VANCOUVER -- Exxon Mobil Corp. XOM-N has joined forces with TransCanada Corp. TRP-T on its $26-billion (U.S.) natural gas pipeline from Alaska to Alberta, a move that jeopardizes the Mackenzie Valley gas project vital to the development of Canada's north.
Exxon, the world's largest publicly traded energy company, controls the most gas in northern Alaska and is also the key backer of the Mackenzie project through its controlling stake in Calgary's Imperial Oil Ltd., IMO-T which puts the Texas-based company in the role of deciding which project goes ahead.
With Exxon's decision to co-develop the Alaska pipeline and reportedly take a minority equity stake, TransCanada is much closer to meeting its target of shipping gas south to a hub on the Alberta-British Columbia border by late 2018.
The deal represents a significant shift in plans for pipelines from the north. For years, the Mackenzie Valley gas project in the Northwest Territories had a decisive lead and was viewed as much more likely to be built first. But that project has been stalled by an extremely slow regulatory review, which is now in its fourth year and is not expected to be completed before next year.
The $16-billion (Canadian) Mackenzie Valley pipeline is crucial to the economic development of Canada's north and claims of sovereignty over the barren region. The start of pipeline construction was expected to spur gas exploration and ignite the local economy, making Inuvik, on the Beaufort Sea, a new economic hub.
Exxon and Imperial both said that Mackenzie is still on track and unaffected by the Alaska development. But because of numerous regulatory delays, the Mackenzie project wouldn't be completed before 2017 at the earliest, and most analysts doubt the two projects could proceed at the same time because of required construction resources.
"Exxon has firmly thrown its weight behind Alaska, and it's at the detriment of Mackenzie," said analyst Chris Theal of Tristone Capital. "Exxon is saying it without coming out and saying it directly."
Underpinning both the Alaska and Mackenzie pipelines is the long-term demand for gas to generate electricity to heat homes and power industries. The demand is strong enough for both, even with the discovery of major pools of shale gas throughout the United States and in northeastern British Columbia that have already significantly bolstered supply, Exxon and TransCanada said in a call yesterday.
While the Alaska pipeline would cost almost twice Mackenzie's price tag, it would deliver four times as much natural gas to customers.
The Mackenzie line is "stuck in the mud" and Alaska is "not only moving forward but it's getting momentum," said Fred Carmichael, chairman of the Aboriginal Pipeline Group, a junior partner in Mackenzie project.
"They obviously prefer Alaska over Canada, simply because of the dollars," he said. "As mad as I am, as disappointed as I am, I have to face the reality that this is a business deal, and there's more money for [Exxon] and TransCanada to be made on the Alaska pipeline than this one."
Mr. Carmichael also blasted Ottawa for not doing enough to support the Mackenzie project, seen as the crucial economic development for the Northwest Territories, whose annual budget is almost entirely funded by the federal government.
Imperial and Ottawa are in detailed talks about public financial support, which is expected to be several billion dollars.
Jim Prentice, the Ottawa minister overseeing the government's role in the pipeline, said yesterday that Mackenzie's development remains several years ahead of Alaska. He spoke yesterday with Hal Kvisle, chief executive officer of TransCanada, and Bruce March, CEO of Imperial, and they both repeated their commitment to Mackenzie.
"[We] would like to see the Mackenzie project built first," Mr. Prentice said.
Washington has already authorized $18-billion (U.S.) in loan guarantees to build the Alaska pipeline. Discussions are under way to boost it to $30-billion.
"This is a significant step forward on a project very important to the President and the Department of the Interior as a way to get American energy to the lower 48" states, U.S. Interior Secretary Kenneth Salazar said in a statement.
TransCanada and Exxon's next big hurdle comes a year from now, when they solicit long-term contracts to carry gas on the Alaska line. With Exxon on board, it is ConocoPhillips Co. and BP PLC that need to be wooed. The two other large holders of Alaska gas are working on their own pipeline idea, called Denali.
The TransCanada plan is "the best opportunity to bring all the parties together," said Marty Massey, U.S. joint interest manager at ExxonMobil Production Co.
With files from reporters Shawn McCarthy in Ottawa and Nathan VanderKlippe in Calgary
© The Globe and Mail
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