Yellowknife (Jan 24/05) - It will be at least nine years before companies could tap into $63 billion worth of natural gas around Melville Island, but plans are already being made on the best way to get it south.

A new report put out by the Canadian Energy Research Institute (CERI) suggests the most cost effective way would be to ship it south through the proposed Mackenzie Valley natural gas pipeline.

"The study was undertaken with an understanding that liquefied natural gas (LNG) is in a strong growth phase, with new import capacity to bring in LNG from many sources is allowing for reduced capital costs for LNG plants and greater availability for porting," said Giles Morrell, senior petroleum geologist with the oil and gas management department of Indian and Northern Affairs Canada.

The most cost-effective manner of transporting the gas to market would be to compress it and ship it to a compressed natural gas facility connected to the Mackenzie pipeline, said Luke Chan, senior economist with CERI.

According to the report, one billion cubic feet per day of Melville natural gas could be shipped through a Mackenzie pipeline. The report assumes a number of facilities would be in place in the Beaufort-Delta after the pipeline is constructed for storage of compressed natural gas.

Presently, plans are to start up the Mackenzie Valley pipeline at 800 million cubic feet per day and expand capacity to 1.2 billion cubic feet per day and later to 1.9 billion cubic feet per day from fields around the Mackenzie Delta, said Chan.

Hart Searle, spokesperson for the Mackenzie Gas Producers Group, says it can't afford to build a pipeline big enough to accommodate potential gas shipments from the High Arctic.

"This is currently a project that faces challenging economics ... Mackenzie Delta gas is a long way from market ... and is currently a challenge in terms of making this an economically viable project. If you overbuild at the outset, you increase the cost and the potential tolls the shippers would have to pay, and that renders the project even less economic," he said.

Searle added, in the future, there may be some way to accommodate gas from the Beaufort and the High Arctic but "in our judgment that market is not presently there."

Susan Braungart, spokesperson for PetroCanada which holds the licenses for the fields, says the company has no immediate plans to bring the gas to market at this time.

"We recognize the large resource base and continue to monitor the development potential. At this time the high cost associated with development of it and the high transportation costs continue to make it uneconomical at this time," she said.

If there isn't enough capacity, alternatives other than the use of the Mackenzie pipeline could be used, said Chan.

They include liquefying the natural gas to ship it via Arctic class supertankers to either Nova Scotia, New Brunswick or Greenland. A variety of different methods could be used to transporting the gas but in the case of Greenland, the gas would be transferred from ice breakers to regular ocean-going vessels and then proceed south, providing a more cost-effective manner of transport.

A realistic time frame for delivery of the gas is in the 2014 to 2020 range, said Morrell.

Chan also said industry likely won't tap into the High Arctic fields alone.

"There will be some level of government involvement. I'm not saying there has to be government subsidies, but there will be government involvement."