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Shell Canada CEO not spooked, not panicked

Petroleum News: Shell Canada CEO not spooked, not panicked

18 June 2005

Mather not worried about competition from LNG imports, doesn’t buy talk that Mackenzie window could close by late July

Gary Park

Petroleum News Canadian Correspondent

Shell Canada’s boss is not about to join the ranks of those who fear liquefied natural gas projects in Canada will topple the Mackenzie Gas Project.

Neither is he about to set a “drop-dead” deadline for the C$7 billion Arctic venture.

Chief executive officer Clive Mather left no doubt June 9 that Shell Canada is fully committed to standing behind its 11.2 percent interest in the Mackenzie consortium and, to that extent, doesn’t agree with those who think the window of opportunity is about to close.

Neither is he losing sleep over the rapid progress on two LNG projects in Atlantic Canada – the joint Irving Oil-Repsol terminal in New Brunswick and Anadarko’s Nova Scotia plant.

“I don’t see LNG as a direct competitor to those northern gas fields,” Mather told reporters after speaking to the Calgary Chamber of Commerce.

“They’re very different forms of energy supply … the infrastructure requirements are different,” he said.

Others see LNG as threat to Arctic gas

In both respects, he is taking a higher road than Murray Smith, Alberta’s former energy minister and now head of the province’s trade office in Washington, D.C.

Smith has issued blunt warnings that unless the Mackenzie project gets back on track by the end of July it faces being shouldered aside by LNG imports or the Alaska gasline.

Christopher Theal, an analyst at Tristone Capital, shares the view that a major influx of LNG by the end of this decade increases the chances of the Mackenzie project being delayed “for a significant period of time.”

Hopes for step change by fall

Although less pessimistic, Mather does not absolve the Canadian government of the need to “unblock the (Mackenzie) regulatory processes, so we can actually get this thing started again.”

“We are using the summer to talk to key stakeholders,” he said. “I hope that by the time we get through to the fall we can see a step change.”

With an 11.2 percent interest in the Mackenzie consortium and a 100 percent ownership of the 1 trillion cubic foot Niglintgak discovery, one of the Mackenzie’s three anchor gas fields, Shell Canada regards the undertaking as a “very, very important project.”

However, the consortium partners (Imperial Oil, ConocoPhillips Canada, ExxonMobil Canada, Shell Canada and the Aboriginal Pipeline Group) are not prepared to deal with aboriginal demands and lawsuits running to “hundreds of millions of dollars.”

“We couldn’t afford to carry on burning money the rate we were,” Mather said, explaining why project execution activities were suspended in April.

The land and benefits claims made by First Nations along the pipeline route “fall legitimately to governments rather than to the economics of the project because if we overload the project the result is certain … it won’t stand up economically,” he said.

Encouraging signals

Although the pre-work has been halted, there have been some encouraging signals.

The federal government and other affected groups are now working with the Mackenzie partners to tackle unresolved issues.

The government has also assigned additional staff to the project and is “working with us to try and move this thing forward,” Mather said.

For the second time this month, Smith told a Calgary audience June 7 that the Mackenzie pipeline is “not a slam dunk at this stage.”

He said that if the project loses “impetus, compared to the speed (with which) the Alaska line could be built, I would fear that the (Mackenzie) pipeline would lie dormant for another generation.”

Smith said U.S. gas markets will “wait for no-one … they reward the first one and the best one there.”

The Mackenzie project is “absolutely critical” to the North, Alberta and Canada and “I would hope that we could find regulatory solutions over the summer that would allow it to go ahead,” he said.

LNG projects gather pace in Canada

Whether or not they spell trouble for Arctic gas plans, two liquefied natural gas projects for Atlantic Canada are quickly moving beyond the pipe-dream stage.

A partnership of two privately-held companies – New Brunswick’s Irving Oil and Spain’s Repsol wrapped up a deal June 7 to build the Canaport terminal and regasification plant near Saint John, New Brunswick.

The C$750 million facility is expected on stream in 2008, with a peak send-out target of 1 billion cubic feet per day.

To ensure the project goes ahead, the New Brunswick government has granted the partners a special property tax rate of C$500,000 per year for 25 years – about one-tenth of what would normally be charged.

In neighboring Nova Scotia, Anadarko has the wheels in motion for a summer start on construction of its Bear Head project.

Gas should flow from the C$650 million terminal at the rate of about 1 billion cubic feet per day in 2009.

In its effort to lock up that project, the Nova Scotia development agency sold 173 acres of government-owned industrial property for a modest C$4.62 million.

Nova Scotia Premier John Hamm said Anadarko is spending heavily on engineering, “so for all that I can learn they’re moving forward. I’m confident the commitment is there”

Anadarko said earlier this month that it is also in talks with Maritimes & Northeast Pipeline to secure most of the planned addition of 1.5 billion cubic feet per day to the M&NE pipeline from offshore Nova Scotia to New England.

The Houston-based company said as much as 85 percent of the 1 billion cubic feet per day of LNG it plans to import to Bear Head will end up in the United States.

If it turns into a struggle for survival between the two, some analysts give the edge to Irving-Repsol because of the Spanish company’s plan to exclusively source the LNG from its operations in 25 countries.

Repsol is also eager to establish a base in Atlantic Canada because of the proximity to large markets in the U.S. Northeast.

Also moving ahead are plans to build a C$500 million LNG plant near Kitimat, British Columbia, by Kitimat LNG, an offshoot of privately-held Galveston Energy.

The plans are now being examined by B.C.’s environmental assessment office, which has started a 180-day review.

Kitimat president Rosemary Boulton told reporters that the economics of distributing 610 million cubic feet per day from the northern port are “making sense” if a supply contract can be reached with the Sakhalin Island project.

She said Alcan, Methanex and Eurocan could each become major customers, while pipeline networks open up access to British Columbia, Alberta, the U.S. Pacific Northwest and California.

Kitimat has secured C$50 million in financing and hopes to start operations in 2008.

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