Mackenzie Gas Project – One Deceased Parrot

February 21, 2011 by Stephen Hazell

In January 2011, CBC reported that the federal Cabinet confirmed the decision of the National Energy Board to approval the $16 billion Mackenzie Gas Project. But don’t expect the excavators, backhoes and barges to swing into action in the Mackenzie Valley any time soon, if ever.

The MGP is a lot like Monty Python’s Norwegian Blue parrot. It may still have beautiful plumage but, as John Cleese might say, it appears to be bereft of life—despite the spin of government and Imperial Oil, the lead proponent. The oil companies’ project team was disbanded and its Northern offices were closed several years ago. Engineering and fieldwork has stopped. The northern bureaucracy that was supporting the licensing of the MGP is also gone--the Inuvik-based Northern Pipeline Gas Secretariat was abruptly shut down and staff members laid off a year ago.

The oil companies never committed publicly to building the MGP, and Imperial Oil told the National Energy Board in April and again in December that no such commitment is likely to be forthcoming for several years, if ever. The NEB agreed to extend the proposed “sunset clause” for the licence by two years (the Proponent had asked for three years), so that even pre-construction activities would not get under way until December 2015. That’s five more years in hibernation at least!

The biggest problem for the companies is that natural gas prices are too low. Mackenzie Valley gas is expensive and risky to produce and ship to market compared to other new sources of natural gas, such as shale gas and imported liquified natural gas (LNG). A July 2010 Massachusetts Institute of Technology study stated that there are abundant global supplies of natural gas, much of which can be developed at relatively low cost.

So-called shale gas has been the biggest surprise in the past few years as a result of improvements in drilling technology. The Canadian Society for Unconventional Gas says that the hydrocarbon volume stored within gas shales in Canada is “huge” with significant reserves in Quebec and New Brunswick as well as the four western provinces. Exploitation of shale gas has led to increases in the overall production of U.S. natural gas in the past few years.

Two eastern Canadian liquefied natural gas terminals are also coming on stream to deliver cheap foreign natural gas to eastern North America. The Canaport LNG terminal in Saint John, New Brunswick started up in June 2009 and can supply 1.2 billion cubic feet per day (roughly the throughput of the MGP). The Rabaska LNG terminal near Lévis Quebec has been approved and is expected to begin operations in 2014. A few other LNG terminal projects in eastern Canada are in the planning stages.

It seems unlikely that the price of gas will rise sufficiently in the foreseeable future to generate decent profits for the oil companies from MGP. ExxonMobil, Shell and Conoco-Phillips play on a global stage, and quite simply they have better opportunities to generate higher returns on investment elsewhere.

The federal government hammered the final nail into the MGP coffin in January in rejecting the oil companies’ demand for $2-billion in so-called “fiscal incentives” for the MGP. Even a government dominated by oil patch ministers could not hand out such a honking big subsidy given exploding federal deficits. Especially not to ExxonMobil, the most profitable corporation in the world. Especially not to an arrogant industry in public disfavour over oil spills into the Gulf of Mexico and Kalamazoo River.

The December 2009 report of the independent Joint Review Panel (whose seven members included four Northerners) is another blow to the MGP. One of the most careful and thoughtful environmental assessments Canada has seen since the Berger Inquiry, the Report concludes that the MGP would make a negative contribution to sustainability unless all of the JRP’s 176 recommendations are implemented. Given federal and NEB rejection of many of these recommendations, it is fair to conclude that the MGP would indeed be bad for Mackenzie Valley communities and ecosystems. It is obvious that a key federal motivation for eliminating JRP recommendations is to reduce costs to the federal treasury; but surely this is not in the interests of the Northwest Territories. The JRP stood up to federal and GNWT pressures to water down its recommendations in the so-called “consult-to-modify” process, which culminated in a October 4, 2010 JRP letter to governments. The JRP expressed particular concern that the governments are not committed to funding implementation of its recommendations

The oil companies did a poor job in the MGP regulatory process, ignoring widespread demands from Northerners and environmentalists to “green” the pipeline. Demands to consider seriously the cumulative environmental effects that the “basin-opening” MGP would have in combination with other resource projects were ignored. Threats posed by global climate change on pipeline and anchor field operations over the MGP’s 25-year life span from melting permafrost, coastal erosion and sea-level rise were glossed over. The MGP’s role as a gas supply to fuel accelerating oil sands development in northern Alberta was mocked.

Enough is enough. Whether the MGP is “definitely deceased” or merely “tired and shagged out after a long squawk,” it has taken up huge amounts of time and resources of Northerners, governments and the companies for too long. Time to move on. Time to plan a truly sustainable energy future for the Mackenzie Valley.

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