Mackenzie Valley Pipeline a Go, But …

By Lloyd Dolha

Now that the Mackenzie Valley pipeline route has won out over the proposed Alaska Highway route, a note of caution was sent out in an open letter to all the Northwest Territories chiefs of the Denendeh by Chief Charles Furlong, of the Aklavik Indian Band of Aklavik, NWT, on June 3, 2002.

The Mackenzie Valley route offers one-third ownership to the Acho Dene, the Gwich’in, the Sahtu and the Inuvialuit, training, thousands of jobs during the construction phase and impact/benefit agreements and will be the focus of consultation on NWT First Nations community agendas over the summer months.

“On the other hand, we have the Arctigas Group proposing 100% ownership of a pipeline, which will carry American gas over the top of the Beaufort Artic Ocean up the Mackenzie Valley to southern Canada,” writes Chief Furlong.

The Arctigas Resources Corporation has the third rival pipeline route, the proverbial dark horse of the pipeline race. Arctigas is the Canadian subsidiary of the Artic Resources Company (ARC), a consortium of American investors.

Arctigas proposes to finance their project using bonds and investors and has offered aboriginal landowners along their route 100 per cent title to the pipeline. The pipeline would be financed through the sale of non-recourse revenue bonds.

These bonds are sold to raise money for projects of this magnitude and are redeemable with interest, only in the case of the company’s success.

In Alaska, the Inupiat people would own the American section of the pipeline through the Artic Slope Regional Corporation.

Their proposed route, the Northern Route Gas Pipeline, would carry natural gas east, from the rich reserves of Alaska’s Prudhoe Bay, a reported 30 to 35 trillion cubic feet, to the Mackenzie Delta, tapping resources there and then south, following the Mackenzie Valley into northern Alberta.

The costs
Arctigas estimates the cost of its proposed pipeline at $7.6 billion, based on 5.5 billion cubic feet of gas per day. Four billion cubic feet would come from Alaska and one and a half from Canada.

The Mackenzie Valley stand-alone pipeline will tap an estimated nine to eleven trillion cubic feet of discovered natural gas reserves, with a further estimated 55 trillion cubic feet of undiscovered natural gas in the Mackenzie Delta-Beaufort Sea area around Inuvik.
Their pipeline would have the capacity of only one billion cubic feet of gas per day.

The Mackenzie Valley pipeline route is cheapest to build as it would transport natural gas from the Mackenzie Delta with some 800 miles of pipeline that would hook up to existing pipeline infrastructure in northern Alberta.

Both the Mackenzie Delta Producer’s Group, the consortium of Imperial Oil, Conoco Canada Ltd., Shell Canada Ltd., and Exxon Mobile Canada, and the Arctigas have been lobbying hard to solicit and maintain the support of NWT First Nations groups.

Last year, the Artigas offered Mackenzie Valley First Nations groups loans of $50,000 for legal fees associated with the investigation of their proposal, then another $50,000 to groups available at the signing of a program administration agreement.

In January 2002 the Northern Route Gas Pipeline Corporation filed a Project Information Package (PIP) for the Northern Gas Pipeline Project with the National Energy Board of Canada, and continues to consult with community leaders, councils and members of impacted communities in the NWT.

“As leaders, we must all realize that unlike the 70’s, both the governments and industry need our support. The project could provide leverage to initiate other projects for long-term sustainability. We have to be cautious of outside influence by those who seek our input for personal gain.

We are already seeing our ranks splintered at both the community and regional level and worst, some of us refuse to use our ability because ego’s and personalities to see the power and benefits of working as an aboriginal force. We must evaluate what a 100% ownership model may look like whether it be with Arctigas or someone else,” cautioned Chief Furlong.

The story thus far:
Despite promises of $10 billion U.S. in loan guarantees and tax credits from the U.S. Senate, the fate of the Alaska Highway pipeline route was sealed on May 14th, when energy giants BP, Exxon Mobil and Phillips Petroleum all with significant gas reserves in Alaska released a long-awaited feasibility study that said the mega project is currently too expensive to be economically feasible, costing nearly $20 billion U.S. to build.

“Right now, as the project pencils out as a result of our feasibility work, the risks outweigh the rewards,” said BP spokesman Dave McDowell from Anchorage, Alaska.

At a cost of $125 million, the Alaska Highway pipeline study noted that any future pipeline will need better regulatory certainty in the US, Canada, the provinces and First Nations.

“A clear governmental framework on the Canadian side is also an essential ingredient on moving forward,” said MacDowell.

The state of Alaska¹s Gas Pipeline Office will close and its coordinator William G. Britt Jr. has resigned effective June 14th.

Confident of their success, on May 1st, the Mackenzie Delta Producer’s Group and the Mackenzie Valley Aboriginal Pipeline Corporation (MVAPC), formerly known as the Aboriginal Pipeline Group, announced that the Producer’s Group will be opening up regional offices in the NWT this summer.

The Producers Group, composed of Imperial Oil, Conoco Canada Ltd. Shell Canada Ltd. And Exxon Mobil Canada, will open three Mackenzie gas project offices in Inuvik, Norman Wells and Fort Simpson.

The Producer’s Group announced earlier this year that they will spend about $250 million to prepare the applications for the pipeline estimated to cost $4 billion.

Economic studies show the potential impact of gas development in the NWT at $57 billion, which will open up new areas for Canadian gas development and spawn further development of the Canadian petroleum industry.

