Canada approves Mackenzie natgas pipeline amid market glut

17 December 2010 14:22  [Source: ICIS news]

TORONTO (ICIS)--Canada’s energy regulator has approved the Mackenzie Valley natural gas pipeline but analysts said on Friday the Canadian dollar (C$) 16.0bn ($15.8bn) project may not be built immediately because of oversupply on North America’s gas markets.

Canada’s chemical industry has been looking to ethane from the 1,200km pipeline, and another planned pipeline project from Alaska, as a future source of feedstock for new petrochemical plants and expansions in the Alberta province.

The country’s National Energy Board (NEB) approved Mackenzie this week, subject to some 260 conditions, after many years of review. The project was first proposed in the 1970s.

Canadian analysts and commentators said that with low North American natural gas prices in the wake of the recent US shale gas discoveries Mackenzie may not go ahead immediately.

However, Aboriginal Pipeline Group (APG), which holds a one-third stake in Mackenzie, welcomed the NEB approval.

Mackenzie and other projects were still needed as Canada’s conventional gas reserves were declining rapidly at rates approaching 20%/year, the group said in a statement.

“This means we will need an additional volume of 3bn-4bn cubic feet/day in Canada alone each and every year, just to supply what we are using today. That’s equal to three Mackenzie Valley pipelines,” it said.

In a separate briefing, APG president Bob Reid said today’s low North American natural gas prices were not relevant for a long-term project like Mackenzie.

“It’s the gas price in the timeframe 2018-2020 right to 2040 that is really relevant here,” Reid said on Canadian business television.

APG believed there would be the need for the gas, at the “right price,” by the time Mackenzie was expected to come into operation at around 2018-2020, he said.

Bill Gwozd, vice president at Calgary-based consultants Ziff Energy also said that Mackenzie remained relevant.

“Shale gas is definitely growing, no argument there, but to offset shale growth you have to look at conventional gas, which is dropping like a rock,” he said.

“On top of that, we have natural gas demand growing,” driven by increasing demand from power generation and the drive to replace coal, he said.

Calgary-basaed Imperial Oil, which leads the Mackenzie Valley pipeline consortium, welcomed the NEB approval. It did not say when construction work would begin. Imperial is the Canadian affiliate of US energy and petrochemicals giant ExxonMobil.

($1 = C$1.01)

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By: Stefan Baumgarten
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