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Gas Supply:Too little, Too late?

Fortnightly Magazine - September 2004

at once, rather than in a fragmented, incremental manner."

If enacted, the legislation would be good news for proponents of the Alaska Highway route, but bad news for Enbridge. The bill includes language that effectively blocks the Northern route, prohibiting federal approvals for "any pipeline that follows a route that: (1) traverses land … beneath, or the adjacent shoreline of, the Beaufort Sea; and (2) enters Canada at any point north of 68 degrees north latitude"-the latitude of Inuvik, Northwest Territories, just south of the Northern route's proposed landfall, and near the northern anchor point for the Mackenzie Valley pipeline project.

This is significant because even as the U.S. Congress considers closing the door on Enbridge's Northern route, the Mackenzie project is proceeding steadily. The project, sponsored by a group of companies led by Calgary-based Imperial Oil Resources, is expected to connect about 6 Tcf of stranded gas in Canada's Arctic frontier through the Northwest Territories and into pipeline networks in Alberta. From there, the gas can be transported to almost any major U.S. market.

The project has obtained siting approvals along some sections of its route, and efforts are proceeding to secure additional permits and complete geotechnical engineering. In all, more than a dozen regulatory agencies are involved in permitting and granting rights-of-way for the project.

"We're optimistic to see gas coming on stream before the end of the decade. There has been a real coalescence of the interests of producers and the Northern community of interests, from aboriginal to territorial governments," says Dan McFaddyen, vice president of regulatory affairs and public policy for the Canadian Energy Pipeline Association in Calgary. "They want to see this project happen. Now it's just a matter of getting through the regulatory processes."

The Mackenzie pipeline's 1.5 Bcf/day of capacity, however, would meet less than 15 percent of the shortfall that is expected in U.S. gas markets, and its arrival around 2010 will be too late to relieve growing price pressures in the interim. Thus other alternatives are needed-with or without Arctic gas.

Desperately Seeking Supply

An alternative supply source that was expected to address needs on the Eastern Seaboard is found in the Canadian Maritime provinces. The Maritimes & Northeast Pipeline is now delivering gas from the Sable Island gas field to markets in Canada and the Northeastern United States. The Maritime resources, however, have failed to live up to expectations.

"The Maritimes proved to be disappointing," says CERA's Zenker. "A number of expensive dry holes were drilled. Production from that area is projected to be much smaller than was expected just a few years ago." Geology in the region is more complex than originally believed, Zenker explains, requiring more wells to be drilled at a higher cost. The end result is that the region is now expected to produce about 0.6 Bcf/day, compared with earlier projections of 3 Bcf/day.

Additional gas reserves in the Hibernia field, offshore of Newfoundland, hold potential for future development, but transportation again becomes a problem, requiring the construction of either a new pipeline or an LNG liquefaction plant.