Mackenzie Valley pipeline facing possible revival

There are growing signs that the stalled Mackenzie Valley pipeline project could get a new lease on life.

The federal government has quietly dusted off a $500-million socio-economic fund that would kick in if the project goes ahead. The Mackenzie Gas Projects Impact Fund was set up in 2006 but has remained dormant. Itwas included and updated in this week's budget implementation act.

The fund is not operational yet, but the timing means it's ready to go if construction starts on the pipeline.

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Development of northern resources has been priority for Prime Minister Stephen Harper since he was elected in 2006. His government in 2009set up the Canadian Northern Economic Development Agency (CanNor), for whichEnvironment Minister Leona Aglukkaq is responsible.

The government "is committed to fostering a strong, prosperous and dynamic northern economy," Aglukkaq's office said in a written response to questions from CBC News.

"Should the CanNor minister be named responsible at some point for the fund, as the regional economic development agency for the North, the agency is well-positioned to deliver this fund on behalf of northern communities."

At the same time, there are signs the project may be commercially viable.

Imperial Oil and its partners are looking at options to turn the 1,200-kilometre northern gas pipeline into an liquefied natural gas project. LNG, as it is often called, is natural gas that's cooled to -162 C. This shrinks the volume of the gas by 600 times, making it easier to store and ship.

"As we look at strategic options for the Mackenzie resource one of the things we are looking at is could gas from the Mackenzie potentially play a role in an LNG development scenario?" said Imperial spokesman Pius Rolheiser.

Imperial and its partners, Royal Dutch Shell, ConocoPhillips, Exxon Mobil and the Aboriginal Pipeline Group, received final approval from the National Energy Boardin 2011 for the $16.2 billion project after more than six years of regulatory review. The pipeline was originally designed to carry natural gas down the Mackenzie Valley to Alberta and the U.S.

A glut in natural gas and slumping prices put the project on hold.

But earlier this year, Imperial and its majority partner Exxon Mobil Corp. applied for an LNG export permit from a future terminal in either Kitimat or Prince Rupert, B.C. The companies would draw from the gas fields they own in Canada, like those in the Mackenzie Delta.

Eyeing the Asian market

"So in our assessment of a potential LNG project, one of the things we are looking at is, could gas from the Mackenzie Delta play a role in an LNG scenario?" said Rolheiser in an interview from Calgary. "But at this point we are in the early stages and we have not made any decisions on that."

The main forces behind this burst of activity are price and timing. Imperial has to report to the NEB on its decision to construct the pipeline by the end of this year and must provide an updated cost estimate. It has to start construction by the end of 2015.

And there is a growing market in Asia for liquid natural gas. While Rolheiser emphasizes that a decision has not been made, a source close to the project says the LNG option is very much in play.

"We are looking at all options here and there is more than one option for this pipeline," saidthe source.

Natural Resources Minister Joe Oliver just got back from atrip to China and South Korea, where he spent a lot of time talking about LNG. He says Canada's natural gas resources are an "immense economy opportunity that can benefit all Canadians."

And the pipeline would help tap that potential.

"That is why we are supportive of this important resource development opportunity, with a focus on supporting jobs, economic growth, environmental protection and constructive relationships with First Nations communities," Oliver wrote in an email to CBC News Thursday.

Support in N.W.T.

All this is very good news for the Northwest Territories that has been holding out hope for the on-again, off-again pipeline since the 1970s.

"We are hearing that the proponents are interested in seeing the Mackenzie gas get to market, which is a very positive sign for us, with a resource that has been stranded in the Mackenzie delta for forty years," said N.W.T. Industry Minister David Ramsay.

Ramsay said he has not officially heardthat the project is definitely going ahead, but he's optimistic.

"Any talk of us getting a resource like to that to market is something we are encouraged to hear," he said in an interview from Yellowknife.

Ramsay said he hopes to get more details in early November.

The majority of people in the territory support the project because of the economic development it would bring. Aboriginal groups own one-third of it as part of the Aboriginal Pipeline Group.

While Imperial won't speculate on chances of the pipeline carrying LNG, Rolheiser notes the company has spent considerable time and money on this project and doesn't want to squander it.

"We made a significant investment in terms of our relationship with the people of the North as represented by the Aboriginal pipeline group and that is a terribly important asset to us," he said.