BMI View: Attempts by the government of Canada's Northwest Territories to rescue the long delayed Mackenzie Delta gas project are unlikely to succeed. Firstly, a switch to an LNG project would result in the need for new regulatory approval. Secondly, the partners remain opposed to such a development plan.
The government of Canada's Northwest Territories has signalled that it is open to alternative development plans for vast natural gas reserves located in the Mackenzie Delta. The news comes just weeks after Imperial Oil, the most active proponent of the planned project, announced that it was slashing spending and closing local offices.
Low Prices Take Their Toll
The Mackenzie Delta project is a US$16.5bn joint venture between Imperial Oil (majority owned by ExxonMobil), Royal Dutch Shell, ConocoPhillips and The Aboriginal Pipeline Group. Plans to monetise this gas through a vast 1,196 km (743 mile) pipeline have been years in the making, delayed by environmental concerns, opposition by local communities and, most recently, concerns over cost.
The US shale gas boom has pushed prices to decade lows making the vast and technically challenging project uneconomic. Shell has even offered its stake up for sale with few signs that there are any bidders. With prices set to remain low over the next five years we expect that the perennial delays affecting Mackenzie Delta are set to continue.
This is perhaps why David Ramsay, local minister of industry, tourism and development, has attempted to revive the project by suggesting that LNG should be considered as a development option. Such a plan does have some merit as it would help to reduce the massive pipeline costs.
However, there are some serious problems with the LNG option. Firstly, a revision of this kind would require new regulatory approval. Given the difficulties securing the original permit, issued in 2011 after seven years of wrangling, this could be a serious stumbling block. Secondly, the environmental challenges of building and operating an LNG terminal on the fringe of the arctic would be costly and technically challenging. Thirdly, and perhaps most importantly, it appears that the partners continue to support the pipeline option. Imperial spokesman Pius Rolheiser told Reuters that the company continues to believe that the pipeline is, 'the best approach to commercializing Mackenzie gas.'
The projects future therefore remains in doubt and, with the final investment decision deadline of year-end 2013 getting closer, we do not hold out much hope for Mackenzie Delta.
Copyright 2012 Business Monitor International Ltd. All Rights Reserved.
(Originally published in the June 1, 2012, edition of BMI Americas Oil and Gas Insights.)