Petroleum News: Mackenzie: One week down, one year to go

Kyoto’s role, using Arctic gas in oil sands and access to pipeline by independent explorers all get aired at Mackenzie gas line hearings
Gary Park
For Petroleum News
It took less than a week for some of the anticipated stickier issues to formally surface in the Mackenzie Gas Project regulatory hearings.
In the first round that ended in Inuvik on Feb. 2, there were few surprises, least of all when the Sierra Legal Defence Fund — representing the World Wildlife Fund Canada and the Sierra Club of Canada —asked whether the Kyoto Protocol has been taken into account by Imperial Oil when it estimates the future demand for natural gas and raised the standard bogey-man that Arctic gas may merely be used as feedstock for developing Alberta’s oil sands.
Defence fund spokesman Paul Falvo told National Energy Board hearings that Imperial may have blundered by not considering whether changes to Canada’s energy policy under Kyoto could affect the long-term viability of the Mackenzie project.
He said any major energy projects should take a serious view of Kyoto if the federal government imposes limits on the consumption of fossil fuels which contribute to greenhouse gas emissions.
Harper may move away from Kyoto
That, however, may be a moot point if the new government of Prime Minister Stephen Harper delivers on its promise to shift Canada away from its Kyoto commitment and seeks a “made-in-Canada” approach to cutting emissions along with an energy policy that ensures maximum benefits are achieved from technology.
One of the nagging questions surrounding the Mackenzie project was also aired by Falvo.

Critics have argued that the bulk of production, whether it’s 1.2 billion or 1.8 billion cubic feet per day, will be shipped directly to the oil sands to support operations by the anchor field owners, Imperial, ConocoPhillips, Shell Canada and ExxonMobil Canada.
Imperial spokesman Pius Rolheiser told the hearing he has grown weary of the claims that there is a direct link between the Mackenzie project and the oil sands.
“It’s simply not true … I don’t know how to say it plainer than that,” he said.
Rolheiser insisted the two developments are completely separate and the Mackenzie would have proceeded with or without the oil sands.
Shipping cost concerns
E&P companies outside the main owners group also introduced their concerns about the cost of shipping gas on the pipeline.
Imperial says all gas producers will have a chance to access the pipeline, but they should be ready to make 15- to 20-year commitments — a demand that troubles smaller companies such as Paramount Resources, who say their medium-sized finds, including an estimated 250 billion cubic feet in Colville Hills, might have only an 8-year lifespan.
Allen Hollingworth, for Paramount, said Imperial’s threshold would force his company to find more gas, or pay more in tolls.
A report by GLJ Petroleum Consultants for Imperial laid out the challenge facing the industry if the Mackenzie pipeline is to have an adequate supply at a price that is profitable for the next 23 years.
It estimates companies will need to drill at least 124 exploration wells in the Mackenzie Delta, 161 in Colville Hills and 23 in the Beaufort Sea to achieve that goal — a drilling level that Falvo worries will put protected areas at risk.
The next round of hearings is due to start by mid-February in Inuvik.
Furor in Northwest Territories legislature
Separately, a furor has surfaced in the Northwest Territories legislature, where Premier Joe Handley has been accused of selling out the territory in a “letter of comfort” delivered to the gas producers in November.
Bill Braden, a member of the legislature from Yellowknife, said that in promising the companies his government won’t raise the resource royalties Handley failed the Northwest Territories.
He said the letter is one of “extreme disappointment” for legislators, communities and northerners.
Handley suggested that Braden did not seem to grasp that while his government was “looking at making a fair fiscal environment, we are looking at resource-revenue sharing.”
In a budget tabled Feb. 3, Finance Minister Floyd Roland unveiled cuts in the corporate tax rate to 11.5 percent from 14 percent effective July 1 to build on the success of a diamond industry and the economic promise of the Mackenzie project.
“To encourage businesses and industry to locate and do business here in the Northwest Territories we have to compete on taxes,” he told the legislature.
“We simply cannot afford to see businesses continue to file their income tax outside of the NWT in order to avoid higher tax rates.”
In a special appeal to Harper, Roland reiterated the NWT’s case to keep more of its resource revenues. Currently it keeps only 20 cents of every dollar it generates.