The Mackenzie Valley and Alaska Highway natural gas pipeline projects are inching forward, but a dispute brewing between gas producers and TransCanada Corp. threatens to toss a monkey wrench into the Alaska line.

                            

Despite challenges, top industry players told a Ziff Energy natural gas conference in Calgary last week that they’re optimistic both pipelines will go ahead.

“We’re moving forward with the opportunity to do this work in the most efficient manner possible, and have this gas come on in late 2009, early 2010,” said Michael Yeager, a senior vice-president of Imperial Oil Ltd., which is spearheading the $7-billion Mackenzie gas project.

TransCanada CEO Hal Kvisle defends building the pipeline under 25-year-old legislation.

“Our project is economic if we can do it within the bounds of what we’re describing,” Yeager said.

Imperial is leading a consortium of gas producers, including parent firm Exxon Mobil Corp. along with ConocoPhillips Co. and BP PLC, that want to build the 1,220-kilometre Mackenzie pipeline.

Yeager said the current version of the project consists of two separate pipelines – one initially carrying 1.2 billion cubic feet per day of natural gas (expandable to 1.9 billion cu. ft./d) and the other valuable petrochemical liquids stripped from the gas.

Both lines would run south from a centralized gathering facility near Inuvik and tie into Alberta’s pipeline network.

The gas producers plan to apply for project permits next year and make a decision whether to proceed with the project by mid- to late 2006, Yeager said.

That timeline would beat the Alaska Highway pipeline’s most optimistic date for completion, which most players estimate will be about 2014.

The Mackenzie pipeline is considerably smaller and cheaper than the $20-billion US, 2,800-kilometre Alaska line.

The Alaska pipeline, which would run from Alaska’s North Slope through the Yukon, B.C. and Alberta to Chicago, faces a potentially daunting challenge that emerged as industry leaders outlined their plans at the Calgary conference.

Hal Kvisle, president and CEO of TransCanada Corp., says his company has every intention of building at least the Canadian portion of the line, using a right-of-way and environmental permits it obtained under the 25-year-old Northern Pipeline Act (NPA).

TransCanada is prepared to transfer its right-of-way, permits and pipeline designs to the Alaska gas producers involved in the project at no cost if they want to build the pipeline section through Alaska, Kvisle said.

But he insisted that “it’s not acceptable” for anyone to tell TransCanada that its rights to build the pipeline under the NPA are no longer valid.

But the Alaska producers’ group, which includes BP, Exxon Mobil and ConocoPhillips, don’t favour proceeding with the pipeline under the NPA.

They worry that could open up a project that has changed substantially during the last 25 years to legal challenges and a longer and more complex regulatory process.

BP would rather proceed through a single regulatory hearing process led by the National Energy Board (NEB) and which would also include the federal and Yukon governments’ environmental assessment agencies, said Ken MacDonald, BP Canada’s vice-president of Alaska-Canada pipelines.

TransCanada fears going that route would weaken or even render useless its rights under the NPA to build the pipeline.

Kvisle said TransCanada has already invested more than $2 billion in the project, including successfully using the NPA to pre-build a $1.2-billion portion of the project through Alberta.

The company has also spent another $500 million to expand the pre-build, plus an additional $285 million US with former Alaska partners to prepare for construction, Kvisle said, adding: “I think we’re ready to proceed.”

But MacDonald said that Alaska gas producers believe the market – not 25-year-old legislation – should decide who builds the pipeline and through which regulatory route.

BP will ask Ottawa to issue a guiding document to assure producers that the regulatory process will consist of one hearing under one joint review panel, he said.

The producers believe they have every legal right to apply to the NEB to build the project, MacDonald told reporters. “There’s nothing in the NPA that says (it) is the only way to go.”

Stephen Letwin, vice- president of gas strategy and development for Enbridge Inc., told the conference that his company also favours proceeding through a NEB-led process rather than through the 25-year-old NPA.

“The last thing that we need (in this project) is litigation,” Letwin said.

Imperial Oil’s Yeager acknowledged that the Mackenzie project also still faces big hurdles – including opposition from the Deh Cho aboriginal group in the Northwest Territories Up to 40 per cent of the pipeline would cross Deh Cho land, and the group has sued the federal government for allegedly excluding them from the project’s regulatory review process.

Federal negotiators met a couple of weeks ago in Ottawa with Deh Cho Grand Chief Herb Norwegian, who said then that an out-of-court settlement that would give the Deh Cho a strong voice in the regulatory process would be in everybody’s interests.

Yeager noted that Imperial and other project developers, which include the Aboriginal Pipeline Group in the North with a guaranteed one-third interest, are working continuously with the other three major aboriginal groups in the N.W.T. – the Inuvialuit, Gwitchin and Sahtu.

“In the Deh Cho (territory) right now we have not been allowed to work with the formal leadership there,” he said. “But the different communities of the Deh Cho area call us and want to talk with us.”

Ottawa and the Deh Cho have to resolve their differences and Imperial has no plans to get involved “on an issue that doesn’t belong to us,” Yeager said. “What we want to try to do at the end of the day is provide (a project) that’s enticing enough that everybody wants to get it done.”

The Sierra Club of Canada says federal and northern politicians should rethink their support for the Mackenzie project, in light of a new international scientific study released last week that shows the Arctic is undergoing unexpectedly rapid warming due to global climate change.

Mackenzie Valley gas would fuel some $60 billion in expanded and new oilsands projects in Alberta, said Stephen Hazell, a Sierra Club program director.

Greenhouse gas emissions from the oilsands are projected to grow to 70 million tonnes – or 12 per cent of Canada’s overall gas-reduction target under the Kyoto treaty – from 17 million tonnes in 1990, Hazell said.

Yeager told the Ziff Energy conference that developers would try to minimize the project’s greenhouse gas emissions. “We don’t know how to make the (environmental) footprint any smaller or simpler, but we’re going to try . . . ”

(Mark Lowey can be reached at mark@businessedge.ca)