Townsfolk, politicians and businesspeople mingle as a traditional feast of caribou, musk ox and beluga simmers in the kitchen. It's April in the Mackenzie Delta and people are counting off the final weeks before a massive plan for a natural gas pipeline is announced. Everyone knows the pipeline promises a 25-year energy boom and a new way of life in a place made weary, and more than a little edgy, from living in economic limbo.
Frank T'seleie, a long-time Dene leader from Fort Good Hope, has been to more meetings about the future of the North than he cares to remember. "This is how we do things up here," he jokes, as he takes a smoke break in the snow with his young Dene advisers. "We like to talk things through."
Back in the 1970s, T'seleie and other leaders of the newly named Dene Nation-comprising the non-Inuit Mackenzie Valley groups Gwich'in, Sahtu and Deh Cho-took a hard stand against oil and gas development on aboriginal land. "My nation will stop the pipeline," T'seleie told Thomas Berger's 1975 royal commission into the effects of a Mackenzie pipeline. "It is so this unborn child can know the freedom of the land that I am willing to lay down my life."
Berger's report shut down the pipeline project. But that was 28 years and one major shift in thinking ago. Today, T'seleie is a model of diplomacy and understatement. "Times have changed," he says, without apology. It is true, times have changed: All but one of the Mackenzie groups have settled their land claims and they largely now deal with government and business as equals. You are just as likely to see Inuvialuit, Gwich'in or Sahtu cutting deals and working the drill floor as you are southerners.
And T'seleie is now a director of the Aboriginal Pipeline Group (APG), the trans-Mackenzie council responsible for negotiating a pipeline deal on behalf of all Mackenzie natives. Pending regulatory approvals and the consent of locals, aboriginals will soon become one-third owners of a pipeline in partnership with major oil companies: Shell, ConocoPhillips and ExxonMobil, and the latter's Canadian affiliate, Imperial Oil, which is lead partner. The majors are giving the natives a major hand: In a landmark deal struck in June, after months of negotiations, the pipeline partners as a group agreed to give a 5% ownership share to TransCanada PipeLines in exchange for $80 million that will go to the APG alone. (TransCanada, an industry leader, will likely help build the pipeline.) And somewhere along the way, again with the help of their partners, the Mackenzie natives have to raise $1 billion-plus to meet their quota of construction costs for the estimated $5-billion project.
That large but little-reported hurdle notwithstanding-likewise the tendency for the best-laid plans to go awry-the Mackenzie pipeline arguably presents the best and biggest opportunity to break the historically sorrowful pattern of white-native relations in Canada. Instead of being stranded between a subsistence economy that's expiring and a modern one that's inaccessible, with the Mackenzie pipeline natives have a buy into the mainstream on their own terms. Never before have whites and aboriginals been so in business together: It's nothing less than Canada's first megaproject of the 21st century.
The partnership could be shipping as much as two billion cubic feet of gas daily as early as 2008. While that amount is just over 11% of Canada's current production, the Mackenzie offers longevity and a stable supply to an export-happy country whose existing reserves appear to be tapping out faster than companies can replace them: Between 1991 and 2001, Canadian natural gas reserves declined from 97 trillion cubic feet to 60 trillion cubic feet, the latter figure being roughly identical to the potential of the north Delta.
The rapid transformation of natural gas into a crucial and scarce commodity helps explain the sudden invasion of CEOs and A-list politicians in what was, until recently, the ultimate backwater. Tonight, with a federal minister, a premier and countless other officials and dealmakers in town, Inuvik is a hive of networking and photo-ops. To the sound of fiddle music, we file into the community hall to celebrate a pact that consolidates the land-claim agreement, conferring province-like status on the Gwich'in and ushering in the pipeline era. T'seleie passes federal Indian Affairs and Northern Development Minister Robert Nault and Northwest Territories Premier Stephen Kakfwi. They all greet each other warmly, like old pals.
