Mackenzie Valley pipeline funding frozen but ‘project not dead’
After months of little-to-no news on northern pipelines, we've had some fairly swift developments on both the Alaska Highway project and now the Mackenzie Valley project. And neither one looks good.With natural gas trading in the mid-$2 range in North America, and (apparently) abundant supplies available in the mainland US, there is very, very little incentive to invest in hugely expensive infrastructure projects to bring gas from Alaska and the Mackenzie Delta. On March 30 we saw the major Alaska North Slope producers announce an agreement that essentially allows for the building of an LNG pipeline and shipment off to Asia, and now today we have announcements from both ConocoPhillips and Imperial Oil that they will no longer be funding development of the Mackenzie Valley line.
The bottom line, as it looks today, will see an LNG plant built on Alaska's North Slope, and a pipeline to carry that LNG south to an Alaskan port (likely Valdez) where that gas will be loaded on tankers and shipped off to where it will earn considerably more money. And there will be no line at all from the Delta (though, intriguingly, if the current market conditions extend too far into the future, there would likely be pressure for an "over the top" line, in reverse, to carry Delta gas to the North Slope for potential export).
This is, essentially, "all she wrote". Amusingly enough, the day before the Alaskan announcement, the Canadian federal government introduced a budget that allotted $47 million to the agency that would oversee an application by TCPL to build the Canadian portion of the Alaska Highway Gas Pipeline. Presumably, that money will now find a more constructive use. We hope.
I can see one plausible scenario that could change this situation. Demand for natural gas is very likely to grow in North America over the next couple of years, simply because it's so cheap here now. As industry moves to take advantage of this, perhaps we'll see a rise in consumption in the coming years.
"Big deal," you might say, "we've got hundreds of years worth of shale gas..." Maybe. The US Energy Department has recently slashed its estimate of the reserves in the Marcellus Shales considerably, and there are some experts--voices in the wilderness, yes, but that doesn't automatically make them wrong--who suggest there are significant problems with fracking, period. Bottom line, gas may not stay this cheap forever. However unlikely it is for gas to reach the $8-$9 levels needed to support these pipeline projects, it's not impossible.
Signing off for now,
Brett Chandler
Whitehorse, Yukon Territory
