The Yukon government is starting to accept that the Alaska Highway Pipeline project is a dying dream.
The option to ship natural gas from Alaska’s northern slope to tanker traffic at its southern coast, and then off to Asia, is simply more financially viable than a route through Yukon to Alberta.
That’s the plan Alaska, Exxon Mobil, BP and Conoco Phillips have all gotten behind.
The Yukon’s acting director for oil and gas resources with the Department of Energy, Mines and Resources asserts the territory has always had “open eyes” about the project.
“I wouldn’t say we were skeptical, nor would I say that we expected it to happen,” said Ron Sumanik. “What we’ve always said is this is a project that’s driven by markets, and when the project is economical it would go forward, and that’s really what drives it – the economics and commercial viability of it.
“We’ll continue to prepare. We remain optimistic that this project will come to pass, but it’s market driven.”
Preparations largely involve building an environmental and socio-economic assessment regime with the federal Northern Pipeline Agency. The agency announced earlier that the project will not be going through the Yukon’s own assessment board.
But that work has slowed, Sumanik admitted.
For example, the territory was expecting assessment documents from TransCanada, the company hoping to build the pipeline, by October.
“Those filings are not forthcoming now,” said Sumanik. “They’ve been delayed.”
The federal government remains more bullish about the pipeline’s prospects. It included $47 million to set up the assessment regime in this year’s budget.
One day later, Alaska and the companies announced they would focus on the liquefied natural gas option that stays within the northern state.
“Gives you a good idea of how plugged in the feds are,” Doug Matthews quipped in April. Matthews used to work for the Government of the Northwest Territories and now writes a column on oil and gas for Up Here Business.
He has few doubts that the Alaska Highway Pipeline project is dead.
Foreign LNG markets really are that much better, financially, for the producers.
“Traditionally there has been a link between the price of oil and the price of natural gas of roughly six or seven to one,” Matthews said. “So in other words, if a barrel of oil is selling for $42, gas was selling for six dollars, give or take.
“What we have now in North America is because we get world prices for oil – oil is selling at about $100 – but we get continental prices for natural gas – gas is selling for about two bucks – the ratio now is almost 50 to one.
“In the Far East, which is where Alaska is looking, they still go with longer-term contracts, which link the price of gas to the price of oil. You can probably sell it over there for about $14, which is a lot better than the two dollars you can get for it in North America, and that’s just the economics of it.”
But the death of the Alaska Highway project gives Matthews hope for the N.W.T.‘s Mackenzie Valley pipeline project.
Like the Alaska Highway project, the Mackenzie Valley pipeline has died and come back to life many times.
Shipping Arctic gas to southern markets is “economically challenged” by prices offered by the incredible volumes, and close proximity, of shale gas deposits in the “Lower 48,” said Matthews.
Arctic gas pipelines would have a better chance of succeeding if they weren’t fighting each other, he said.
“One of the competitive difficulties for the Mackenzie gas project always was if the Alaska Highway project went first,” said Matthews.
“Because it was bigger, it would effectively crowd the Mackenzie gas out of Alberta. Now that the Alaskan gas doesn’t appear to be heading to Alberta, you could have the Alberta market for Mackenzie gas.
“Rather than say sunset, I would say the Mackenzie gas project has just gone behind another cloud. If (the Alaska Highway Pipeline project) is right off the way, in an odd sense, it makes it a little bit better for the Mackenzie gas project.”
But that’s not a prediction, just a hope, said Matthews. He remains skeptical about either Arctic gas pipeline finding its way into reality.
But the Yukon’s pipe dream sure was a nice one.
The Alaska Highway Pipeline would produce $100 million a year in payments to the Yukon, to be divided among the territory and affected First Nations.
“If it doesn’t go ahead, it means we don’t get access to natural gas for our communities or industrial needs,” said Sumanik.
“It also means that our basins, which have gas, would not have a large-diameter pipeline to put our gas into and transport to southern markets,” said Sumanik. “This is a major, major industrial project without precedence, so employment, contracting, government revenues and access to gas for input and egress are lost opportunities if the project is not built.”
The Northwest Territories faces similar implications with the Mackenzie Valley project.
The Dehcho First Nations is the only N.W.T. First Nation that hasn’t joined the Aboriginal Pipeline Group, which has secured the right to own one-third of the pipeline, should it ever be built.
This not only means financial benefit for the aboriginal groups but also the ability to have a say in how the project is managed, Matthews added.
The task of balancing traditional lifestyle with economic development is one he doesn’t envy, but as stewards of the land, it is something northern aboriginal groups in the territories have to figure out, said Matthews.
“But there are some advantages to having some cash in the bank,” he said. “The beauty of pipelines is that they’re money generators because they get a regulated return. There’s no risk here. Once I have my clients signed up to ship, I got to the National Energy Board, they say, ‘OK, here’s how much you can charge based on your costs,’ and the companies have to pay me.
“It’s just beautiful. Just beautiful. Real simple. No risk. Nice, easy money.”
And now that the dreams for the Yukon appears to be fizzling out for good, it sounds like a great opportunity for the N.W.T. to grab.
Contact Roxanne Stasyszyn at