A two-year delay in building a natural gas pipeline from the Arctic could cost Canadians almost $60 billion over the next 20 years, a new study suggests, as stopping the flow of fresh supplies would keep prices unnecessarily high.

The largest cost increases would be borne by Alberta's gas-intensive industrial sector and Ontario's residential power customers, according to the report, which was commissioned by the Canadian Energy Pipeline Association.

"The costs of delay are significant to Canadians, not only in the form of lost jobs and other opportunities, but also in higher natural gas prices," CEPA president David MacInnis said.

"Governments have got to act, and soon, in order to allow timely project development."

Aiming to gauge the costs of delaying construction of key gas pipelines, the study estimates that deferring the Mackenzie Valley gas project by even two years will add 15 per cent to prices over the next decade.

When the added cost ($1.41 per million cubic feet, or 12 per cent of current prices) is multiplied by Canada's anticipated gas consumption, the expense over the next 20 years tallies up to an estimated $57.7 billion.

That whopping figure is underpinned by a variety of assumptions, which CEPA readily admits aren't likely to play out to form. Most notably, it assumes other fresh sources of gas supply, such as an Alaskan pipeline project and proposals for liquefied natural gas plants on the U.S. Gulf coast also experience two-year delays.

Such presuppositions, MacInnis noted, don't scuttle the report's utility.
While exact predictions are always impossible, studies such as CEPA's, the pipeline industry's main lobby group, do offer policymakers insight into an issue's magnitude, he said.

"You can quibble about the overall dollar figure. You can say it's self-serving, but at the end of the day it's not the only study out there," MacInnis said.

"It's supported by other studies, and I think it's indicative of the problem we're facing."

Burgeoning consumption coupled with limited new supply has led to widespread acceptance that gas prices, which closed last week at $11.50 a gigajoule, at least triple historical levels, are poised to stay high for several years.
Offering at least some relief are proposals such as the Mackenzie Valley pipeline, a $7.7-billion project that would bring northern gas to southern markets.

A Mackenzie line, however, has been stalled since April, when its backers halted development.

Onerous cash demands from northern communities and excessive bureaucratic red tape were among the key risks cited by its proponents, led by Imperial Oil Ltd.
As it stands, the development group still isn't convinced the investment makes economic sense over the long haul, Tim Hearn, Imperial's chief executive, said recently.

"We are not asking for handouts," Hearn told reporters after a speech to Calgary's Chamber of Commerce.

"We are looking at a fiscal framework that will make the pipeline economic. . . . Today, under current conditions, we don't have an economic project."

The project's backers, which also include ConocoPhillips, Shell Canada Ltd., ExxonMobil Corp. and the Aboriginal Pipeline Group, plan to tell regulators in November whether they wish to go ahead with public hearings, the next step in getting a line built.

The CEPA study represents industry's most recent volley to get Ottawa moving on the file.

Big Oil's wish list is primarily two-fold: stripping down the regulatory approval process to a few bodies from the tangle of agencies that currently have a say; and abdicating itself from providing infrastructure funding to the North, a responsibility it believes rests solely with Ottawa.

The date for gas to start flowing from a Mackenzie Valley line has already been pushed back to 2011, at least two years later than original estimates.

Further delays, MacInnis noted, will result in direct and quantifiable costs for Canadians.

In particular, Alberta's oilsands, a voracious user of natural gas, will be dinged by higher costs. Likewise, Ontario power generators, which are phasing out coal in favour of gas-fired plants, will also be hit hard if prices stay high.

"If (a northern pipeline) is built in a timely manner it will have a moderating effect on natural gas prices," said MacInnis.

"The alternative is something in the neighbourhood of that $57 billion."

Paul Haavardsrud - Calgary Herald