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Fred Carmichael, Gwich’in leader and chairman of the Aboriginal Pipeline Group.Fred Lum/The Globe and Mail

Fred Carmichael was a young commercial pilot eager for business in the North when Thomas Berger issued his landmark report in 1977 that recommended a moratorium on development of the proposed Mackenzie Valley gas pipeline.

Back then, Mr. Carmichael was frustrated by the opposition of his Gwich'in community to the pipeline, and by the insistence of Mr. Berger, then a B.C. Supreme Court judge, that no project should commence until aboriginal people in the North had the wherewithal to participate.

The Gwich'in leader is now chairman of the Aboriginal Pipeline Group (APG), a Calgary-based, native-owned corporation that is partnering with four major oil companies on the current proposal for a $16-billion project that would not only pipe natural gas south, but bring development north.

APG members - including the Gwich'in, the Inuvialuit and the Sahtu - are eager for the pipeline benefits to flow to their impoverished people, but there is an increasing sense of foreboding that an opportunity is slipping away.

"People are getting tired of waiting," Mr. Carmichael said.

"It all comes down to the almighty dollar, and when the producers see that they can make a good return, then things will happen. And until they do, it's not going to happen."

Regulatory delays and rising costs first contributed to the gloom over the fate of the pipeline. Now, there are growing doubts about whether, given the large increase in natural gas reserves in North America, the producers will commit to the northern mega-project without the provision of massive government subsidies.

Booming shale gas production and increase global supplies of liquefied natural gas have swamped the recession-dampened market, driving prices to seven-year lows.

Pipeline proponents led by Imperial Oil Ltd. say they are undeterred by short-term conditions, and remain committed to the pipeline.

Still, the stunning development of huge shale gas deposits further undermines the case for the Mackenzie project, which was already seen as vulnerable to competition from LNG and gas from Alaska. Mackenzie would deliver 1.2-billion cubic feet per day at a cost of $16-billion - roughly a quarter of the Alaska's project capacity but at half the cost.

"For this thing to go, the government is going to have to step forward with great wads of cash - many billions of dollars," said Simon Mauger, manager of gas services for Calgary-based Ziff Energy Group.

"No cash up front, no deal, no pipeline."

Ottawa is now negotiating with the partners - which include APG, Imperial Oil, ConocoPhillips Co., Royal Dutch Shell PLC, and Imperial's U.S. parent, Exxon Mobil Corp. - on a fiscal framework that would include federal support for required infrastructure, such as highways and wharves on the river, and attractive tax benefits.

Northerners were looking to Prime Minister Stephen Harper's recent trip to the territories for a signal of Ottawa's commitment to ensuring the project proceeds after the long-delayed report from a joint review panel is delivered at the end of this year. Instead, Mr. Harper gave it scant mention, even as he touted his government's commitment to northern development.

"One would have thought that if there had been some optimistic talks about the pipe, people on both sides - federal and territorial - would have been speaking out about it," said Doug Matthews, industry consultant and former director of minerals, oil and gas for the NWT government.

The territorial government hopes to win national support for the pipeline, arguing the federal subsidies are critical to opening up a new energy frontier and weaning northerners off transfer payments form the south.

Northwest Territories Industry Minister Robert McLeod meets in St. John's Monday with his federal, provincial and territorial counterparts, and will be looking for support from his colleagues.

St. John's itself affords a stark reminder of the benefits that can accrue from federal subsidies: Newfoundland's booming oil industry got its start after Ottawa took a direct equity stake in the then-troubled Hibernia offshore project, which is currently being planned for expansion.

NWT Premier Floyd Roland said federal support for the Mackenzie pipeline would be consistent with the approach taken in Newfoundland, as well as with the U.S. plan to provide some $30-billion (U.S.) in loans guarantees for the proposed Alaska gas pipeline, which would deliver four times more gas than the Mackenzie line.

Mr. Roland touts the pipeline project as a key to Mr. Harper's Arctic sovereignty strategy because would it bring needed development in the North, while paying for itself in tax revenues paid toe Ottawa and reduced transfer payments to the territory.

