Late Friday it was revealed that Shell Canada is pulling out of the Mackenzie Delta in the Northwest Territories, a move that includes abandoning its interest in the Mackenzie pipeline.
The news is a blow to the region, as well as Canada's broader energy market. The Mackenize pipeline had been under regulatory review for years and just this March got the final federal green light to start construction.
When some of Calgary's most senior energy bankers first heard the news of Shell's departure, they were shocked because they didn't see it coming, and they all expressed disappointment that it came to this. Yet no one blamed Shell. From an economic standpoint, developing the Mackenize Delta's vast natural gas deposits just doesn't make as much sense as it once did because U.S. shale gas has exploded onto scene.
In its marketing document, Shell attributed the sale to a "global portfolio review" and said that it decided "to focus its resources on other options." Behind the scenes, everyone knows the cost of developing the natural gas assets, including Shell's Niglintgak project which contains an estimated 840 billion cubic feet of gas, was too costly given that natural gas prices remain suppressed. The pipeline is projected to cost $16-billion.
Because the bankers were caught off guard by the decision, they had trouble speculating who could come in to scoop up Shell's assets. Finding a buyer will be tricky because there are rumours that the region's development could be put on hold for some time until natural gas prices recover. That could take years. And if that's the case, it means all of the jobs that would have been created will get put off, or even possibly cancelled.
That's a sad situation for Canada because it didn't have to come to this. The Mackenzie pipeline had been under review since 2004 but extensive legal and regulatory delays slowed the approval process down. Over the 7 years that it took to get approval, workers could have been developing the assets.
Such a lengthy approval process could easily be shortened if Canada had a national energy strategy. The Harper government has finally seen the light and endorsed such a plan, after ducking the issue for some time out of fears provinces would battle for their jurisdictional power.
Should a strategy be implemented, we can only hope it will streamline the regulatory review for Enbridge Inc.'s $5.5-billion oil pipeline that aims to take Alberta oil to the west coast for shipment to Asian markets.
By abandoning the Mackenzie Delta, Shell leaves its pipeline partners with a hole to fill. Imperial Oil is leading the pipeline's development, along with ConocoPhillips, Exxon-Mobil and the Mackenzie Valley Aboriginal Pipeline Limited Partnership.