Shale gas may aid Canada's delayed Arctic pipeline

Last Updated: Mon, Jul 19, 2010 23:30 hrs

A long-delayed gas pipeline from Canada's Arctic, hampered in some estimations by the expanding shale gas industry, may actually benefit from it, Northwest Territories' industry minister said on Monday.

Newly secure gas supplies across the continent may convince more electricity producers to shift to gas-fired generation from coal, creating additional demand for Arctic gas, said Bob McLeod, the territory's minister of industry, tourism and investment.

McLeod took the message to Washington this month in his latest trip to sell the benefits of the C$16.2 billion ($15.3 billion) Mackenzie pipeline project to U.S. lawmakers, as his frustrations, and those of his government, build over the glacial pace of development.

"One of the concerns for large utility companies in the past has been the unpredictability of prices, and now with the abundance of natural gas in the United States, natural gas will be a lot more reliable and predictable," McLeod told Reuters.

"There will be a movement to convert coal-fired generating to natural gas."

Some analysts have said shale gas discoveries made in recent years in numerous regions of Canada and the United States -- such as the Horn River in British Columbia and Marcellus shale in Pennsylvania and New York state -- could hamper expensive developments to tap massive reserves in the Northwest Territories and Alaska.

The Mackenzie pipeline, proposed by a a group of oil companies led by Imperial Oil Ltd<IMO.TO>, would ship about 1.2 billion cubic feet a day of gas to Alberta's gas hub from the Mackenzie River Delta on the Beaufort Sea. From there it could be routed to several North American markets on existing lines.

The Northwest Territories is banking on the project to boost economic development in the sparsely populated region of Northern Canada.

First envisioned in the 1970s, the Mackenzie project faces rising construction costs, low natural gas prices and the absence of a financial support deal with Ottawa.

The oil companies and the federal Conservative government have suspended lengthy negotiations on the fiscal deal, which McLeod said is worth C$3.2 billion, until the National Energy Board issues its approval decision, expected in September.

Imperial said in March that it does not expect to make a sanctioning decision until 2013, with commercial operations estimated in 2018.

"We're quite concerned about some of the actions that the federal government has taken," McLeod said. "On the one hand they say that they don't want to negotiate fiscal arrangements until the NEB response comes out, but on the other hand they're taking steps to reduce support to the Mackenzie pipeline," he said.

He pointed to a scaling back of the government's pipeline office and a reduction in federal contributions to the Aboriginal Pipeline Group, one of the line's backers, over the past year.

(Editing by Rob Wilson)

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