January 19, 2009 / 8:56 PM / 9 years ago

Federal government offers financial backing for Arctic pipeline

4 Min Read

CALGARY, Alberta (Reuters) - Canada has offered financial support for a C$16.2 billion ($13 billion) Arctic gas pipeline, the country's environment minister said on Monday, aiming to revive a struggling proposal to tap vast northern reserves with industry conditions worsening.

The offer to Imperial Oil Ltd and the other backers of the Mackenzie Gas Project would include chipping in money for infrastructure, such as roads and airstrips, as well as pre-construction expenses, Jim Prentice said.

The minister declined to give the deal's value, but said it does include sharing in the project's risks and returns.

"You're speaking of one of the world's last remaining hydrocarbon basins. This is Canadian and it's important that it be developed and brought on stream in a way that is acceptable to the government of Canada as the owner of the resource," Prentice told reporters.

"So, from that perspective, it is extremely important and it does relate to our overall sovereignty in the North and to our economic plans for the North, and to the people who live there."

Imperial and its partners first submitted a financial plan to Ottawa asking for fiscal breaks 13 months ago. At the time, Prentice said the Conservative government had no interest in owning any part of the project or in subsidizing oil companies.

The head of one of the consortium's partners said the offer in no way represents a bailout of the languishing project and there is no discussion about the government taking an equity stake.

"Nor is it in any way a subsidy," said Bob Reid, president of Aboriginal Pipeline Group, which represents several native communities that would have part ownership. "This is a discussion of financial assistance and backstopping that the government could possibly provide to allow the project to move forward."

The 1,220 km (760 mile) Mackenzie line would ship up to 1.9 billion cubic feet of gas a day to the Alberta border from the Mackenzie Delta on the Beaufort Sea coast. There the gas could be routed on existing lines to Canadian and U.S. markets.

The project has suffered numerous delays while regulators held an epic string of public hearings across the huge region and materials and construction costs soared.

Its last setback was in December, when one of two regulatory panels said it expected to deliver its report in late 2009, months later than expected.

Now, natural gas prices have tumbled to lows not seen in more than two years, putting more pressure on the plan's viability. However, Prentice said short-term markets would not determine if the project comes to fruition.

Still, a planned $26 billion pipeline that would run to the Alberta border from Alaska's North Slope presents a competitive threat, he said.

"We're mindful of the time distance between the Alaska project and the Mackenzie project. This is something that we need to be cognizant of," Prentice said.

Imperial is not yet ready to comment on the federal offer, company spokesman Pius Rolheiser said.

"But we look forward to a continuing constructive dialogue with the government on a structure that would enable the project to move forward," he said.

The other partners in the project are Royal Dutch Shell Plc, Exxon Mobil Corp and ConocoPhillips. Small explorer MGM Energy Corp, which has contracted for space on the line, is also involved in the talks.

($1=$1.25 Canadian)

Additional reporting by Scott Haggett; editing by Rob Wilson

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