January 2008 Edition

TransCanada hints at new structure for MGP

Facilitating a mega project through public processes

TransCanada hints at new structure for MGP

By Lauren Krugel

Analysts say a reworking of the Mackenzie Gas Project will be a boon for all involved, with pipeline operator TransCanada Corp. likely to see major returns and the Imperial Oil-led consortium of producers relieved of much of the cost burdens that have threatened to kill the entire energy project.

A revamp for the proposed natural gas development in the Northwest Territories is expected to be announced soon.

“If it ever proceeds, the executives will be giving themselves high-fives,” Daniel Shteyn, an analyst with Desjardins Securities, said recently.

A published report December 5th said Imperial Oil, Exxon Mobil, Conoco Phillips and Royal Dutch Shell have agreed to cede control of the project to TransCanada, the country’s largest natural gas shipper, and the Aboriginal Pipeline Group, an organization that represents Native communities in the north.

TransCanada would have a 60 per cent stake and the APG would have 40 per cent, the report said. The company and the group have declined to comment.

Many of North America’s largest energy companies have proposed various projects to carry natural gas discovered from the Far North to southern markets in Canada and the United States. The main projects have focused on Canada's Mackenzie Delta, where major gas deposits have been discovered, and the North Slope of Alaska, the largest oil producing region of the United States, and an area with large gas deposits.

With natural gas prices low and the prospect of increased competition from a growing liquefied natural gas industry looming from overseas producers, many experts predict there may be room for only one major Far North gas pipeline project – either in Alaska or the Mackenzie River valley, or a combined pipeline.

First Energy Capital analyst Stephen Paget said he was at TransCanada’s investor day session last month, when the company hinted at a deal with the Imperial group that would please everyone.

“A greater stake for TransCanada in the pipeline would suit the resource owners because it meant they had less capital risk,” he said in an interview.

The project has been stagnant since the spring, when it was announced the pricetag had soared to $16.2 billion – more than double the previous estimate. The companies had suggested the project was dead and that they wanted the federal government to take control of the pipeline.

But if the restructuring goes ahead, the producers will see their portion of the cost cut in half. They would only have to worry about production, with TransCanada taking care of the pipeline.

“TransCanada is in the business of operating pipelines. That’s what they do best. Presumably the capital cost control would be there, even better than Imperial Oil could do,” Shteyn said.

More importantly, Ottawa would be more likely to be on board if TransCanada and the APG take the helm.

“I think it would be politically easier for the government to support a TransCanada-led consortium than if the project was led by Imperial Oil at a time of $100 per barrel oil prices,” Shteyn said.

Big integrated oil companies such as Imperial, which runs a network of Esso-branded gasoline stations across Canada, have posted huge profits as they benefit from oil prices that came close to US$100 recently.

In a note to investors, Shteyn bumped up TransCanada’s target share price from $43 to $45 and re-iterated his “buy” recommendation.

“From TransCanada’s perspective, if this project proceeds, it will be a massive capital deployment opportunity for them which would create significant value for the shareholders,” he said.

In early December, TransCanada made a bid to the Alaskan government to build another natural gas pipeline that would compete with a proposal by ConocoPhillips. That project, which is expected to cost $42 billion, would tap into about 22 trillion cubic feet of natural gas in Alaska’s North Slope and would feed into the U.S. energy market.

If that mega-project moves forward, it might stir up the political will needed to get the Mackenzie pipeline off the ground, First Energy’s Paget said.

“The Canadians will not want to see Alaska gas passing through Canada when Canadian Arctic gas is stranded,” he said.

The Mackenzie project is slated to be completed about four years before the Alaskan one so they won’t have competing construction seasons, Paget added.

In November a TransCanada subsidiary asked for permission to build a nearly $1 billion, 300-kilometre natural gas pipeline that would run from gas-producing areas northwestern Alberta to oilsands operations in the province’s northeast.

The North Central Corridor, which the company had been considering for 11 years before making its application, could theoretically link up with the Mackenzie Pipeline’s proposed terminus, bringing Arctic gas to the natural gas hungry oilsands.

Natural gas is a key power source for oilsands developments. It is used as fuel to heat the steam that liquefies tar-like bitumen in steam-assisted gravity drainage projects. It’s also a source of heat and hydrogen in mining and in upgrading bitumen into synthetic crude oil.