"We need to build an economy to build sustainable communities," Mr. Roland said in a telephone interview.

"You can have the rest of Canada helping us through transfer payments, or you can have the rest of Canada be partners with us in developing a stronger economy."

A study prepared for the Aboriginal Pipeline Group concludes that the pipeline would generate some $10-billion in government tax revenues, create 7,100 direct construction jobs in the North and 100,000 person-years of employment in the rest of Canada, and provide new natural gas supplies at a time when Canada's conventional gas reserves are falling rapidly.

Federal Environment Minister Jim Prentice, who has carried responsibility for the pipeline since the Conservatives formed government in 2006, hopes to have a financial deal in place by the end of the year, though he has ruled out Ottawa's direct funding of the pipeline.

"We believe we are making progress on a fiscal framework that will make the project viable," Mr. Prentice said. "We are, however, not there yet."

The project would require natural gas prices to more than double over the longer term, from their currently depressed levels of about $3 (U.S.) per million cubic feet. But the minister said the proponents expect the North American market to tighten as conventional supplies decline in the coming decades.

"The sense is the shale gas that is coming on is necessary in terms of the supply-demand balance in North America in the short to intermediate term," he said. "But over the longer term, we're still going to need to develop the northern basin and that will require the Mackenzie Valley pipeline."

Ziff Energy Group prepared a market assessment for the Aboriginal Pipeline Group, and concluded there would be a market for additional gas supplies in 2020, but that it could be more cheaply supplied by LNG than Arctic gas.

North American gas demand will likely climb by 18 billion cubic feet a day by 2020 as electric utilities turn to cleaner burning natural gas rather the carbon-intensive coal to generate power, Ziff analyst Edward Kinalli forecast. Growing oil sands production would account for as much as 2 bcf/d of that total demand growth; meaning the oil sands could absorb the Mackenzie project's entire 1.2 bcf/d supply.

He expects production of shale gas to grow by 16 bcf/d, but that won't offset the steep decline in conventional production, which is particularly rapid in Canada.

"Even with LNG gas, we're still going to need northern gas to balance our market," Mr. Kinalli said.

However, the $16-billion price-tag for the pipeline is a daunting hurdle, especially given the limited resources that have been found in the Canadian Arctic to date.

The three existing fields contain an estimated 6 trillion cubic feet of reserves, and the companies - Imperial, Shell, and the Conoco-Exxon partnership - have to date only committed to ship 800 million-cubic-feet per day through the 1.2 bcf/d pipeline.

MGM Energy, a small Calgary company, has discovered another 1 trillion cubic feet of recoverable gas. Its president, Henry Sykes, says the company expects to negotiate reasonable tolls for shipping gas on the pipeline once there is agreement to proceed.

The proponents say the pipeline represents a "basin opening" project that would spur more exploration and discoveries in the North. However, Mr. Kinalli said exploration efforts to date have been disappointing, but that it is critical there be significant discoveries in order to boost the commercial value of the pipeline.

But prospects for major finds "are not excellent," the analyst said.

APG's Mr. Carmichael said the project can't be judged solely on whether it will generate oil company profits, though he acknowledged the partners will have to earn a decent return on their investment if they are to proceed.

APG, which has received financial and logistical backing from TransCanada Corp., expects the Mackenzie project to generate some $30-million in dividends for its member communities, as well as jobs and business opportunities. Pending regulatory approval and a government-industry financial agreement, it has lined up Canadian banks to provide loans for its one-third share of costs in the pipeline itself, estimated at $8-billion.

The rest of the $16-billion pays for the gathering system from the fields and field development.

"My whole goal is to see our people become self-sufficient here, with an economic base," Mr. Carmichael said. "And I think this is a great opportunity for the government to make sure this happens."

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Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
COP-N
Conocophillips
+0.35%127.28
IMO-A
Imperial Oil Ltd
+0.7%69.13
IMO-T
Imperial Oil
+0.15%93.43
TRP-N
TC Energy Corp
+1.41%40.2
TRP-T
TC Energy Corp
+1.19%54.44
XOM-N
Exxon Mobil Corp
+1.1%116.24

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