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Mackenzie may be approved but will it be too late?

The winter road from Norman Wells to Fort Good Hope, NWT, roughly marks the route of the proposed Mackenzie Valley natural gas pipeline.


In the spring of 2006, Shawn Denstedt, a Calgary lawyer, got a new desk and placed on it two stacks of paper. They contained the prewritten final arguments for Royal Dutch Shell PLC and ConocoPhillips urging regulators to approve the Mackenzie Valley natural gas pipeline.

The National Energy Board today will finally decide whether the $16.2-billion project should be approved. If it is built, the Mackenzie line will be the single largest private investment in Canadian history, and the long-awaited decision caps an arduous process that has spanned years of deliberation over its merits.

That wait, Mr. Denstedt discovered when he finally needed those documents years later, has now been etched into permanently into his office furniture.

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"When I picked up the papers, there were two dark spots on my desk where they sat," he said. "It took long enough that the rest of the desk had gotten bleached out in the sun."

But any joy that the process is finally concluding has been dampened by the growing questions over whether the project will ever be built. In the time it has taken to make a decision, the economics of the project have dramatically shifted. Natural gas prices, which reached to $14 (U.S.) per 1,000 cubic feet in 2006 - and again in 2008 - have now sunk to around $4, as huge new North American shale gas finds have created a supply glut. With so much gas now available, many wonder whether an expensive new project should be built to tap a distant pool that, compared with some of the new plays, contains only modest reserves.

A Mackenzie pipeline has been a northern dream since the 1970s, when an inquiry by British Columbia Supreme Court Justice Thomas Berger famously called for a 10-year moratorium on development in a place that was then rife with unsettled First Nations and Inuit issues.

Imperial Oil which has led the Mackenzie file, maintains that it "could be a commercial project under the right conditions," according to spokesman Pius Rolheiser. But the company has yet to conclude fiscal negotiations with the federal government that would help create those conditions.

And recent years have seen Imperial back away from the project, internally redeploying pipeline staff and halting engineering, permitting and field work. Even if the National Energy Board approves the project, as many expect it will, Imperial must still secure more than 6,000 permits and finish engineering work. A final investment decision would be taken, at the earliest, in late 2013.

That's nearly 14 years after the latest attempt to bring Arctic natural gas to market was launched in January, 2000, when northern First Nations leaders threw their support behind the project. That set in motion a process that resulted in Imperial applying for approval to build the 1,196-kilometre line in October of 2004.

It's been 2,261 days since then - and 1,786 days since the National Energy Board launched a series of hearings that laid the groundwork for today's decision, industry analyst Ian Doig points out.

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Mr. Doig, a Calgary newsletter writer, can think of "no parallels" to the years-long regulatory process.

"It was out of control," he said. "Every day that this thing continued on, it just seemed to lose momentum."

Indeed, even some of the project's most ardent backers have lost enthusiasm. When he was chief executive officer of pipeline company TransCanada Corp., Hal Kvisle argued strongly that even with the shale gas explosion, Arctic gas would still be needed.

Now that he has retired, he has grown more blunt about how the project's prospects have been affected by how long it took to make a decision.

"One of the problems we have is that we manage to conduct regulatory processes that drag projects out until the project simply dies of old age, before it goes ahead. We've seen that in the case of Mackenzie," he said at a November business conference.

TransCanada has helped finance the Aboriginal Pipeline Group, which has a one-third ownership stake in the project and Mr. Kvisle, who is still a TransCanada board member, said later that Mackenzie is not yet dead.

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But "we've certainly done everything we could as a society to kill that project," he said.

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