The big producers involved in the Mackenzie Gas Project could feed their own oilsands assets with their natural gas assets, Paget said.

“The oilsands will get their gas no matter what. It’s everyone else who needs to worry.”

Facilitating a mega project through public processes

By Dene Skylar

The Mackenzie Gas Project (MGP) is a proposed 1220-kilometre natural gas pipeline system along the Mackenzie Valley of Canada's Northwest Territories to connect northern onshore gas fields with North American markets. The MGP is being proposed by Imperial, ConocoPhillips Canada, Shell Canada, ExxonMobil Canada and the Aboriginal Pipeline Group (APG). The APG was formed to represent ownership interest of the Aboriginal peoples of the NWT in the proposed MGP natural-gas pipeline. If approved for construction, the proposed Mackenzie Gas Pipeline Project will be one of the largest industrial developments in North America.

Petroleum exploration and development is not new to the Northwest Territories. In 1920 a significant commercial oil deposit was discovered in Norman Wells. During the 1940s the Canol Pipeline was constructed from Norman Wells to Whitehorse, Yukon by the American military. The Canol Pipeline was never used after World War II ended. In 1970 oil was discovered in the Mackenzie Delta followed by three significant gas fields. This prompted development ideas but the Berger Inquiry set up to review the first prospects of a Mackenzie Gas Pipeline recommended a 10 year moratorium for many reasons including allowing Aboriginal groups time to settle land claims and prepare for such developments. In the late 1980s the Enbridge Pipeline was built from Norman Wells to Zama, Alberta. The Enbridge Pipeline continues to transport up to 30,000 barrels of oil per day. Other smaller gas developments have occurred in the southern sections of the NWT but the MGP is a world-class development. Projects of this stature are subject to significant environmental impact assessment and regulatory review.

Northerners, Aboriginal and public governments and industry have long understood the potential impacts and benefits that a Mackenzie Valley Pipeline could bring. Their past experiences in gas and oil developments along with advances in the settlement of land claims have prepared them to various degrees of readiness. Preparation for engagement in the MGP would require coordination and cooperation.

In anticipation of major gas or oil development in the north, a Northern Pipeline Environmental Impact Assessment and Regulatory Chair’s Committee was established. It brought together members of regulatory agencies in the NWT and produced a Cooperation Plan in June 2002. The Cooperation Plan describes the framework that the authorities with environmental impact assessment and regulatory mandates would follow to engage coordinated environmental impact assessment and regulatory processes for a proposed major northern gas pipeline project and associated developments. It outlines methods of cooperation intended to avoid duplication and provide clarity and certainty of process for the public and potential proponents.

In June 2003, the Mackenzie Valley Producers Group filed a Preliminary Information Package, which triggered the environmental impact assessment and regulatory review process for the MGP to begin. A Memorandum of Agreement was engaged by regulatory agencies which established the Northern Gas Project Secretariat to provide support to the boards and panels with public hearing requirements conducting an environmental assessment and regulatory review of the proposed MGP. The panels include the Joint Review Panel for the environmental assessment, the National Energy Board (NEB) Panel, Mackenzie Valley Land and Water Board (if required) and the NWT Water Board Panel (if required) for the regulatory review.

On October 7, 2004 Imperial Oil Resources, on behalf of the Mackenzie Gas Project co-ventures, announced that applications for the main regulatory approvals required for the MGP were submitted to the boards, panels and agencies responsible for assessing and regulating energy developments in the Northwest Territories. When filing the application, APG Chair, Fred Carmichael stated, “The filing of our regulatory application is a positive step forward for both the APG and the project. The regulatory review process will allow active and meaningful participation by the communities in the Mackenzie Valley. Aboriginal ownership in the project provides an opportunity to make a significant difference in the North. We are a step closer to delivering long-term benefits to our Aboriginal stakeholders.”

The Northern Gas Project Secretariat was set up to support boards and panels and to assist the public to understand and participate during the review processes.

Native Journal contacted Executive Director Brian Chambers of the Northern Gas Project Secretariat. Mr. Chambers stated that, “The JRP visited a total of 26 communities in the Inuvialuit Settlement Region, and the Mackenzie Valley as well as Whitehorse, Yukon, and High Level and Edmonton, Alberta. There were approximately 100 intervenors that participated in the hearings. The farthest community visited in the North was Sachs Harbor and the furthest south was Edmonton.”

