SOMBA K'E/YELLOWKNIFE - The Mackenzie Gas Project (MGP) will begin operations in 2018 at the earliest, pushing back construction of the $16.2 billion pipeline to sometime after 2013, according to Imperial Oil and its pipeline partners.

Imperial Oil and its pipeline partners began conducting engineering studies and field work related to the pipeline several years ago, but that work was halted in 2006 due to the slow pace of the regulatory process – one of several reasons the proponents cited for the revised timeline. Here, the partners undertake a geotechnical and soil data collection program a Taglu, one of the three anchor fields that will supply natural gas to the pipeline. - photo courtesy of Imperial Oil

But the GNWT says it remains optimistic about the project given the positive natural gas market outlook also filed by the proponents.

In a timeline and supply and demand analysis sent to the National Energy Board (NEB) last week, the proponents, led by Imperial Oil, wrote, "The project proponents believe that, by late 2013, they could be in a position to decide whether or not to proceed with the Mackenzie Gas Project.

"The resultant earliest possible start-up of the project would be 2018."

In March 2007, Imperial Oil told the NEB the earliest the pipeline could start up was 2014, but the GNWT never had much confidence in that original timeline anyway, said Doug Doan, assistant deputy minister of Industry, Tourism and Investment.

"Even the latest announcement, it's really an estimate and there' still some additional discussion that's going to happen at the National Energy Board hearings, so even that date of 2018 - how certain that is - remains to be seen, too," said Doan.

The NEB's final hearings on the pipeline are scheduled for April 12 to 17 in Yellowknife and in Inuvik from April 20 to 24.

The proponents - a group that also includes Royal Dutch Shell PLC, ConocoPhillips, Exxon Mobil Corp and the Aboriginal Pipeline Group. - remain upbeat about future demand for natural gas and the pipeline's role as a supplier to U.S. and Canadian markets.

"Natural gas consumption is expected to continue to grow, led by the accelerating gas demand for power generation, and the gas requirements for oil sands bitumen production and upgrading," read the proponent's analysis.

"The filing wasn't fundamentally about the timeline," said Doan. "The filing fundamentally was to refile in defence of the economics of the project. In that particular context, the material that was filed by Imperial does in fact speak to the economics as continuing to be favourable and that, in fact, the demand for gas will outstrip supply out to somewhere in the 2030 (range). There's some very positive news in that filing."

Minister of Industry, Tourism and Investment Bob McLeod has repeatedly stated his belief, based on conferences with pipeline proponents and United States congressmen, that demand for natural gas in North America will remain strong enough to warrant the construction of both the Mackenzie Valley pipeline and the Alaska Pipeline Project, suspected by some to be a rival to the MGP.

The GNWT's position remains unchanged, said Doan.

"I think the Mackenzie Gas Project is in a more advanced stage," he said. "Certainly any discussions we have had continue to reflect the notion that the market demand out there is sufficient for both, and the Mackenzie is going to go first. I haven't seen anything that's changed that."

The start-up delay was not a surprise to Denny Rodgers, mayor of Inuvik, either.

Rodgers said even though construction of the pipeline - which is predicted by Imperial Oil to take four winter seasons - has been delayed, a green light for the pipeline from the NEB this fall would spur the return of oil and gas exploration near his community in the meantime.

In 2008, MGM Energy Corp. drilled three wells north of Inuvik, spending $70 million and employing around 200 people, 40 per cent of them from Inuvik. It was the only company to conduct work in the Delta.

This year, the company sat things out, pointing its fingers squarely in the direction of the slow regulatory process for the pipeline.

"Once there's a positive outlook, once we know for sure that this pipeline is a go, companies like MGM are going to come back to the Beaufort Delta to do exploration work," said Rodgers.

In their latest submission, the proponents cited regulatory delays, lack of a fiscal agreement, project restaffing requirements and seasonal constraints as the primary reasons for the project's four-year delay.

As Pius Rolheiser, a spokesperson for Imperial Oil, told News/North, engineering studies on the pipeline were halted in 2006 due to the regulatory delays; resuming those will take time.

Rolheiser also pointed out that in addition to project approval from the NEB, there are numerous permits required for construction of the pipeline.

"It's literally hundreds of permits," said Rolheiser, adding that actual construction of the pipeline would likely begin "shorty after" a decision to construct.

In the opinion of Rodgers, what the projects needs is a fiscal arrangement from the federal government.

Negotiations with the feds are confidential, said Randy Ottenbreit, Mackenzie Gas Project development executive for Imperial Oil, though adding, "They continue and we hope to be successful."

Last year, President Barack Obama said the United States will offer $30 billion in loan guarantees to proponents of the $26-billion Alaska Pipeline Project.

Imperial Oil's filings to the NEB did not include a revised cost estimate for the MGP, but costs may have actually gone down, said Ottenbreit.

"The reason is that the time we developed the last estimate ... reflected a pretty busy construction environment in western Canada," he explained. "So the costs of things were higher. The prices of some materials have come down since that time, but the prices of other things haven't come down."