Premier Kakfwi actually is an old pal, a former Dene chief who was just as anti-pipeline as T'seleie was in the '70s. Back then, pipelines had been proposed by two consortiums. Canadian Arctic Gas Pipeline Ltd., composed of more than two dozen Canadian and American producers (including Exxon, Shell and TransCanada PipeLines), proposed a route from Alaska's Prudhoe fields, across the Northern Yukon to the Mackenzie and then south to Alberta. Foothills Pipe Lines Ltd., formed by Alberta Gas Trunk Line (NOVA) and Westcoast Transmission, pitched a shorter route from the Mackenzie Delta to Alberta. The Alaska alternative would have been the longest pipeline in the world and the greatest construction project ever, in part because of the engineering challenge of building on permafrost.
Then-indian affairs and northern development minister Jean Chrétien appointed Thomas Berger to weigh the proposals and their potential impact. Berger, a judge and former NDP politician, interpreted his mandate broadly, taking the commission on the road to visit villages to hear natives speak-often passionately-on their own ground. The inquiry, whose report became an unprecedented bestseller, became both a touchstone of Canadian guilt over the plight of natives and a rallying point for native activism. From both perspectives, the Berger inquiry signalled an end to the centuries-old practice of Canada simply helping itself to native land.
Hardball tactics in the Mackenzie were necessary, Kakfwi says, because his cohort knew there would be scant chance to negotiate after the fact. "All we had was a dream of how we would some day be masters and managers of our own resources and governments. In the past 30 years we've come a long way in having our own political offices for our leaders. We have companies and corporations. We own airlines, construction companies, oil and gas companies."
Business has become the lingua franca of the Mackenzie. Robert Nault's arrival in some native communities draws fierce protest, but not in pro-development Inuvik. "I was in Houston just a week ago talking to the oil patch executives and every single one of them believes that the Mackenzie pipeline will be built," he tells the Gwich'in gathering, knowing that many people are anxious about competition from a new Alaska gas pipeline, whose completion is expected as early as 2011. "And it [Canada's pipeline]will go very soon if it is the wish of the people to see that happen."
Things are already happening. As politicians toast future prosperity at the Midnight Sun complex, heavy-duty Arctic drill rigs bore deep into the frozen earth 100 kilometres away. Out on the land north of Inuvik, I see the future unfolding: Joint-venture exploration wells work day and night; supply rigs skim across gleaming ice roads; whites and aboriginals together hold down long shifts on seismic crews and drill teams. Work can only continue while the land, and the roads, are frozen: By the end of April, the drill season will be over.
One exploration rig, a Petrocan-Devon Canada joint venture dubbed Nuna, stands tall over the barren tundra, some 90 km northeast of the Delta. Save for the ice road, a blue ribbon that snakes through the Barrens' hills and lakes, infinite space stretches off in all directions. Although the nearest connected gas pipeline is still 1,500 km away, exploration is proceeding at a crisp pace not just here but across the Delta. A few hours to the west of Nuna, a Chevron rig hit gas in April: Yet another well was marked as commercially viable. The previous winter saw a significant discovery for Devon just south of Tuktoyaktuk, fruit of a program that has drilled most new Delta wells in recent years. Further south of Inuvik, Devlan Exploration is drilling at an aggressive rate, following the naturally occurring gas seep that releases an estimated 750,000 cubic feet a day.
What everyone is after in the Delta are some 60 trillion cubic feet of recoverable natural gas reserves, with yet untold trillions possibly hidden along the pipeline route, a rich sedimentary basin that runs all the way to Alberta. As befits any big resource play, the Nuna site is a secure "tight hole," verboten to all outsiders, including uninvited journalists like myself. But the friendly guy in charge lets me hang around for a few hours. "It's a long way from anywhere," he admits, sitting in front of a rack of computers that track the progress of the drill bit, untold metres beneath the surface. "Because of security, most people at the site have no idea how the drilling is going," he says. "But many folks are hoping for something on the order of Parsons Lake"-one of the established anchor reserves for the pipeline, some 1.8 trillion cubic feet discovered back in the 1970s.
