March 2, 2011 / 8:54 PM / in 7 years

Arctic gas line backers plan new talks with Ottawa

CALGARY, Alberta (Reuters) - Oil companies behind a C$16.2 billion ($16.7 billion) plan to build a gas pipeline from the Canadian Arctic expect to restart talks with Ottawa shortly over financial support in hopes of striking a deal by mid-year, the head of one of the partners said on Wednesday.

The players have scheduled a conference call for next week to hammer out a timetable for the discussions, seen as crucial to the Mackenzie pipeline project’s success, said Bob Reid, president of Aboriginal Pipeline Group.

Backers of the long-delayed development won regulatory approval in December and are now awaiting a final nod from the federal cabinet.

“There’s a conference call set up for next week to try and schedule the re-engaging, and we want to do that -- we want to get back and get this thing done,” Reid told reporters after speaking to a Canadian Institute Arctic gas conference. “It is absolutely urgent from our perspective.”

Now several years behind its initial schedule, the Mackenzie project is under economic pressure due to high construction costs and questionable returns due to weak gas markets as the industry develops cheaper shale gas reserves across North America.

Reid, whose native-owned company has a one-third stake in the proposal, said the current target calls for completion of a fiscal deal by the end of the second quarter.

That would trigger a decision among the partners to restaff the project and resume detailed engineering and field work along the route through the Northwest Territories, which was suspended in 2007 as the regulatory process stalled.

In its approval, Canada’s National Energy Board said the partners, led by Imperial Oil Ltd and including some of the world’s largest oil companies, must make a go-ahead decision by late 2013.

The line would carry up to 1.2 billion cubic feet of gas to Alberta’s pipeline network from the Mackenzie Delta on the coast of the Beaufort Sea. The current start-up estimate is 2018, although Reid cautioned that any delays in the steps leading up could push that back yet again.

The Northwest Territories government and native groups have been anxiously awaiting construction of the line, first envisioned in the 1970s, as a way to boost economic activity and create jobs.

Before suspending discussions amid the regulatory delay, the Mackenzie partners and federal government tried to hammer out a multibillion-dollar deal to improve the economics.

It would include such measures as public funding of roads, airstrips and other infrastructure in the sparsely populated and largely undeveloped region.

Reid said the partners want the federal government to consider loan guarantees, which would cut the hefty cost of capital by improving ratings on the debt. That would allow lower transport tolls.

For the much-larger Alaska pipeline proposal, the U.S. government has committed to $18 billion in loan guarantees.

“If you take an A rating, which we would get with this collection of companies right now, and improve that to an AAA rating, you could reduce the toll by $1.50 (per million British thermal units). That’s how sensitive it is. It’s huge,” he said.

The backers also want some way to offset the high costs of the six-year regulatory process, Reid said,

The other partners are Royal Dutch Shell Plc, ConocoPhillips and Exxon Mobil Corp.

($1=$0.97 Canadian)

Editing by Rob Wilson

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