During November 2007 the JRP heard final comments on the proposed MGP in Inuvik, NWT. According to Mr. Chambers, “The JRP plan to submit their report in mid 2008. It is submitted to the Minister of Indian and Northern Affairs Canada, the Minister of Environment Canada, the Government of the Northwest Territories and the National Energy Board of Canada. The report will include recommendations and the governments of Canada and the NWT will be responding to those recommendations. The report will go to many parties including the intervenors.”

The JRP public hearings process is a major step in the MGP approval process with more to come as Brian Chambers points out, “We were pleased that over the last 20 months since the hearings commenced that all the communities and people along the proposed pipeline route had the opportunity to speak about their views on the Mackenzie Gas Project, regardless of their view, so that the panels heard their view. The task of the JRP is to review all that evidence and make recommendations on whether it should proceed or not. I think it is important for the public to understand that if the JRP recommends the project and if NEB recommends the issuance of the certificate and if the proponents decide to move forward there are other licenses and permits required and the Mackenzie Valley Land and Water Board and NWT Water Board would be holding public hearings on those licenses and permits.”

Native Journal asked what the next steps would be if the JRP Report recommended approval of the project. According to Brian Chambers, “Under the timeline that was released in October 2007, we anticipate it will take approximately four months for government response. Following the response to the report the NEB will reconvene its public review process to provide comments on the recommendations of the Report and to hear final arguments. Following final argument hearings the NEB will draft its decision on whether the proposed MGP will receive a Certificate of Public Convenience and Necessity. The decision of the NEB requires federal cabinet approval.” Should the approvals process make it all the way to the NEB and should the NEB decide to recommend approval of the project it would still require the Canada’s approval by the Federal Cabinet which in accordance to the timeline could see the project approved by mid 2009.

It is important to remember what the proponents of the MGP stated when they filed their application in 2005, “If coordination and cooperation can be maintained gas will flow to southern markets but anything can happened between now and the end of the regulatory hearings and in the end it will be market economics that will determine if the project will proceed.”

Stay tuned as Native Journal will keep you informed on the outcome of the Joint Review Panel Hearings Report on the MGP – anticipated to be released in mid 2008.