Inside the warren of weatherproof trailers that stand next to the roaring rig, a few local roughnecks volunteer advice for my long drive across the southern edge of the Arctic Ocean to Tuktoyaktuk. These sons of hunters and trappers, Inuvialuit and Gwich'in, know about life on the land, even though few can support themselves by traditional means any more. Before I head back out on the ice roads, I ask them what the Mackenzie pipeline means to them. Really, what do they want? "It's the jobs," says one, as the others nod in agreement. "We want to keep working out here. Yeah, bring the jobs."
Eddie Gruben, a Tuktoyaktuk elder, remembers what it was like back in the '50s, before anyone knew about the riches of Arctic gas or gave any thought to partnering with the local people.
"One American ship stayed the winter and in the springtime they hired six of us, rolling empty drums-1,500 empty drums we rolled in from the shore to the ship," Gruben recalls. "At the end of the job, we had to go up to the captain's pilot house to get paid. Used to work for 50 cents an hour. We were all lined up there. The maid came up, and the captain told her, 'Just a minute, maid, I have to pay off these bloody Eskimos.'"
"Those words. Hurt me so hard," he says, wincing at the memory. "The rest of my buddies, they just nodded. Not me, I never forget that. From that day on, I never worked as a labourer again."
Today Gruben owns E. Gruben Transport Ltd., the Western Arctic's largest company and its main supplier of logistics and transport to energy and construction projects. In other words, he's king of Tuk.
Early on, Gruben discerned that the secret to Arctic success was managing the logistics of supplies and services that southerners take for granted. Take gravel: essential for drill pads and roads, but a scarce commodity in permafrost country. Gruben sold furs, fish and meat to upgrade his hauling business from dogteam to snowmobile to snowcat to gravel truck. He diversified, buying all the hotels in Inuvik and the lumberyard. He became a multimillionaire in the process.
At every stage, Gruben demanded treatment as an equal. And even though he was pro-development throughout the Berger inquiry, he shared the young radicals' sense of homeland. "I built the company out of nothing," he says. "No partners from down south. Strictly local people. Every time we get a good, decent contract from an oil company, we hire so many local people. The money stays here."
Outside, youngsters race snowmobiles across the pack ice, practising for races in Tuk's annual Beluga Jamboree. There's no going back to the days of dogteams, though that's what some Inuvialuit would prefer. "No way, that's changed, that's gone. I don't want to live the way I used to, scratching for my life," says Gruben. "That's the way a lot of elders want to be. They don't think about the future. Fuckin' hard life: You don't kill an animal, you don't eat. Today is different."
Gruben, the pioneer, has been joined in the Mackenzie native elite by onetime radicals like T'seleie. That convergence has produced some ironies. At the Berger inquiry, T'seleie sat next to Bob Blair, president of Foothills Pipe Lines, and declared, "You are coming with your troops to slaughter us and steal land that is rightfully ours. You are coming to destroy a people that have a history of 30,000 years. Why? For 20 years of gas? Are you really that insane?"
Now T'seleie, as an executive member of the APG, is partnering with TransCanada, the company that took over Blair's Foothills Pipe Lines. Premier Kakfwi argues that there's a clear line between past, present and future. "It's all part of a vision that we started in the 1970s," he says. "Back then, 75% of our people were hunting and trapping and had the economic independence to say, 'No, we don't need oil and gas companies, we don't need mining companies.' But our fur economy collapsed in the early 1980s with the advent of the animal-rights people. Now we're very much into the wage economy and resource development-and confident about it. These are huge companies. We know that we can gain benefits."
And it's not as if it's only the natives who have changed their stance. Take Imperial Oil, the lead partner-that is, the one that actually does the work-in the consortium with the APG: "We will not proceed in the absence of the Aboriginal Pipeline Group," says Dee Brandes, Imperial's local consultation and community affairs manager. "If the region is opposed to the project, it would be very difficult to proceed." This from the company that, more than any other, left a legacy of ill will in the North from Trudeau-era exploration along the Mackenzie and the Norman Wells oil project.
