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Financial Post (Canada): Pipeline work halt no bluff, big oil says

Financial Post (Canada): Pipeline work halt no bluff, big oil says

30 April 05

CALGARY – The decision to grind the giant Mackenzie Valley pipeline project to a halt is not posturing on the part of big oil companies, but a warning the project is threatened, two key project partners said yesterday.

Hal Kvisle, chief executive of TransCanada Corp., and Clive Mather, chief executive of Shell Canada Ltd., said the pipeline partners should not be asked to solve the socio-economic problems of the North.

“What we are trying to do is to cost effectively move gas from Inuvik to Alberta. We think it should be done on the same economic basis that occurs in the rest of Canada,” Mr. Kvisle said. “One of the points that we have made to the federal government is there are many pressing social needs in the territories — hospitals, education, dental care, many other things. Local communities have asked the pipeline project to provide all this. We don’t think that is right. We think those are matters between the federal government and the people who live there.”

Mr. Mather said those who believe proponents of the $7-billion project are posturing to squeeze the best possible deal are misguided.

“This project looks threatened,” Mr. Mather said. “Believe me, it’s not posturing. We announced some tough decisions, particularly about halting work. We don’t want to do that, we’d much rather not do that, but frankly we can’t afford to fund the budgets that are involved until there is more certainty. What I hope it will do is signal the depth of the concern we have and the need to find a different way of working.”

Imperial Oil Ltd. and partners Shell Canada, ConocoPhillips and the Aboriginal Pipeline Group, which is financially backed by TransCanada, on Thursday pulled the plug on all execution work related to the project, frustrated with costly demands from aboriginal communities along the pipeline route and mounting red tape.

“While this announcement does not necessarily spell final doom for the project, we believe that the Mackenzie pipeline and related Arctic gas development efforts have now fallen from a probability to a possibility,” Andrew Fairbanks, an analyst with Merrill Lynch, said in a report to clients yesterday. “We do not believe that the partners would engage in this degree of brinkmanship with a $7-billion project simply to gain concessions unless they were truly ready to abandon the effort.”

The project aims to tap badly needed natural gas reserves to help temper supply declines from fields across North America.

The 1,350-kilometre pipeline would cross the lands of four aboriginal groups — the Inuvialuit, the Gwi’chn, the Sahtu and the Deh Cho.

Stephen Kakfwi, a former premier of the Northwest Territories and now a negotiator for one of the groups, said communities are collectively asking for annual revenues of $40-million from the pipeline partners to fund programs such as health and dental care, alcohol and drug abuse, housing, roads and schools.

“There is no way we are going to let a $7-billion capital project go across our lands and face the prospect we will be as poor as we are today,” he said. “We are not asking for billions. We think what Imperial is asking for is unreasonable — they said, ‘We will give you a contract and a few jobs, and be happy with that.’ Imperial will make billions. Who is unreasonable?”

Pipeline proponents said they need Ottawa to step in and make the project a priority. They said there are clear rules and arbitration procedures for accessing lands in other parts of the country for the purpose of building pipelines.

“The regulatory processes have to have backstops,” which are not in place in the Northwest Territories, Mr. Mather said.

Nellie Cournoyea, chair of the Inuvialuit Regional Corp., said royalties and taxes from the pipeline and resource development will flow to Ottawa, so the onus should be on the federal government — not the pipeline proponents — to ensure Northern communities receive their share.

“We think Paul Martin should step in and get this thing solved,” she said.

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