		www.nativejournal.ca
	OIL & GAS January 2008 index TransCanada hints at new structure for MGP Facilitating a mega project through public processes TransCanada hints at new structure for MGP By Lauren Krugel Analysts say a reworking of the Mackenzie Gas Project will be a boon for all involved, with pipeline operator TransCanada Corp. likely to see major returns and the Imperial Oil-led consortium of producers relieved of much of the cost burdens that have threatened to kill the entire energy project. A revamp for the proposed natural gas development in the Northwest Territories is expected to be announced soon. “If it ever proceeds, the executives will be giving themselves high-fives,” Daniel Shteyn, an analyst with Desjardins Securities, said recently. A published report December 5th said Imperial Oil, Exxon Mobil, Conoco Phillips and Royal Dutch Shell have agreed to cede control of the project to TransCanada, the country’s largest natural gas shipper, and the Aboriginal Pipeline Group, an organization that represents Native communities in the north. TransCanada would have a 60 per cent stake and the APG would have 40 per cent, the report said. The company and the group have declined to comment. Many of North America’s largest energy companies have proposed various projects to carry natural gas discovered from the Far North to southern markets in Canada and the United States. The main projects have focused on Canada's Mackenzie Delta, where major gas deposits have been discovered, and the North Slope of Alaska, the largest oil producing region of the United States, and an area with large gas deposits. With natural gas prices low and the prospect of increased competition from a growing liquefied natural gas industry looming from overseas producers, many experts predict there may be room for only one major Far North gas pipeline project – either in Alaska or the Mackenzie River valley, or a combined pipeline. First Energy Capital analyst Stephen Paget said he was at TransCanada’s investor day session last month, when the company hinted at a deal with the Imperial group that would please everyone. “A greater stake for TransCanada in the pipeline would suit the resource owners because it meant they had less capital risk,” he said in an interview. The project has been stagnant since the spring, when it was announced the pricetag had soared to $16.2 billion – more than double the previous estimate. The companies had suggested the project was dead and that they wanted the federal government to take control of the pipeline. But if the restructuring goes ahead, the producers will see their portion of the cost cut in half. They would only have to worry about production, with TransCanada taking care of the pipeline. “TransCanada is in the business of operating pipelines. That’s what they do best. Presumably the capital cost control would be there, even better than Imperial Oil could do,” Shteyn said. More importantly, Ottawa would be more likely to be on board if TransCanada and the APG take the helm. “I think it would be politically easier for the government to support a TransCanada-led consortium than if the project was led by Imperial Oil at a time of $100 per barrel oil prices,” Shteyn said. Big integrated oil companies such as Imperial, which runs a network of Esso-branded gasoline stations across Canada, have posted huge profits as they benefit from oil prices that came close to US$100 recently. In a note to investors, Shteyn bumped up TransCanada’s target share price from $43 to $45 and re-iterated his “buy” recommendation. “From TransCanada’s perspective, if this project proceeds, it will be a massive capital deployment opportunity for them which would create significant value for the shareholders,” he said. In early December, TransCanada made a bid to the Alaskan government to build another natural gas pipeline that would compete with a proposal by ConocoPhillips. That project, which is expected to cost $42 billion, would tap into about 22 trillion cubic feet of natural gas in Alaska’s North Slope and would feed into the U.S. energy market. If that mega-project moves forward, it might stir up the political will needed to get the Mackenzie pipeline off the ground, First Energy’s Paget said. “The Canadians will not want to see Alaska gas passing through Canada when Canadian Arctic gas is stranded,” he said. The Mackenzie project is slated to be completed about four years before the Alaskan one so they won’t have competing construction seasons, Paget added. In November a TransCanada subsidiary asked for permission to build a nearly $1 billion, 300-kilometre natural gas pipeline that would run from gas-producing areas northwestern Alberta to oilsands operations in the province’s northeast. The North Central Corridor, which the company had been considering for 11 years before making its application, could theoretically link up with the Mackenzie Pipeline’s proposed terminus, bringing Arctic gas to the natural gas hungry oilsands. Natural gas is a key power source for oilsands developments. It is used as fuel to heat the steam that liquefies tar-like bitumen in steam-assisted gravity drainage projects. It’s also a source of heat and hydrogen in mining and in upgrading bitumen into synthetic crude oil. The big producers involved in the Mackenzie Gas Project could feed their own oilsands assets with their natural gas assets, Paget said. “The oilsands will get their gas no matter what. It’s everyone else who needs to worry.” back to top Facilitating a mega project through public processes By Dene Skylar The Mackenzie Gas Project (MGP) is a proposed 1220-kilometre natural gas pipeline system along the Mackenzie Valley of Canada's Northwest Territories to connect northern onshore gas fields with North American markets. The MGP is being proposed by Imperial, ConocoPhillips Canada, Shell Canada, ExxonMobil Canada and the Aboriginal Pipeline Group (APG). The APG was formed to represent ownership interest of the Aboriginal peoples of the NWT in the proposed MGP natural-gas pipeline. If approved for construction, the proposed Mackenzie Gas Pipeline Project will be one of the largest industrial developments in North America. Petroleum exploration and development is not new to the Northwest Territories. In 1920 a significant commercial oil deposit was discovered in Norman Wells. During the 1940s the Canol Pipeline was constructed from Norman Wells to Whitehorse, Yukon by the American military. The Canol Pipeline was never used after World War II ended. In 1970 oil was discovered in the Mackenzie Delta followed by three significant gas fields. This prompted development ideas but the Berger Inquiry set up to review the first prospects