Mackenzie pipeline approved

The National Energy Board has given a conditional stamp of approval to the $16.2-billion Mackenzie Valley natural gas pipeline.

"We have decided that the project is in the public interest," the board ruled Thursday afternoon.

The approval, which must still be signed off by the federal Cabinet, is a major step forward for a project that has been many years in the making. And though its backers have said it will take years to decide whether to actually build the line - and skeptics question whether it will happen - a Mackenzie gas line continues to be a source of great hope to northern Canada.

It will, if it is built, be the single-largest private investment in Canadian history, and open the door to a major new industrialization of the North.

"The National Energy Board has given the Northwest Territories an early Christmas present today," said Bob McLeod, the territory's Minister of Industry, Tourism and Investment, in a statement. "This is an important milestone for a project that could provide significant economic and environmental benefits for the Northwest Territories and for Canada."

The NEB approval contains 264 conditions, which it says will "require the companies to undertake a large number of activities and consultations," but which drew immediate criticism from environmental groups.

Among the most important condition is that Imperial Oil Ltd., which has led efforts to build the line, must decide by the end of 2013 whether or not it will build the line. The NEB rejected a request from Imperial asking that it have until 2016 to begin construction.

"Actual construction must begin by the end of 2015 for our approvals to remain valid," the board wrote. It also required Imperial to file a toll for the line by the end of 2011.

Imperial spokesman Pius Rolheiser said "that date will prove to be challenging for us. And it'll be dependent on how long it takes to reach agreement with the federal government on fiscal terms."

Still, he said, "we're pleased to be receiving this. It's the culmination of a long process and a lot of work. But there remains much more work to be done before we're in a position to make an investment decision."

Environmental groups, however, lashed out at the NEB for failing to force companies to manage cumulative effects and climate change.

"Good thing that the Mackenzie gas project is already dead, because the NEB's decision is a huge step backwards," said Stephen Hazell, an environmental lawyer with Sierra Club Prairie. "The NEB refuses to take any responsibility for directing that Mackenzie gas be used to displace more carbon-intensive fuels."

For nearly a decade, Imperial has led the attempt to win approval for the 1,196-kilometre pipeline, along with a consortium that includes Shell Canada Ltd., ConocoPhillips Canada (North) Ltd., Exxon Mobil Corp. and the Aboriginal Pipeline Group, whose one-third stake has been funded by TransCanada Corp. Together, they have spent hundreds of millions of dollars advancing the project.

In its approval, the board said it pondered "whether the North and Canada would be better off with the project than without the project. We find that the North and Canada would be better off with the project."

Though the Dehcho people, which claim 44 per cent of the pipeline route, continue to oppose it, the board said it believes the Mackenzie pipeline "would contribute to strong, self-reliant communities that continue to care of the land and the people in the North."

"We were told that people in the Mackenzie Delta have waited more than three decades to see their natural gas resources developed, and we should not stand in their way," the NEB wrote.

A Mackenzie pipeline has been among the most enduring visions of a future where the North becomes an important part of the Canadian energy portfolio. Unlike the U.S., which has made Alaska oil has been a key supply source, Canada has yet to develop more than a trickle from its Arctic reserves.

Building a line down the Mackenzie River would solve that problem - and the idea has, in the past decade, gained considerable favour among many northern aboriginal groups, who see its enormous capital requirements as a ticket to step away from government dependency. But the pipeline has proven to be one of corporate Canada's more difficult goals to achieve. An attempt in the 1970s was stymied by a 10-year delay proposed by B.C. Supreme Court Justice Thomas Berger, who conducted an inquiry in numerous small northern towns, and was convinced that the region, with its unsettled First Nations and Inuit issues, was simply not ready.

When aboriginal groups announced in January, 2000, that they were prepared to try again, industry soon followed suit. Imperial filed a regulatory application in 2004; hearings began in 2006. But what was initially supposed to be a 10-month process stretched into years.

In that time, the economics of the project shifted radically. A $5-billion pipeline became a $16.2-billion undertaking. Natural gas prices, which vaulted above $14 (U.S.) per thousand cubic feet in 2006, have now fallen to just over $4. Industry's new-found ability to tap huge shale deposits has erased fears of a natural gas shortage, and replaced them with fears of a glut.

Environmental groups say engineering realities could also have helped raise questions about the project.

"The proponents will never admit this," said Mr. Hazell, the environmental lawyer, but "they learned through the JRP process just how high the costs will be to lay and operate a buried high-pressure gas pipeline through unroaded permafrost country that will be in upheaval as global climate change takes hold."

The JRP, or joint review panel, was formed to examine the social and environmental impacts of the Mackenzie project. It concluded last December that the project "would deliver valuable and lasting overall benefits and avoid significant adverse environmental impacts."

However, many of the conditions it suggested were rejected or watered down by the federal government in a response made last month.

Ottawa also has yet to sign a fiscal agreement with the project's backers that would provide monetary support, which is seen as key to Mackenzie's potential success. That support has been controversial. Alberta gas companies, for example, have chafed at the idea of the federal government providing financial help to Imperial, which is 70 per cent owned by Exxon, while they are suffering.

But the project continues to maintain the support of some key backers, including the Alberta government.

"The Mackenzie valley pipeline has significant benefits to Alberta," said Alberta Energy Minister Ron Liepert on Thursday. Because of the decline in natural gas prices, our transportation costs are increasing because our line capacity is down. Anything we can do to fill the pipes is good."

Arctic gas could also provide a good feedstock for Alberta's petrochemical industry, he said.

Still, Mr. Liepert raised the question most likely to dominate the debate in coming years: after a decade of pushing a project that now appears to be on an uncertain footing, will anyone build Mackenzie?

"The decision is one thing," Mr. Liepert said. "It will be the proponents who decide whether it's economic, and when it becomes economic."

With a file from Josh Wingrove