“The economic impact of developing new gas resources in the NWT and connecting Mackenzie Delta natural gas to southern markets via a Mackenzie Valley pipeline dramatically increases the benefits to Canadian industry and governments,” said Antoine Minister of Resources, Wildlife, and Economic Development for the Government of the Northwest Territories (GNWT).

On May 16th, the Mackenzie Delta Producers Group awarded the conceptual and preliminary engineering for the Mackenzie Gas Project to COLTKBR. Headquartered in Calgary, COLTKBR is a long-term joint venture of Colt Engineering Corporation (Colt) and Kellogg Brown & Root (KBR).

The engineering work will assist in optimizing the commercial viability of the Mackenzie Gas Project and support the development of regulatory applications. Imperial is the operator of the gas gathering and pipeline systems for the project.

The Mackenzie Gas Project involves natural gas production facilities, compression and gathering pipelines in the Mackenzie Delta area, with a pipeline to the Norman Wells area where a liquid recovery and compression facility will be installed. A natural gas pipeline with compression facilities will then proceed south from Norman Wells through the Mackenzie Valley into northwestern Alberta.

Speaking on behalf of the Mackenzie Delta Producers Group and the Mackenzie Valley Aboriginal Pipeline Corporation (MVAPC), K.C. Williams, senior-vice president and director of Imperial Oil Limited, said “awarding this contract marks another significant step towards the preparation and filing of regulatory applications for the Mackenzie Gas Project. As the Producers Group and the MVAPC continue to move forward, we will ensure the project remains focused on safety, care for the natural environment and technical quality, as well as the owners¹ shared objectives for Aboriginal and northern involvement.”

John Read, Chief Executive Officer of Colt Engineering Corporation, acknowledged “COLTKBR is extremely pleased and excited to be awarded this contract and to be involved in this significant Canadian project. COLTKBR understands the performance expectations that the Mackenzie Delta Producers Group have for this project, including the importance of the involvement of Aboriginal and northern peoples in work related to this contract.”

Engineering services will be executed in Imperial’s and Colt’s offices in Calgary, with the participation of specialists from the Mackenzie Gas Project owners and COLTKBR.

Colt is a major Canadian engineering contractor with more than 2,200 employees. Colt provides multi-discipline engineering, procurement, construction management and construction services to the upstream and downstream oil and gas industries in North America and internationally.

The Producer’s Group and the MVAPC began the initial round of community consultations in March, beginning with the Sahtu in Tulita on the 18th and additional groups have been visited up to late May. During the following 18 months, the Producer’s Group and the MVAPC are currently visiting and conducting more extensive consultations in every community throughout the NWT.

According to the open letter, the initial consultation meetings have been sparsely attended.

“We also have to carefully evaluate what percentage of ownership with major oil producers could mean. We should also realize that there are a lot of other oil companies who may consider contributing as partners in our percentage ownership of the Aboriginal Pipeline Group proposal. By partnering with us, they will be able to transfer their resources in the pipeline.

I believe that the majority of people supporting the pipeline see the opportunities for employment and business ventures. These opportunities will be there for only a short time and the support mechanisms for the trunk (main) line and future tie-ins will provide sustainability for some regions. If we want employment, training and business opportunities, let’s negotiate under our access provisions and set up a royalty package for any resources flowing on our lands. Unlike the 70’s, both government and industry need our input and we are in the driver¹s seat because we are recognized as the landowners,” wrote Chief Furlong.

Potential benefits
There are other potential benefits as well. Natural gas will become a source of cheap fuel for NWT communities. The pipeline will need state-of-the-art telecommunications through fibre-optic cable, so there may be opportunity to provide fibre-optic technology to northern communities.

Three NWT groups have signed on with Artigas Resources Corp. in support of the Northern Route Gas Pipeline. These are: the Ernie Macdonald Land Corporation of Norman Wells; the Metis Financial Corporation of Fort Good Hope; and, the Nihtat Gwich’in Council of Inuvik.

In a June 10th letter to the Aboriginal Pipeline Group and the Producer’s Group, Chief James Firth of the Nihtat Gwich’in Council (NGC), endorsed by the Inuvik Native Band, stated that they have been reviewing the Arctigas Northern Route Gas Pipeline for the past six months.

“Clearly we have great difficulty with the direction in which the Mackenzie Valley Producers and the Aboriginal Pipeline Group is heading. Our review has concluded that the proposed benefits and liabilities of the 1/3 ownership of a MVP through a joint venture, in its current form makes the business proposal to the Inuvik Gwich’in unacceptable,” said Firth.

The letter states while the NGC is a signatory to the Memorandum-of-Understanding (MOU), signed last summer with the Producers Group, the MOU was not intended to be a “legally binding” document.

“NGC believes that the interests of the aboriginal peoples represented by the NGC can best be served by evaluating a pipeline project proposed by the Northern Route Gas Pipeline Corporation.”

Sitting in his Calgary office, Arctigas CEO, Harvie Andre commented, “We have always believed that the most economic pipeline is from Prudhoe Bay, down the Mackenzie Delta. The alternative is two separate pipelines.”

“We’re talking about a pipeline that would maximize the economic benefit for the Northwest Territories and Alaska. Our view has been, from Canada¹s perspective, we ought to be looking at one pipeline. We remain convinced that the economic benefits are so huge, they must be pursued,” said Andre.