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Imperial Oil chief executive officer Rich Kruger has previously worked on gas export projects for Exxon Mobil. (JEFF McINTOSH/THE GLOBE AND MAIL)
Imperial Oil chief executive officer Rich Kruger has previously worked on gas export projects for Exxon Mobil. (JEFF McINTOSH/THE GLOBE AND MAIL)

Imperial Oil weighs Mackenzie gas project revamp Add to ...

Imperial Oil Ltd. is looking at a major revamp of its Mackenzie gas project that would see the stalled northern venture reborn as part of an expansive liquefied natural gas development, the company’s chief executive officer says.

A shift to LNG is under “serious” consideration as the Mackenzie pipeline’s economics remain weak due to the flood of cheap shale gas across the continent, chief executive officer Rich Kruger said in an interview at the company’s Calgary headquarters.

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Imperial and its partners in the Mackenzie pipeline plan are just a couple months away from a deadline to provide regulators with an updated cost estimate and progress report on a decision to move forward on the long-delayed plan to send gas to North American markets via a 1,196-kilometre pipeline.

“We’ll put our filing in as required on it, but I think the biggest thing is, you look at the North American gas market and it has not fundamentally changed over the last few years, so we’re looking at, what are the best options? What other options might we have?” Mr. Kruger said.

“We’ll also look at how Mackenzie could perhaps figure in to an LNG project over time. Whereas originally the thought was a pipeline serving the Canadian and Lower 48 [U.S. states] markets, we’ll look at how it might play into a bigger plan,” he said.

The company cut spending on the $16.2-billion Mackenzie pipeline proposal in April, 2012, blaming poor market conditions and the lack of a deal with Ottawa on billions of dollars in fiscal support. The project’s economics collapsed as markets were transformed by rapid development of low-cost shale gas reserves located much closer to consumers.

Imperial, one of Canada’s largest and oldest corporations, is already examining LNG options for its gas reserves in the Montney and Horn River areas of northeastern British Columbia. Imperial and its partner and majority owner, Exxon Mobil Corp., have applied for an export licence and are considering a liquefaction plant in either Kitimat or Prince Rupert, B.C.

It’s unknown whether shifting Mackenzie gas to an LNG strategy might still require a pipeline to a Western Canadian location where it could flow to a liquefaction plant on the Pacific Coast, or a shorter one to a facility on the northern coast. A decision is unlikely soon.

“The work is still going on. For an LNG project, to make sure you have the most robust, competitive project, one of the keys in it is: do you have a low-cost upstream supply? So we’ll be looking at, with that gas, what will it take to move it? What gas would it compete with for an LNG supply?” said Mr. Kruger, who took the helm at Imperial in March. “There’s still more work to be done, but it’s not out of the question. It’s something we will take a serious look at.”

LNG is seen as the next big opportunity for Canada’s energy sector as it seeks to attract international prices high enough to accelerate development of the country’s vast shale gas reserves. Activity has been tempered by low North American prices.

Mr. Kruger is no stranger to LNG, having worked on such gas export projects in Qatar, Papua New Guinea and Indonesia for Exxon Mobil. He cautioned that they are fraught with more political and economic complexity than most energy projects and routinely move at a slower pace as well.

He also worked on the Alaska gas pipeline proposal for eight years. The much larger plan, with nearly 3,000 kilometre of pipe estimated to cost $40-billion (U.S.), had once been seen as a competitor to the Mackenzie project for manpower and markets. That consortium has changed its tack to concentrate on LNG exports from a port in the southern part of the state.

The Mackenzie pipeline, whose other partners are Royal Dutch Shell PLC, ConocoPhillips, Exxon Mobil and the Aboriginal Pipeline Group, won National Energy Board approval in 2011 following an epic, seven-year review, stoking optimism in the Northwest Territories that Mackenzie Delta gas reserves discovered in the 1970s could finally be developed, prompting much-needed economic activity.

As delays persist, the territorial government has shifted attention to the burgeoning Canol oil shale play in the central Mackenzie Valley. Imperial Oil has also raised hopes of a future offshore push, filing the initial documents last month for drilling in Beaufort Sea acreage by around the end of the decade.

Follow on Twitter: @the_Jeff_Jones

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