INUVIK - Using current natural gas prices, the $16.2 billion Mackenzie Gas Project does not make financial sense. But pipeline observers should take a longer-term view of the project, which is more favourable assuming the project receives federal financial assistance, says the CEO of a southern-based energy advisory group.

"For producers anywhere, it's not economic..." said Paul Ziff of Ziff Energy in Calgary.

But whether the pipeline is economic now hardly matters to Imperial Oil and the other proponents of the pipeline, said Ziff's co-worker and vice-president, Bill Gwozd.

"I think Imperial is looking at projects worldwide where it can capture maximum return for their investment dollars for their shareholders, and it may have to do with prices," said Gwozd. "But I think Imperial is going to be in business in 10 years, 20 years, 30 years, 40 years, so whether they do it in six years or eight years or 10 years, it's all short-term to them."

So where's the silver lining in all this?

As Ziff explained, over the medium term, the outlook for the Mackenzie Gas Project is more positive - provided the federal government chips in.

"New frontiers do not come free, except for diamonds maybe," he said. "Over the medium term, we would think that the project can go. However, it likely would require some government assistance because it's gas, not oil; it doesn't have (natural gas liquids); it's in a virgin green field area.

"So by no means is it a slam dunk. If the companies were deciding on today's price, it would be an instant no. But this is not an enduring price level for gas. It's just very painful for right now."

Last week, the Henry Hub spot price for natural gas - the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange - stood at $3.46 per MMBtu.

"I think there is an argument to be made that, compared to, say, the banks in the US, opening up a new supply region has a place in government policy," said Ziff. "However, it may need to wait for (gas) prices to approach what we would call full cycle cost, which is more in the $6 to $7 (per MMBtu) range..."

The biggest obstacle to the Mackenzie Gas Project is the lack of current infrastructure in the NWT, said Ziff and Gwozd.

Compared to the $35-billion Alaska Pipeline Project - which has some of its infrastructure already in place - the Mackenzie Gas Project has a longer construction period ahead of it.

"You could say that the Mackenzie is 100 per cent green field," said Ziff. "Green field is what they mean when (a project) is starting from scratch as opposed to a brown field where you have some existing facilities that you can modify or build from."

"It's like night and day," said Gwozd of the infrastructure comparison between the two projects. "Alaska does have some mountain ranges to go through, but it will also follow the Alaska highway. That's why they call it the Alaska Highway Project."

Lack of infrastructure only drives up the cost of a project, said Gwozd.

"If you have to barge everything in to build really, really rough roads five miles inland, you've got to build big huge graders. There's time problems. There's weather issues ... If you have better roads, you're going to (reduce) your cost structure.

"In other words, the pipeline folks are being burdened with extra hidden costs that wouldn't be there if it was nice four-lane highway country."

What would happen if both projects underwent construction at the same time?

"That could not happen," said Ziff. "If it happened, then the Canada one would die very quickly, just because the economics favour (Alaska)."

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