Mackenzie Valley Pipeline: Maclean's | The Canadian Encyclopedia


Mackenzie Valley Pipeline: Maclean's

This article was originally published in Maclean’s magazine on July 17, 2000. Partner content is not updated.

Along with many other young native activists in the 1970s, Northwest Territories Premier Stephen Kakfwi cut his political teeth fighting against a proposed megaproject to build a northern pipeline through the Mackenzie Valley to the Beaufort Sea.

Along with many other young native activists in the 1970s, Northwest Territories Premier Stephen Kakfwi cut his political teeth fighting against a proposed megaproject to build a northern pipeline through the Mackenzie Valley to the Beaufort Sea. At the time, critics saw the pipeline as a bid by southern-based business interests to exploit the vast oil and gas wealth of the North with little regard to the impact on the people who lived there. Fast-forward to the spring and summer of 2000, when Kakfwi can often be found addressing business audiences on the virtues of a project he once denounced. "The construction of a pipeline through the Mackenzie Valley is the key that will unlock the development of our oil and gas," the 49-year-old premier recently told energy executives in Calgary. "We believe the time is right for making this vision a reality."

The bold dream of unleashing the resource riches of the Far North is back - with a vengeance. Record-high natural gas prices and supplies that just can't keep up with the ever-expanding North American demand are turning many industry eyes northward. Technological advances in pipeline construction and drilling have significantly reduced the cost of tapping the resource, both in the Mackenzie Delta and in Alaska's Prudhoe Bay. At the same time, native land claims - the main stumbling block to the pipeline dreams of the 1970s - have, for the most part, been resolved. "It's not so much a matter of if a pipeline will be built, as when," says Roland George, a gas consultant with Calgary-based Purvin & Gertz Inc. "This is going to be the next major frontier for resource development."

At least one proponent, Texas-based Arctic Resources Co. Ltd., is talking about having a preliminary application before Canada's National Energy Board by the end of the year. And even the most conservative industry insiders are predicting that a northern pipeline should be constructed and in operation by 2010. In the meantime, there is a flurry of activity among potential stakeholders in a project that, depending on the route, could cost anywhere from $3 billion to $8 billion. Some key developments:

- In February, four of Canada's largest energy companies - Imperial Oil Resources Ltd., Shell Canada Ltd., Mobil Oil Canada and Gulf Canada Resources Ltd. - launched a joint study into the feasibility of developing and transporting Mackenzie Delta gas. Producers are also intensifying efforts to further "prove up" the extent of delta gas reserves - a critical factor in justifying the costs of building a pipeline.

- Last month, two of Canada's biggest pipeline firms, Westcoast Energy Inc. and TransCanada PipeLines Ltd., confirmed they were jointly studying options for a northern pipeline. One alternative is dusting off the route that Foothills Pipe Lines Ltd. first proposed in the 1970s, to take Alaskan natural gas southward through the Yukon, British Columbia and Alberta to the United States. TransCanada and Westcoast each own a 50-per-cent share of Foothills Pipe Lines.

- At the recent World Petroleum Congress in Calgary, John Browne, chief executive officer of the world's second-largest petroleum producer, BP Amoco PLC, added his voice to the growing consensus that a northern pipeline will likely be built before the end of the decade. Browne said BP Amoco - which has a major stake in Prudhoe Bay and holdings in the Mackenzie Delta - will consider taking an ownership position in any future pipeline.

It was, in fact, just a matter of time before this modern version of the Gold Rush resumed in earnest. The prize is simply too alluring. The National Energy Board estimates there are nine trillion cubic feet of discovered natural gas reserves in the Mackenzie Delta - and at least another 55 trillion yet to be found. In sheer volume, that would amount to more than a third of the known reserves in the more traditional gas fields of Alberta. To the west of the delta, at Prudhoe Bay, there are proven gas reserves of 30 trillion cubic feet and estimated total reserves of more than 100 trillion. Northern Alaska is already a significant oil-producing area, generating over one million barrels per day, which is piped south across Alaska and then put on tanker ships.

The potential resource windfall is what fuelled the original pipeline proposals three decades ago. At that time, Canadian Arctic Gas Pipeline Ltd., a consortium of Canadian and American companies, proposed a route from Prudhoe Bay across the northern Yukon to the Mackenzie Delta, then south to Alberta. Calgary-based Foothills Pipe Lines countered with its plan to bring Prudhoe gas directly south to a route that would parallel the Alaska Highway, and later to add a link to the delta resources along the Yukon's Dempster Highway.