If we were anywhere else, there would be hell to pay. Imperial's geotech crew, supervised by contractor ColtKBR, is about three months late for work here on the edge of the Delta's alluvial plain, just south of Inuvik. The crew is supposed to have been busy drilling nine-metre core samples in the permafrost. But someone botched a land-use application, and permission to drill was granted only at the beginning of April, leaving just two weeks before the ice roads closed. And if there's not enough geotechnical data-a crucial thing if you want to run pipeline underground in the Arctic-it might be hard to convince regulators that the advanced engineering required for permafrost construction is feasible.
So here we are, amid the sub-Arctic forest, watching the final hours of a very short survey for a very long pipeline. But no one complains, at least not out loud, because this is some of the most important work on the Mackenzie project. These soil samples feed into regulatory applications and engineering plans, which are in turn part of a $270-million preparatory program launched by the APG and its partners. Today's regulatory precedents, engineering data and work contracts will define business and politics in the decades to come.
"Unlike 30 years ago, footprint is everything now," says Dale Babala, an engineer with ColtKBR. Explorers need to hold meetings in each affected community, in addition to submitting detailed land-use plans that show how, with ice roads and self-contained systems, the tundra and forest will remain pristine after the snow melts and everyone goes home to wait for next winter's drill season.
The biggest regulatory checkpoint is the pipeline application itself, submitted to the National Energy Board as a preliminary information package in June. The NEB's job is to weigh the public interest against private plans as well as test for economic viability. But there are at least 12 other arms of government-from local aboriginal land and water boards to federal Fisheries and Oceans-that will have their say. The process will take roughly until early 2006, when construction of the pipeline might actually begin.
It was at the Gwich'in Land and Water Board that Imperial's sampling application got held up in procedure. There were several reasons, but one of them was that Imperial didn't seem locally engaged. "There is a big difference in how things work here and how they work back in Alberta," says board staffer Darren Campbell. "There is some head-butting involved. The best thing they did was to come in and meet face-to-face."
The local process is demanding largely because of the growing scope of self-government, which can be much more fluid and decentralized than in southern jurisdictions. "A lot of organizations here are not top-down," Campbell says. "The chief of any given community takes direction from the population. So you need meetings and that's not always so easy." Separate land-use agreements must be negotiated with each landholder. For access to Gwich'in territory, a pipeline group or exploration company will work out a series of benefits: everything from preferential hiring of local aboriginal contractors to cash for social causes to promises of environmental practices.
The geotech team moves slowly from hole to hole, along a cutline that stretches into the horizon. "Only 1,200 kilometres left," one drill jockey cracks. A Gwich'in environmental monitor roars past on his snowmobile, patrolling the line. Eight different subcontractors are on-site today, and all are full Gwich'in companies or Gwich'in joint ventures.
"We have all the technical challenges of the Arctic, the elements, the environment," Babala says. "The logistics are going to be truly amazing. But this job, when it's done, will have been about relationships."
In his Inuvik office, Fred Carmichael, chairman of the Aboriginal Pipeline Group, is hopping mad. The APG needs to present a united face to its partners, but the Gwich'in leadership is imploding. Two of the group's chiefs just returned from Edmonton, where they were busily sandbagging the APG at an aboriginal business forum. A series of press releases accused the APG of "misappropriation of revenues" and of being closer to business interests than to their Gwich'in brethren. No evidence is cited, but this is hitting close to home, because Carmichael is himself president of the Gwich'in Tribal Council. "It is not unfair to ask whether or not members of the APG board are employees of Imperial Oil," growls one press release, noting that the APG has no mandate to sign agreements on behalf of northerners, only to negotiate them.
This carping drives Carmichael nuts. Local politics could sink the whole deal. "We can't afford to delay much longer," he fumes. "And if we do, and they keep calling for study after study and they study it to death, they'll have to wear it. Because there will be no employment for our young people. We'll go back to another quarter-century of hard economic times in the Territories."
