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Sunset clause looms over pipeline
Mackenzie Gas Project proponents have until end of 2013 to report decision to construct Mackenzie Valley pipeline

Thandiwe Vela
Northern News Services
Published Monday, June 18, 2012

A sunset clause included in the long-awaited approval certificate of a Mackenzie Valley natural gas pipeline continues to loom over the project, amid a postponement of Mackenzie Gas Project activity.

According to the certificate issued by the National Energy Board in 2011 following a lengthy approval process, unless the NEB otherwise directs, the certificate "shall expire on 31 December 2015 unless construction in respect of the Mackenzie Gas Project has commenced by that date."

In addition, a planning clause states "the Proponent shall file updated cost estimates and report on their decision to construct by 31 December 2013," a deadline, that proponent Imperial Oil Ltd. stated back in 2011 would be "extremely challenging," said spokesperson Pius Rolheiser.

"The sunset clause required construction to begin by the end of 2015 and we indicated at that time that that would be challenging, and that continues to be our position," Rolheiser said, adding "the proponents do intend to comply with that condition, and to report to the NEB on a decision to construct by the end of 2013."

Reporting a decision to construct by the deadline would be challenging because of the amount of work that needs to be done between now and a potential construction start date, Rolheiser said, including about 6,000 permits Imperial would need to have in hand to make the decision. The individual permits for work to build the project include development permits for anything from barge landing to camp, road, creek crossing, and stream crossing.

Meanwhile, permitting work and detailed engineering planning has been halted, amid poor private sector natural gas market economics and lack of a fiscal framework.

"With our partners, we have made a business decision to delay the restart of the project due to the continuing low price of natural gas (below $2)," stated Aboriginal Pipeline Group chair Fred Carmichael in a news release announcing plans to downsize the group's operations.

Effective May 2012, Imperial closed project offices in Norman Wells and Fort Simpson, and downsized the Inuvik office, which remains open.

The Aboriginal Pipeline Group holds a 33 per cent stake in the $16.2-billion, 1,200-km pipeline, with Shell, Imperial, ConocoPhillips Canada, and ExxonMobil Canada rounding out the project proponents.

A suitable fiscal framework, which is the agreement between the project proponents and the federal government on various fiscal terms for the project including taxes, royalties, and potential tolling structures on the pipeline, is "critical" to a decision to restaff the project team and re-initiate project activity, Rolheiser said.

"It's a combination of the structure of government support combined with private sector natural gas market economics, which at this point, just have not resulted in the right commercial opportunity under current circumstances," Rolheiser said.

Imperial continues to be in discussion with the government and continues "to be hopeful that a successful path forward can be found," he added.

The proponent has not yet decided whether it will seek an extension from the NEB on the planning and sunset clauses.

The Mackenzie Gas Project is a proposed 1,196-km natural gas pipeline system along the Mackenzie Valley to connect Northern onshore gas fields with North American markets.

A representative from the Mackenzie Gas Project will be making an update presentation at this week's Inuvik Petroleum Show.

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