The spectre of alternative natural gas supplies entering the U.S. in increasing volumes could be enough to put the Mackenzie Valley pipeline and future Arctic gas exploration on ice, warns Alberta's man in Washington, D.C.

As the U.S. searches for dependable and secure sources of energy, an expected proliferation of liquid natural gas (LNG) receiving terminals in the coming years could make the Mackenzie Gas Project - already bogged down by regulatory red tape - obsolete, says Murray Smith, who in January took on the role of official representative for Alberta to the United States.

"So the pipeline is not, in my view, a slam-dunk at this stage," Smith told 350 delegates attending a luncheon presentation at the recent Go-Expo: Gas and Oil Exposition in Calgary.

"We have to pay very, very close attention to the timeliness of the process and the regulatory hurdles they have to go through, so it's not hard to conceive that it could be out of the money," said Smith, who leads Alberta's newly established Alberta Office in Washington.

Murray Smith

The U.S. has expressed no preference for either LNG or to gas piped from Canada, he added.

"They've just said: 'Bring it on,'" he said. "They're looking at high depletion rates" from U.S. gas fields and require secure hydrocarbon supplies.

According to Smith, there are roughly 55 projects seeking permits in the U.S. to start importing LNGs from outside North America in the next few years.

Even if only a handful receive approval, it will be enough to bring four billion cubic feet per day (bcf/d) onstream, which in turn could be enough to place the Mackenzie project on permanent hold.

Smith called the Mackenzie pipeline "absolutely critical to Alberta, also critical to the North and critical to Canada, and I would hope we could find regulatory solutions over the summer period to allow that to go ahead."

If the pipeline project loses momentum, coupled with a proliferation of LNG programs and the construction of the proposed Alaska Highway pipeline, Smith said he fears the Mackenzie line will lie dormant for another generation.

"That in turn would leave a great deal of exploration undelivered in Northern Canada, because we all know that once you have a pipeline to market you can build a very strong reserves picture by exploring new reserves behind the pipe."

Recently, Mackenzie operator Imperial Oil Ltd., along with partners Shell Canada Ltd., ConocoPhillips and the Aboriginal Pipeline Group, halted work on the pipeline project, citing costly demands from Aboriginal communities and mounting red tape. First Nation groups - most notably the Deh Cho peoples - in the Northwest Territories say they believe the pipeline shouldn't go ahead until compensation agreements are reached.

The 1,350-kilometre line is to run from the Mackenzie Delta to the Alberta border, feeding markets in Alberta - including the oilsands - in addition to U.S. markets with natural gas. There are around 20 energy firms searching for gas in the Northwest Territories that hope to use the line.

Smith said he believes the negotiations taking place between the federal government and groups such as the Deh Cho are critical and that a positive outcome will be to the benefit of everybody. "From the perspective of developing the North, producer netbacks, access and benefits to First Nations as well as Alberta and the ability to move gas through the Alberta gas hub - it's of everybody's benefit to get moving on that pipeline."

He added that on several occasions he has broached the Mackenzie pipeline issue with Canada's ambassador to the U.S., Frank McKenna, who sits as an ex-officio member of the federal cabinet.

But Smith said he could not account for what many observers see as a slow response from the Canadian government.

"Now you're asking me to think like a Liberal, and I don't know" what the feds will do, he said responding to queries from reporters following his speech. "But I think the summer is critical, I think it's an important time."

Natural gas will play a big role in the long-anticipated U.S. energy bill that is currently snaking its way through the corridors of power in Washington. The final bill, expected to become law sometime this year, could also spin off fringe benefits for Alberta's oilsands industry.

Utah Senator Orrin Hatch, who has drafted his own version of the legislation, has insisted that the U.S. follow Alberta's role model and establish a taskforce to create a plan to identify ways to stimulate production from oil shale, largely in Colorado, and oilsands in Utah and Wyoming. Smith said that Alberta's oilsands industry could benefit if such measures were included in the bill, and added that he believes it is very likely many of the senator's proposals will be adopted in the final document.

"One of the things we've asked for is, if U.S. companies are going to have R&D (research and development) incentives, that they would apply to those companies spending that money here in Alberta," Smith said.

He also justified the Alberta government's decision to open an office in Washington - a move that came under fire from opposition parties - pointing out the importance trade plays in the province's economy. He said that around 34 per cent of economic activity depends on foreign trade - higher than the national average of 29 per cent - and translates into one out of every 2 or 2.5 jobs. "We trade," he noted, "or we perish."

Smith commended players in the province's oilpatch - many of whom were represented at the Go-Expo event - for developing innovative technologies that are gaining acceptance not only in the U.S., but worldwide.

The oil and gas show, which runs every two years (the larger Global Petroleum Show is held on even-numbered years), drew 530 exhibitors to Stampede Park's Round Up Centre, many of which were Alberta service and supply firms looking to showcase new technologies or just seeking some face-time with the buyers.

"We come every year, we think it's important to have a presence here," said Cal Whibbs, Canadian sales manager of Sylvan Lake-based Premier Integrated Technologies, which offers a number of products used to maximize hydrocarbon production. "We usually come away with some business and I hope that this year is no different."

(John Ludwick can be reached at ludwick@businessedge.ca)