Wednesday, March 21, 2007

Mackenzie Valley Pipeline

The not so well understood realities behind the proposed Mackenzie Valley Pipeline.

In the 1970s there was considerable activity in energy business and government circles aimed at the "need" to develop a pipeline to facilitate delivery to market of the massive reserves of natural gas in the Mackenzie River delta on the edge of the Beaufort Sea. Despite the size of those reserves, without a pipeline to get it to market it may as well be left in the ground. And the nearest pipelines into which the natural gas could be delivered were over a thousand kilometers away.(1)

The two prime candidates were the Alaska pipeline and a new pipeline south through the Northwest Territories to link up with pipelines in northern Alberta. At that time the estimated cost to link up to the Alberta pipeline was of the magnitude of $4-billion while the estimate for going west and linking up to the Alaska pipeline was about $16.12-billion. It was obvious, based on these estimates, and despite strong opposition of the native groups over whose land the southbound pipeline would have to cross, that the winning proposal could only be the southbound pipeline. At that stage two possible routes for that pipeline were proposed. Eventually the proposed Mackenzie Valley pipeline was approved, despite still growing opposition from native groups and environmentalists.(5)

This pipeline was, of course, conditional on the Canadian government coughing up a sizable chunk of federal tax money to help defray development costs. At that stage the Canadian government committed to putting in $500-million, one eighth of the overall estimated cost.(4) This money was being put in, however, not in the form of an investment with the potential of payback from the eventual profits of the enterprise. It was, rather, in the form of a development grant, a gift to the large, extremely profitable energy giants partnered in the project. They included Imperial Oil, wholly owned by Exxon-Mobil, the largest and most profitable corporation in the world, Shell and Conoco-Phillips.

In his final report on the proposed pipeline project titled Northern Frontier, Northern Homeland, issued on May 9, 1977, Justice Thomas Berger presciently warned that "....any gas pipeline would be followed by an oil pipeline, that the infrastructure supporting this "energy corridor" would be enormous - roads, airports, maintenance bases, new towns - with an impact on the people, animals and land equivalent to building a railway across Canada."(1) The route for the pipeline would, after all, traverse one of the most delicate and unique landscapes in the world. The type of development Berger was concerned about and warned about in his report is typified by this. "Vancouver-based West Hawk Development (TSXV:WHD) has unveiled plans to strip-mine extensive coal reserves along the Mackenzie River [my emphasis] and begin building $2 billion worth of coal gasification plants to tie into the pipeline within four years."(3)

There is a very important energy sovereignty issue in all of this for the Canadian people. The natural gas extracted from Canadian soil that flows through the proposed Mackenzie Valley pipeline (both pipeline and the natural gas "owned" by U.S. and other multinational energy corporations) will be destined (flow will not start now until, at the earliest, 2014) for one of two purposes. It will feed directly into the pipeline feeding that natural gas into the U.S. market or it will be used in Fort MacMurray to process tar sands to produce synthetic oil to be fed directly into a pipeline to feed the U.S. market. Neither the natural gas in the pipeline or the tar sands oil it will be used to process will have any energy benefit to Canadians. Under the requirements of the proportionality clause in the NAFTA agreement, from which Mexico was exempted and applies only to Canada, Canada has an obligation to continue to supply to the U.S. market each year a proportion of its total oil and natural gas production equivalent to that supplied in the previous three years. That commitment still holds, as long as remain participants in NAFTA, whether or not we would have left after satisfying U.S. demand enough oil and/or natural gas to satisfy our own needs. As Colin Campbell of ASPO put it, "Canadians will be freezing in the dark while their natural gas runs hair dryers in Houston."

The story, of course, does not end there. Exxon-Mobil have this month released new financial data indicating that the cost of the pipeline project has now mushroomed to $16.2-billion. Among other things it is interesting that the real cost now on the table is higher than the original $16.12-billion cost of the competing Alaska pipeline solution which this pipeline beat out because of it's originally estimated $4-billion cost.(6) With this new financial report in hand Exxon-Mobil are crying poor and have gone back to the Canadian government "....looking for a fiscal framework that makes sense for all parties...." this is another way of saying they are looking for another federal government handout (some suggest as much as $2-billion) because Exxon-Mobil "....expect double-digit (percentage) returns on this kind of investment, and we're nowhere near that."(7)(8)

One must ask in all of this what the Canadian people get out of all this currently committed $500-million, let alone any additional money Exxon-Mobil and the consortium they represent manage to extort from the Canadian government. Not only will the natural gas flowing through the pipeline allow for a faster pace in destroying the land around Fort MacMurray but the project, directly and indirectly, will facilitate the wholesale destruction of the Mackenzie Valley watershed, the largest fresh water system in Canada. Any profits from the sale of the natural gas, whether to tar sands projects or in the U.S. market, will flow out of the country to foreign-owned multinationals. And whether that natural gas is used in Fort MacMurray or flows on down into the U.S. it will continue to add to or maintain our commitment to supply more natural gas to the U.S. under the NAFTA proportionality clause. It must be noted that both conventional crude oil and natural gas are already in decline. Forty percent of our domestically-used crude oil already comes from imports. Two LNG terminals are already being built in the Maritimes to make up for the future shortfall in domestic supply.
1. The Mackenzie Valley pipeline
2. Oil companies stop work on Mackenzie Valley pipeline
3. Proposed Mackenzie Valley pipeline spurs Arctic mega-plan
4. Mackenzie Valley Pipeline a Go, But …
5. Mackenzie Valley Pipeline and Alberta Tar Sands
6. The Mackenzie Valley The Mackenzie Valley Pipeline
7. Mackenzie gas line still 'leading case' despite bloating $16.2B cost outlook
8. Mackenzie gas project to cost $16.2B: Imperial Oil

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