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Tube, pipe makers in holding pattern for Canada, Alaska

Keywords: Tags  steel tube and pipe market, energy market, Mackenzie Valley natural gas pipeline, Imperial Oil Ltd., ConocoPhillips, Parsons Lake natural gas field, Alaska North Slope,

A series of developments in Canada and Alaska have forced steel tube and pipe interests to take a wait-and-see approach to regional energy projects, with one major initiative stumbling as another starts—slowly—to get off the ground.

Spending on the massive Mackenzie Valley natural gas pipeline in northern Canada has been scaled back, in part due to burgeoning shale gas production elsewhere in North America. But despite the cuts, the Canadian $16.2-billion ($16.4-billion) pipeline project isn’t dead, or even on hold, a spokesman for the project’s operator, Calgary, Alberta-based Imperial Oil Ltd., told AMM. “Just to be clear, the project is still alive,” said a spokesman for Houston-based energy company ConocoPhillips Co., another stakeholder in the project. 

ConocoPhillips announced in early April that it expected to take a $525-million after-tax write-down during the first quarter on the Mackenzie pipeline, as well as associated gathering systems and the Parsons Lake natural gas field in the Northwest Territories. While new capital spending on the project has been suspended, planned expenditures are still in place, particularly for general and administrative costs, the ConocoPhillips spokesman said.

An oversupply of natural gas in North America has seen storage facilities filling up, the spokesman said, noting that the main reason the energy company decided to take the write-down was low natural gas prices resulting from increased shale production.

The slowdown also has resulted from a lengthy government approval process spanning seven years at the same time that construction costs have increased and the landscape of the North American natural gas market has changed significantly, the Imperial spokesman said. “North American unconventional gas supplies have changed the picture and have reduced the commercial viability of the Mackenzie project,” the spokesman said.

The cutbacks include closing project offices in Fort Simpson and Norman Wells, both in the Northwest Territories, while a Northwest Territories office in Inuvik faces downsizing. The Imperial spokesman declined to say to what extent spending had been cut or how many employees might be impacted by the scaling back of operations.

“We will continue to consult with our stakeholders . . . (and) continue to speak with the government,” the ConocoPhillips spokesman said. “We want to be in a position that, when gas prices improve, we are able to get this project moving quickly.”

The Imperial spokesman declined to say whether the companies involved in the Mackenzie pipeline project might seek alternatives for their natural gas reserves, such as liquefied natural gas (LNG) exports. “I can’t speculate about what may or may not be ahead for this project,” he said. 

Imperial told AMM last year that a decision on whether to move ahead with construction likely wouldn’t be made until late 2013 at the earliest, and that the soonest gas might actually flow from the pipeline—assuming it were built—would be late 2018 (AMM, July 22). Both Imperial and ConocoPhillips spokesmen declined to confirm that timeline or provide an updated one. “There is no timeline,” the ConocoPhillips spokesman said. “We wait.”

The Imperial spokesman reiterated that it was still too early to say what kind of pipe might be used for the project, how many tons might be required or who might supply it.

Both Imperial and ConocoPhillips are part of a consortium of companies backing the long-delayed mega-pipeline, which is slated to move natural gas 745 miles from the Beaufort Sea south along the Mackenzie River Valley through the Northwest Territories and into Alberta. Other partners in the consortium include Halifax, Nova Scotia-based ExxonMobil Canada Ltd. and Calgary, Alberta-based Shell Canada Ltd. and Aboriginal Pipeline Group.

Meanwhile, a group of energy companies has agreed to go ahead with long-delayed plans to develop a big natural gas field on Alaska’s North Slope. But the companies—including London-based BP Plc, ExxonMobil and ConocoPhillips—have changed their original plans and are instead looking to export LNG from south-central Alaska.

The group of energy companies has agreed to develop the Point Thomson natural gas field, which contains a quarter of the North Slope’s known natural gas reserves. “Last fall . . . I told the producers I wanted to see them pursue a large-diameter line (to the coast),” Alaska Gov. Sean Parnell said in a statement, adding that the three energy producers had agreed to focus specifically on a “large-scale” LNG project.

BP, ExxonMobil, ConocoPhillips and Calgary, Alberta-based TransCanada Corp. confirmed in a joint statement that they would explore the possibility of exporting LNG from south-central Alaska as an alternative to a natural gas pipeline that would have run through the Canadian province of Alberta. But they warned that the project would be difficult and would require large amounts of capital as well as cooperation from the state of Alaska. “Commercializing Alaska’s natural gas resources will not be easy. There are many challenges that must be resolved, and we cannot do it alone,” the companies said, warning that any estimate on returns from the project would necessarily “span decades into an uncertain future.”

The energy companies are still in the “concept selection” phase of the project, which includes selecting a route for the pipeline and deciding where it will run, a BP spokesman told AMM. That process, expected to be completed within a year, is necessary before decisions are made about what kind of pipe will be used and how much might be necessary for the project, he said.

“I would think before you get a real sense of how much pipe and how long (a pipeline) would be, you would want to know how big (in diameter) the pipe would be and where it’s going,” he said.

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