The APG is a working group that answers to the leadership of the four Mackenzie native groups. Yet it runs like a corporate entity and has undertaken extensive negotiations with some of Canada's largest companies. At the same time, it's an insubstantial outfit. The heart of the APG is a stack of cardboard banker's boxes in a corner of Nellie Cournoyea's office at the Inuvialuit Regional Corporation in Inuvik. It's not as though the former NWT premier needs the extra clutter: It's just that the APG doesn't have an office of its own. Nor does it have any paid staff. Leaders like Cournoyea and Carmichael are volunteers.
While it is true that the APG is there to broker deals for the Mackenzie natives, not sign them, Carmichael is incensed at the suggestion that he's neglecting his duties as a leader of the Gwich'in. "When we do get an agreement we'll bring it back to the people. We'll be travelling to all the communities to show them exactly what the deal means to them."
One of the dissident chiefs is James Firth, who also represents ArctiGas Inc., the Canadian arm of a Texas outfit that's been promising full aboriginal ownership of a pipeline that runs through the Mackenzie Valley and under the Arctic Ocean to the north slope of Alaska (this plan is distinct from the Alaskan plan hatched in Washington). ArctiGas is a curious entity. Its parent company's CEO is Forrest E. Hoglund, a former Enron executive and long-time player on the U.S. energy scene. Firth argues that the Texans offer a better option, despite the fact that none of the participants own gas reserves in the North and there's no clear sign that the company has access to the $9 billion (U.S.) in debt financing required for the project. An oil-patch presence consisting of an answering machine that reroutes calls (unanswered) to Texas isn't a promising sign for a megaproject. Some say ArctiGas is simply a front for southern gas interests, meant to confuse and delay the Mackenzie pipeline long enough to cash in on a gas-starved continental market. Firth counters that Imperial and the APG have been interfering with the parallel pipeline project simply because it's competition. "They saw this as a threat to their profit."
The following day, the gloves are off. Carmichael lets loose at a public event in Inuvik, speaking to Firth and other rebels across the room. "I say we have to put our narrow minds aside and have a broad mind and develop a desire to work together."
The sense of urgency felt by Carmichael, and indeed by most people along the Mackenzie, is underpinned by dwindling assets. Cournoyea cites the example of her own Inuvialuit land claim. "Our claim was $45 million in 1977 dollars-and 75%-80% of it remains in trust. You know how stocks are failing, so it hasn't been building much in the last couple of years. The idea is to take the compensation and get involved in business and become economically independent."
Whether derived from the dismal economics of northern communities or the possibility of an Alaskan pipeline fuelled by rich U.S. subsidies, the anxiety that surrounds the Mackenzie project is amply illustrated by the fact that the partners with proven Mackenzie gas reserves have spared little expense in expediting the pipeline through its preliminary stages. Unusually, none of the major partners in the Mackenzie project is a pipeline company first and foremost. What partners like Imperial are after is not pipeline income (where the rate of return is capped by the NEB), but control over the pipeline's costs during construction, so that shipping gas remains profitable over the life of the pipeline.
As for TransCanada's addition to the roster as the APG's funder and 5% partner (once construction commences), its continental position will be strengthened simply by having new gas connected to its network. This should keep tolls and operating costs competitive in a gas market that could experience some interesting extremes in the next few years.
To its benefit, the Mackenzie Valley pipeline may well be Canada's first megaproject launched entirely on market criteria, with no subsidies, grants, loans, kickbacks or public boodle of any kind. It contrasts sharply with the Arctic program of the Trudeau era, which sometimes matched private money dollar-for-dollar, or with recent years in Alberta's oil sands, where federal tax subsidies for "mining" doled out millions to companies that invested in the processing and refining of synthetic crude. No, this pipeline will be an investor's pipeline, and that scenario suits many northerners just fine, given the boom-and-bust record of subsidy-driven industry in the North.
