Roxanna Thompson
Northern News Services
Friday, March 16, 2007

FORT SIMPSON - The cost of the proposed Mackenzie Gas project is now pegged at $16.2 billion, almost doubling previous estimates, according to new information from Imperial Oil.

When the proponents first filed for project approval in October 2004 the pipeline project was expected to cost $7.5 billion and be finished by 2010. Imperial Oil now estimates that gas will move through the pipeline by 2014 at the earliest.

On March 12 Imperial Oil filed an updated project cost estimate and schedule information with the National Energy Board (NEB) and the Joint Review Panel (JRP).

Despite the increased costs, Pius Rolheiser, a spokesperson for Imperial Oil said they are still committed to the project.

"It certainly makes the project all the more challenging," Rolheiser acknowledged. "We continue to be hopeful that the project will be built and we'll continue our efforts to see how we can make it go forward."

The increased costs are derived from three factors, said Rolheiser. The largest increase, about 50 per cent, comes from cost escalation of materials, equipment and labour. An improved understanding of the planning and execution of the project accounts for 40 per cent of the cost increase. The final 10 per cent is attributed to the complexity and delays related to the regulatory and access process.

The $16.5 billion price tag breaks down to $3.5 billion for the gas gathering system, $7.8 billion for the pipeline and $4.9 to develop the gas fields to feed the pipeline.

The new completion date of 2014 for the gas to be moving in the pipeline is based on a number of assumptions.

The first is that the project will receive regulatory approval with acceptable conditions from the NEB and the JRP, said Rolheiser. Realistically, 2008 is the earliest that a regulatory decision is expected to be made.

The proponents including Imperial Oil, Shell Canada, ConocoPhillips Canada, Exxon Mobile and the Aboriginal Pipeline Group won't be in a position to make a final decision on whether the pipeline will be built until after regulatory approval is received, he said.

Following that, the project will still need to gain the thousands of other permits needed for everything from barge landings to stream and river crossings, said Rolheiser.

The new schedule also assumes proponents will not be in a position to make a decision to proceed in time to capture the 2009-10 winter construction season. The construction schedule is based on three full winter seasons for the pipeline as well as a fourth prior to that for constructing facilities like barge landings and camps.

The increased cost of the pipeline and the revised schedule for completion are a concern for the Aboriginal Pipeline Group (APG).

"Increased cost and further delay are certainly not good news for us," said Bob Reid, the president of the APG.

The time delay is of particular concern to the APG, one of the project's proponents, because they can't deliver dividends to their shareholders until the pipeline is functional. It does, however, also delay the need for financing for construction for a few years.

The APG and other proponents would like to see the federal government provide support to improve the overall economics of the project, said Reid.

"Without the pipeline there is no APG," he said.

In the short term Imperial's focus will be on fiscal discussions with the federal government and completing the regulatory process, said Rolheiser.

Work will continue on negotiations for access and benefits agreements with aboriginal groups as part of the process to move the project forward, Rolheiser said

Imperial is at varying stages of progress with groups. Ratified, signed and executed agreements have been reached with the Gwitch'in settlement region, and the Tulita-Deline region. The Inuvialuit have an agreement-in-principle and progress is being made to turn it into a completed agreement, said Rolheiser. The K'asho Got'ine have a negotiated agreement, but Fort Good Hope hasn't ratified it yet. Meetings are continuing to help them understand the agreement, he said.

Work with the Dehcho First Nation is at a much earlier stage. There is no agreement-in-principle, but negotiations are continuing, he said.

"Our goal remains to have a signed benefits and access agreement with all communities by the time we are in a position to make a project decision, said Rolheiser.