of a Mackenzie Gas Pipeline recommended a 10 year moratorium for many reasons including allowing Aboriginal groups time to settle land claims and prepare for such developments. In the late 1980s the Enbridge Pipeline was built from Norman Wells to Zama, Alberta. The Enbridge Pipeline continues to transport up to 30,000 barrels of oil per day. Other smaller gas developments have occurred in the southern sections of the NWT but the MGP is a world-class development. Projects of this stature are subject to significant environmental impact assessment and regulatory review. Northerners, Aboriginal and public governments and industry have long understood the potential impacts and benefits that a Mackenzie Valley Pipeline could bring. Their past experiences in gas and oil developments along with advances in the settlement of land claims have prepared them to various degrees of readiness. Preparation for engagement in the MGP would require coordination and cooperation. In anticipation of major gas or oil development in the north, a Northern Pipeline Environmental Impact Assessment and Regulatory Chair’s Committee was established. It brought together members of regulatory agencies in the NWT and produced a Cooperation Plan in June 2002. The Cooperation Plan describes the framework that the authorities with environmental impact assessment and regulatory mandates would follow to engage coordinated environmental impact assessment and regulatory processes for a proposed major northern gas pipeline project and associated developments. It outlines methods of cooperation intended to avoid duplication and provide clarity and certainty of process for the public and potential proponents. In June 2003, the Mackenzie Valley Producers Group filed a Preliminary Information Package, which triggered the environmental impact assessment and regulatory review process for the MGP to begin. A Memorandum of Agreement was engaged by regulatory agencies which established the Northern Gas Project Secretariat to provide support to the boards and panels with public hearing requirements conducting an environmental assessment and regulatory review of the proposed MGP. The panels include the Joint Review Panel for the environmental assessment, the National Energy Board (NEB) Panel, Mackenzie Valley Land and Water Board (if required) and the NWT Water Board Panel (if required) for the regulatory review. On October 7, 2004 Imperial Oil Resources, on behalf of the Mackenzie Gas Project co-ventures, announced that applications for the main regulatory approvals required for the MGP were submitted to the boards, panels and agencies responsible for assessing and regulating energy developments in the Northwest Territories. When filing the application, APG Chair, Fred Carmichael stated, “The filing of our regulatory application is a positive step forward for both the APG and the project. The regulatory review process will allow active and meaningful participation by the communities in the Mackenzie Valley. Aboriginal ownership in the project provides an opportunity to make a significant difference in the North. We are a step closer to delivering long-term benefits to our Aboriginal stakeholders.” The Northern Gas Project Secretariat was set up to support boards and panels and to assist the public to understand and participate during the review processes. Native Journal contacted Executive Director Brian Chambers of the Northern Gas Project Secretariat. Mr. Chambers stated that, “The JRP visited a total of 26 communities in the Inuvialuit Settlement Region, and the Mackenzie Valley as well as Whitehorse, Yukon, and High Level and Edmonton, Alberta. There were approximately 100 intervenors that participated in the hearings. The farthest community visited in the North was Sachs Harbor and the furthest south was Edmonton.” During November 2007 the JRP heard final comments on the proposed MGP in Inuvik, NWT. According to Mr. Chambers, “The JRP plan to submit their report in mid 2008. It is submitted to the Minister of Indian and Northern Affairs Canada, the Minister of Environment Canada, the Government of the Northwest Territories and the National Energy Board of Canada. The report will include recommendations and the governments of Canada and the NWT will be responding to those recommendations. The report will go to many parties including the intervenors.” The JRP public hearings process is a major step in the MGP approval process with more to come as Brian Chambers points out, “We were pleased that over the last 20 months since the hearings commenced that all the communities and people along the proposed pipeline route had the opportunity to speak about their views on the Mackenzie Gas Project, regardless of their view, so that the panels heard their view. The task of the JRP is to review all that evidence and make recommendations on whether it should proceed or not. I think it is important for the public to understand that if the JRP recommends the project and if NEB recommends the issuance of the certificate and if the proponents decide to move forward there are other licenses and permits required and the Mackenzie Valley Land and Water Board and NWT Water Board would be holding public hearings on those licenses and permits.” Native Journal asked what the next steps would be if the JRP Report recommended approval of the project. According to Brian Chambers, “Under the timeline that was released in October 2007, we anticipate it will take approximately four months for government response. Following the response to the report the NEB will reconvene its public review process to provide comments on the recommendations of the Report and to hear final arguments. Following final argument hearings the NEB will draft its decision on whether the proposed MGP will receive a Certificate of Public Convenience and Necessity. The decision of the NEB requires federal cabinet approval.” Should the approvals process make it all the way to the NEB and should the NEB decide to recommend approval of the project it would still require the Canada’s approval by the Federal Cabinet which in accordance to the timeline could see the project approved by mid 2009. It is important to remember what the proponents of the MGP stated when they filed their application in 2005, “If coordination and cooperation can be maintained gas will flow to southern markets but anything can happened between now and the end of the regulatory hearings and in the end it will be market economics that will determine if the project will proceed.” Stay tuned as Native Journal will keep you informed on the outcome of the Joint Review Panel Hearings Report on the MGP – anticipated to be released in mid 2008. back to top