’t exist now,” Mr. Loberg said. “For those 100 people, it’s a real life issue. They are engaged in other work, and some are simply unemployed.”

Despite their distance from the market, people of the Western Arctic have learned to watch the global oil-and-gas industry, and they worry.

Immense supplies of shale gas have been found in the past couple of years in Texas, Louisiana and New York, deposits that are easier to develop; imports of liquefied natural gas from offshore fields are increasing; natural-gas prices are so low that easier-to-tap conventional gas in Alberta is on the sidelines; the rival Alaska pipeline is gaining momentum and big U.S. government handouts.

They also worry that the minority federal government, which was so quick to salvage the Ontario-based auto industry, will keep dragging its feet in the North because there is little political upside.

“We have one Member of Parliament, and he is NDP,” said Mr. Hagen. “We are not high on their priority list.”

So, leaders are talking up the pipeline as a national stimulus project because many jobs would go to Ontarians and Albertans, and it’s key to maintaining Arctic sovereignty and delivering clean energy.

They also point out costs have likely declined from the last $16.2-billion price estimate because of the economic downturn.

“We could build low and sell high,” proposes the Premier. “If we wait too long, we risk losing the best stimulus that we could ever hope for.”

There is little else on the horizon for this region in the tundra, covered in ice most of the year and almost exclusively dependent on government employment.

No more onshore exploration work is planned. Oil exploration in the deep waters of the Beaufort Sea by Imperial Oil, with Exxon and BP PLC, is seen as unlikely to generate major spinoff benefits. Tourism driven by sports hunting has died down with the recession.

Fred Carmichael, the Gwych’in leader who helped get the pipeline off the ground early in this decade and is now the chairman of the APG, said the pipeline needs to go ahead.

Many lessons have been learned in the past 10 years, he said. “Not only have the aboriginal people learned the importance of oil and gas, but the oil industry has learned the importance of the land and of the environment. And we have learned to work together in co-operation to ensure we can do this type of development with [mutual] respect.

“You will never see a joint review panel again,” he promises.
© Copyright (c) National Post


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