The Mackenzie Valley pipeline will take a back seat to its larger Alaskan rival if negotiations with First Nations and the federal government keep dragging out, the chief executive of project leader Imperial Oil Ltd. warned yesterday.
Tim Hearn said the project is at a "critical stage" to hammer out terms to ensure the $7-billion pipeline is economica and ready to move forward to the public hearings stage.

"If this thing drags out and drags out, I believe Alaska will get built and we might as well just take a back seat for a long period of time," Mr. Hearn said.
"Today, under current conditions, we don't have an economic project and we are working to make sure we are going to find one."

Last month, Imperial and partners Shell Canada Ltd., ConocoPhillips and the Aboriginal Pipeline Group deferred making a decision on whether to proceed with lengthy public hearings because key concerns remain unresolved. The hearings were originally scheduled to start in late summer.

The group halted all field work on the project in April because it was unhappy with high aboriginal expectations.

The Mackenzie pipeline is in a race for completion with the much larger US$20-billion Alaska pipeline. The projects are so large their construction has to be staggered. Proponents of the Alaska project are close to completing key agreements on fiscal terms with the State of Alaska, putting them in a strong position to move forward.

"We need to get [the hearings] going pretty soon, because time is not on our side," Mr. Hearn told reporters after speaking to the Calgary Chamber of Commerce.

Negotiations appear to be at an impasse with five aboriginal communities over access and benefits deals involving fees and payments, jobs and training in exchange for giving access to their lands.

The oil companies are offering standard one-time payments, but some of the groups are insisting on the right to levy property taxes, despite Ottawa's view they don't have the authority to do so.

But Herb Norwegian, grand chief of the Deh Cho, said First Nations along the pipeline route are legitimate governments and have taxing powers.

"We are like the Kuwait of the North and they need to come to our territory, and if they are going to come to our territory there is a price tag that goes with it and, of course, a responsibility," he said.

Mr. Norwegian said he doesn't believe oil companies will walk away from the project given the rise in natural gas prices.

Mr. Hearn said it's possible the oil companies will move forward with public hearings even if the deals aren't completed, as long as they are agreed to in principle in the next few weeks.

In a news release, the Deh Cho said it would be "a significant mistake" if Imperial Oil were to push the Deh Cho into public hearings prior to the signing of project agreements.

"If that were to occur, our focus would necessarily turn from direct project negotiations to aggressively defending the rights and interests of our member communities in the hearing processes," the groups said.

The oil companies are also in negotiations on fiscal terms with Ottawa.

The Deh Cho claim Imperial and its partners are seeking $2-billion in concessions.

Mr. Hearn said Imperial is not asking for "handouts" or royalty breaks, but wants terms that recognize that today's high gas prices are unlikely to continue as large quantities of liquefied natural gas come to North America from foreign sources in the next decade.

The terms should also take into account that the project is opening a new basin and requires huge capital investment that won't yield a return for many years, he said.

Claudia Cattaneo, Financial Post