So strong is the case for the Mackenzie pipeline that U.S. ambassador to Canada Paul Cellucci told a Calgary audience of pipeline executives last May that President Bush thinks that the Mackenzie will be built before any other Arctic pipeline. He pledged that the Bush administration would attempt to head off Senate efforts to run a tax subsidy for the Alaskan route. With those words, Cellucci probably bumped the value of Mackenzie gas by millions.
American market puritanism began to soften in the wake of the great blackout of 2003, as lobbyists pushed hard for new subsidies and incentives to develop all manner of new energy supplies. But it's unlikely that an Alaskan pipeline would be allowed to sink the Mackenzie project. With Canada already supplying almost 100% of American natural-gas imports, a trade battle over energy is probably low-priority for a superpower with flickering lights.
More of a concern is the missing $1 billion-the APG's share of construction costs. It's not clear that the APG can keep up with its high-powered partners. By all appearances, the major players have gone to great lengths to include aboriginal ownership. Yet once the project hits construction, it may be a long time until the APG actually becomes a one-third owner. The $80 million loaned by TransCanada will count as initial equity, but beyond that, the APG needs to secure commercial loans and obtain new gas supplies of its own from third parties like Chevron or Devon-or be consigned to a marginal role.
There is, however, some momentum, even apart from the TransCanada deal. Last August, the federal government pledged $11 million over six years to help with the APG's dismal operating budget. That will help in the short term. In the long term, the APG is betting on the increased, possibly astronomical, value of natural gas-and the ancilliary economic benefits of a northern energy boom. "What I see is people with better homes, better education facilities," says Fred Carmichael. "More money for health programs. More money for programs in outlying communities. People with jobs, more businesses developed. Better roads, bridges instead of ferries. The opportunities here for our people, all northern people, are unlimited."
People like Premier Kakfwi now understand the future in terms of compressor stations, high-tech Arctic drill rigs and aboriginal entrepreneurs. Everything from the past 30 years has pointed toward this moment when aboriginals can bargain as equals. "You're on the side of the angels when you say, This is my land," he says. "Anybody would die for an opportunity to be able to say that. I've spent my whole life trying to make it happen. It's wonderful, because you know it's possible."
ARCTIC GAS: WHY WE NEED IT
There is no doubt that the Mackenzie pipeline project is economically viable: With off-season gas prices near double their usual rates and conventional gas reserves declining across North America, there could be high times indeed for anyone with new supplies. And some analysts predict a significant natural gas shortfall within a decade, a shortage that could grow to 10 billion cubic feet a day by 2012. By 2025, American natural gas demand is expected to increase 52% to 35 trillion cubic feet per year-a rate of consumption that would empty existing Mackenzie Delta reserves in two years or less, if pipelines could ever deliver it that fast. Alberta's oil sands alone could consume much of the Mackenzie's daily output for the production of synthetic crude oil from bitumen.
It's all part of a series of tectonic economic shifts that are transforming previously cheap commodities like natural gas into one of the world's most strategic resources. Natural gas, with its versatility and relatively clean burn, is the fuel that could bridge a global shift to more diversified, sustainable power strategies-whether it's wringing efficiency out of old technology or switching to renewables and hydrogen cells. The effect of these and other demands on gas supply is hard to forecast. Electricity generation increasingly relies on gas, with coal-burning plants converting and new plants running high-efficiency gas turbines. Continental power demand has not been effectively managed: It's characterized by mass inefficiencies and waste. Combine that situation with a deepening dependency on gas, and prices for the fuel will go up, penalizing those industries most dependent on energy. It now appears that shortages of natural gas could be the factor that triggers an economic slowdown.
Thus the rush to open up Canada's Arctic and engage countless other natural gas plays, including Alaska, the North Atlantic and coastal facilities for importing liquid natural gas from other countries. The August blackout in Ontario and the American northeast only redoubled anxiety for the future supply of the world's hungriest energy markets. If the Mackenzie can get onstream before these other sources soften the market, then success is guaranteed.