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National Post (Canada): Mackenzie Valley pipe ‘uneconomic,’ report says: $18-BILLION COST

BY IAN MCKINNONBloomberg News

Imperial Oil Ltd.’ s proposed $18-billion pipeline to tap natural-gas reserves in Canada’s Arctic is “uneconomic,” Tristone Capital Inc. said yesterday.

The project may need as much as $2-billion in government financial aid or incentives such as accelerated depreciation to proceed, Calgary analyst Chris Theal says in a report. Failure of Canadian agencies and companies to agree on fiscal terms may delay development by up to 15 years, the report says.

The project’s price tag means it will cost about US$5.78-per million British thermal units to develop 6.1 trillion cubic feet of reserves, Mr. Theal estimates. That’s about 8.4% more expensive than importing supplies of liquefied natural-gas imports, he says.

“Under the current fiscal regime, there is no economic incentive to build the Mackenzie Valley pipeline,” Mr. Theal says.

Imperial, owned 70% by Irving, Tex.-based Exxon Mobil Corp., leads a group proposing a 1,220-kilometre conduit to move 960 million cubic feet a day of Arctic gas to northern Alberta to connect to the North American pipeline grid.

Other partners in the project include Exxon Mobil, Shell Canada Ltd., ConocoPhillips and the Aboriginal Pipeline Group, which represents some northern native bands.

Calgary-based Imperial, Canada’s largest oil company, last month said the project’s cost had more than doubled to $16.2-billion. Mr. Theal said his higher estimate includes allowances for funds used during construction, without elaborating.

Provincial and federal governments may need to offer loans, accelerated depreciation or pay for common infrastructure such as roads, airstrips and barge landings to convince Imperial and its partners to proceed with the project, Mr. Theal says. Such moves may help lower supply costs to below US$5 per million Btu.

At that price, “the Mackenzie Gas Project can compete with alternative supply sources and generate an acceptable rate of return for the project proponents,” the report says.

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