Jack Danylchuk
Northern News Services
Monday, June 4, 2007

YELLOWKNIFE - Territorial politicians united Thursday questioning whether the federal government should spend up to $2 billion to keep the Mackenzie Gas Project from sliding off the national agenda.

"Yes," said Brendan Bell, GNWT investment and trade minister and Western Arctic MP Dennis Bevington agreed - provided taxpayers get an ownership stake in the $16.2 billion project.

"Instead of handing out corporate welfare to a company that just posted its largest profit ever, (the) government should become a partner in the project,"Bevington said last Thursday in a statement to the House of Commons.

As partners, "average Canadians will actually see a return on their investment rather than the loss they would see by just handing over more tax and royalty breaks to an industry that already gets over a billion dollars worth of similar concessions.

"This project is in the national interest, but Canada cannot allow itself to be bullied into giving more corporate handouts," Bevington said.

Bell and Bevington were responding to comments by Rex Tillerson, the head of Exxon Mobil Corp., who told company shareholders last week that the Mackenzie Valley Pipeline will be shelved unless the project gets significant help from Canadian taxpayers.

"We are now in a situation where it's not economic at current costs, "Tillerson said, noting the tremendous inflation that has plagued oil field construction projects.

He said it is not clear if Ottawa will come forward with a package of royalty and tax breaks large enough to provide the project sponsors with a decent rate of return.

"It may just be that the project is going to have to wait for a different cost environment," he said.

Bell said the territorial government hasn't taken a stand on Ottawa taking an equity position, "but at first look there is nothing that seriously concerns us about an equity position. It may be more palatable to think that there might be some upside for taxpayers.

"We think its in the interests of Canadians to advance this. The federal government should be looking at all possible avenues," Bell said.

"We've stopped short of saying there should be a subsidy paid to producers, but an infrastructure contribution from the federal government for docks and roads would bring down the cost of the project to Imperial."

Bell acknowledged that "$2 billion is a significant demand, but it's necessary to look beyond the initial cost of the pipeline. This is a basin-opening project. There is all kinds of potential in Mackenzie Basin, offshore and onshore. This project is not going to get any cheaper if we wait. I think we need to get this done. There is significant political support for the project. We need to move forward."

Andrew Potter, a UBS securities analyst, said it has been clear for some time that Imperial was unwilling to move forward with the project unless it gets generous tax and royalty breaks from Ottawa.

The global investment analyst added that the federal government is hesitant to be seen as providing subsidies to the world's most profitable oil company but, at the same time, is eager to see the project proceed because it would open the North to further natural gas development.

"It's a strategic project for the nation; it's a strategic project for North American gas supply," he said.

Soaring costs also may make the tapping of Alaskan gas fields too expensive to pursue, Tillerson said. Exxon Mobil and its partners in an Alaskan gas project estimated three years ago that building a pipeline to the North Slope would cost $22 billion to $25 billion.

"My expectation is if we went back and looked at the costs again, they would have gone up dramatically," Tillerson said. "It involves lots of steel, lots of compressors, lots of valves, all the same things you need for the Canadian project."