Mackenzie pipeline gets thumbs-up

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A decades-old northern dream has taken a major step forward after the panel tasked with reviewing the Mackenzie Valley natural gas pipeline concluded that it should go forward.

The joint review panel, which has spent the past half-decade assessing the pipeline, has concluded that the $16.2-billion project "would deliver valuable and lasting overall benefits, and avoid significant adverse environmental impacts."

While the 679-page report from the panel, released Wednesday afternoon, does not give formal approval to the project to go ahead - that power lies with the National Energy Board - its positive findings mark a big advance.

"It would appear that the JRP has recommended that the project should be allowed to proceed subject to certain conditions. Which, from the proponent's perspective, is obviously a very positive development," said Pius Rolheiser, a spokesman for the project's lead backer, Imperial Oil Ltd.

The report includes 176 recommendations aimed at diminishing the pipeline's impact on the people and environments it would affect. It concludes that the pipeline will "provide the foundation for a sustainable northern future" - one that would be better with this major project than without it. Its recommendations touch on the pipeline's design, as well as on the need for government funding to help protect environmentally sensitive areas and species in the North.

Notably, it recommends a suite of guidelines that would temper the pace of Arctic development, in an effort to avoid "cumulative effects" from multiple projects. It finds that the pipeline would not adversely affect fish, but says that broad regional plans must be created to limit cumulative industrial activity that could hurt animals such as polar bears, caribou and beluga whales. It recommends a new protected area in the Mackenzie Delta, the heart of the Northwest Territories' gas reserves, to protect wildlife and ecosystems.

The panel discarded arguments that the pipeline should be blocked on grounds that it would be used to feed clean natural gas to the oil sands, often seen as a dirty energy source, saying "it is not persuaded" that Arctic Gas would be funnelled to Fort McMurray.

It also recommended that the NWT conclude a revenue-sharing agreement with the federal government, since the territory will shoulder much of the pipeline's infrastructure and related costs but, under current funding structures, "would receive little of the revenue share directly."

The 1,197-kilometre Mackenzie pipeline would bring up to 1.2-billion cubic feet a day of natural gas from onshore basins near the Arctic Coast to the northern edge of Alberta, where it would connect to the province's distribution system. A separate, smaller line would bring liquids from the Far North to an existing Enbridge Inc. pipeline in Norman Wells, NWT.

The pipeline's corporate backers include Royal Dutch Shell PLC , ConocoPhillips Canada , ExxonMobil Canada and Imperial Oil. Together, they have proposed a project that would bring a new age of industrialization to one of Canada's most untouched regions.

Though the pipeline dream has stoked fears of cultural and environmental damage - to sensitive permafrost regions, and the delicate caribou and other species that live there - it has also raised hopes among many northerners who yearn for the economic independence it could help to bring.

The seven-member Joint Review Panel consulted trappers, elders, environmentalists and experts as it sought to assess the social and environmental toll the pipeline would take - and ways to lessen that impact.

Yet in many ways, the most contentious decisions remain to be made. The primary one will come from industry itself, which has to choose whether to build a massive new pipeline whose necessity has been called into question by abundant new North American natural gas supplies.

Two other important decisions will come from the National Energy Board, which will take the review panel report as a recommendation before it makes a final approval decision - expected in September - and the federal government.

Ottawa has spent nearly a year in negotiations with the pipeline's corporate backers on a fiscal package that is likely to include spending on infrastructure and other risk-sharing investments.

Industry has compared the pipeline to the western railroad and the St. Lawrence Seaway, arguing federal support has always been needed for such nation-building exercises.

"We really have to take a basin that has been dormant for decades and open it up, and that's why there's a role for the government of Canada to make that happen," Hal Kvisle, the chief executive officer of TransCanada Corp. , said in an interview in November. "If we could get through that, the Mackenzie story is going to be a great story for Canada for a long time."

Yet the financial package has yet to be finalized, raising questions about Ottawa's willingness to authorize substantial spending at a time when tens of billions have already been poured into stimulus spending - and the viability of the pipeline itself has been called into question.

Environment Minister Jim Prentice, who has overseen the Mackenzie process, could not be reached for comment on Wednesday. An Environment Canada official said the ministry would not respond until it has completed "the necessary analysis and consultation."

Ultimately, industry will have to decide whether to embark on the most expensive private construction project in Canadian history now that technological advances have allowed the tapping of expansive shale gas fields once considered impossible to produce. Some now believe North America has enough gas to supply current demand for a century, with no need for Arctic gas.

Mr. Kvisle, however, has argued that shale won't be able to fill all of the continent's gas needs. Imperial parent Exxon Mobil Corp. , too, has shown a real appetite for natural gas, throwing its support behind an Alaska pipeline and buying up extensive reserves in north-eastern British Columbia and the U.S., with its recent $31-billion (U.S.) buyout of XTO Energy Inc.

Still, the Mackenzie pipeline dream has been doused before.

Its first incarnation was blocked in the mid-1970s by Justice Thomas Berger who, after hearing from northern First Nations not ready for a major industrial development, recommended a 10-year moratorium.

But the idea was rekindled in 2000, when gas prices spiked and a group of companies led by Imperial Oil began to reassess the project. Northern First Nations, many of whom had gained significant autonomy in the intervening years, quickly stepped up to request a stake in the project. They were eventually granted a one-third ownership, with some funding for the Aboriginal Pipeline Group coming from TransCanada Pipelines.

The key obstacle has been gaining environmental approval. An arduous review saw officials hold dozens of consultations in tiny northern communities and spend years writing a final report. In the meantime, the project's estimated cost has risen from $3-billion to $16.2-billion.

Negotiators have reached agreement with four of five First Nations whose land the pipeline would cross. They have not yet struck a deal with the Dehcho First Nation, who claim an area comprising 40 per cent of the pipeline route.

Most northerners support the project. Many have spent significant sums of money to prepare for its coming, and may face serious economic loss if it is not built. The Northwest Territories government has warned that the package must be finalized in coming weeks, ahead of the spring budget, or the pipeline could fail and the territory could face a "doomsday scenario" that would leave its economy "in ruins."