The Canadian Arctic Gas pipeline, in particular, drew the ire of southern environmentalists and northern natives alike. The route traversed the coastal plains of Alaska and the Yukon, traditional calving grounds to the Porcupine caribou herd on which native hunters depended. In 1974, the Trudeau government appointed Thomas Berger, then a B.C. Supreme Court justice, to investigate. Berger took to the task with uncommon enthusiasm. First, he heard in Yellowknife from 300 expert witnesses. Then he travelled to 35 remote communities and listened directly to northerners. The hearings attracted widespread media coverage, giving many residents their first real opportunity to voice their fears, frustrations - and aspirations - to the rest of the country.

In May, 1977, Berger recommended that, for environmental reasons, no pipeline should ever be built along the northern coastal plains. And although Berger concluded that an environmentally sound pipeline could be built through the Mackenzie Valley, he urged a 10-year moratorium on pipeline construction in the region to allow time to settle native land claims. Ottawa endorsed his recommendations.

In a potentially significant footnote, two months after Berger tabled his report the National Energy Board granted regulatory approval to the routing proposed by Foothills - rights-of-way that legally still stand. The company soon abandoned the project in the face of ballooning construction costs and an unexpected gas glut that persisted through much of the 1990s, depressing prices. All that has now dramatically changed: demand is soaring, and the Alberta spot price for gas more than doubled between January and the end of June, from $2.50 per gigajoule (roughly 1,000 cubic feet) to $5.50. That is well above the $4.50 per gigajoule level analysts say is needed to make a northern pipeline viable. Seasonal factors pushed the price back to $4.64 last week, but it is expected to return to a level above $5 later in the year and stay high.

The latest round of pipeline fever began last October when former federal Conservative cabinet minister Harvie Andre unveiled an ambitious $8-billion plan to bring both Prudhoe Bay and delta gas on stream as early as 2005. Andre is a Calgary management consultant and the Canadian chairman of Arctic Resources Co. Ltd., a new consortium launched by a group of Texas financiers. They are proposing a 1,760-km pipeline, from Boundary Lake on the northern B.C.-Alberta border to the Mackenzie Delta, that would connect with a second 520-km line to Prudhoe Bay to be built offshore, in the seabed. Andre argues that the economies of scale realized by harnessing both the Prudhoe and delta reserves would significantly improve the rate of return for producers. He also maintains that, by planting the Prudhoe Bay portion offshore, the environmental risks identified in the 1970s can be sidestepped. "Twenty-five years ago, there weren't a lot of ocean-bottom pipelines," he says. "The technology has changed enormously and today there are thousands of kilometres of them."

Andre has been involved for months in talks with northern aboriginal groups and territorial government officials. So, too, have TransCanada and Westcoast. In addition to the original Foothills line, the pipeline giants are also actively considering the option of a pipeline through the Mackenzie Valley. "There's a lot of meetings going on," reports Nellie Cournoyea, chairwoman of the Inuvialuit Regional Corp., the body that administers the land claim reached by natives in the Beaufort Sea region in 1984. "The major companies are all in this area and we deal with them every day."

Cournoyea, a veteran native leader and former premier of the Northwest Territories, says the biggest change since the 1970s is that the oil and gas industry realizes aboriginal people are an integral part of development, and that they must receive a fair share of resource revenue and have the opportunity to invest directly in pipelines and offshoot businesses. The territory's current premier echoes that view. "When we said 'No' to the pipeline in the 1970s, it wasn't in vain," Kakfwi told Maclean's. "Aboriginal people are no longer going to be thrown some crumbs and rolled over by industry and government."

The exact timing and route for a northern pipeline will largely depend on how quickly producers want to bring the gas to market - and the regulatory hurdles they must overcome. If speed is of the essence, says Calgary-based analyst John Mawdsley, then the nod may go to the $7.6-billion, 2,700-km Foothills line, which follows existing highways and has approved rights-of-way. But if capital costs are the key consideration, then the shorter (1,800-km), cheaper (an estimated $3.6 billion) Mackenzie Valley route may have the edge. Andre's dual pipeline bid to the delta and Prudhoe Bay cannot be ruled out, adds Mawdsley, although the offshore portion would face intense scrutiny from both Canadian and U.S. authorities. Yukon Premier Pat Duncan, for instance, says she would fight an offshore route, as well as any plan for traversing the northern Yukon.

And how does the man who played such a critical role in the last pipeline drama view the sequel? Thomas Berger, who now practises law in Vancouver, is sanguine. "The whole idea behind the inquiry," Berger told Maclean's, "was to protect the environment and ensure that, if there was major development, native people should be players. And they feel ready, I gather, to do that." They do, and the race to the North's riches is back in full throttle.

Maclean's July 17, 2000

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