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Editorial comment

In last month’s Editor’s Comment I wrote about the permissions, approvals and, in particular, the public support, that a company or consortium needs to win in order to successfully build a pipeline. This month I want to look at the things that can go wrong; the things that can stop a pipeline in its tracks. By chance, recent weeks have thrown up some good examples of pipeline projects going awry.

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In a move that shocked market-watchers, Royal Dutch Shell has decided to put its 11.4% stake in the Mackenzie pipeline project up for sale, following what it claims is a company decision to review its global portfolio and concentrate on other options. The Mackenzie Gas Project is a proposed 1196 km natural gas pipeline system along the Mackenzie Valley of Canada’s Northwest Territories to connect northern onshore gas fields with North American markets. Shell’s decision to pull out of all Mackenzie Delta activities, including the pipeline, is worrying news for investors, the local economy and those hoping to work on the project. It demonstrates how a project can be threatened by the decisions of one company.

Shell’s decision to pull out comes only three months after the project received approval from the Canadian government, which gave the proponents until December 2013 to decide whether they will proceed with a commercial development. Crucial points still to be negotiated are a fiscal agreement with Ottawa and a benefits-and-access agreement with the Dehcho First Nations.

Now it is imperative that the Canadian government reaches a financial deal with the project’s remaining backers, in order to secure the future of the project. Imperial Oil is leading the pipeline’s development, along with ConocoPhillips, Exxon-Mobil and the Mackenzie Valley Aboriginal Pipeline Limited Partnership. These companies need a guarantee from the government before committing to another two years of engineering and geotechnical work for the project, ahead of a final investment decision.

This jump ship by Shell follows years of delays and wrangling over the Mackenzie project, which brings me to another point of weakness in a pipeline project’s life – how long does it have to wait in the planning stage before it gets permission to go ahead? And if a project goes cold, how difficult is it to revive and make it feasible again?

Of course, one of the reasons the Mackenzie pipeline is being held back at the moment is serious doubts over whether the gas is needed in the first place. An abundance of shale gas in the Lower 48 states may well make this pipeline ineffectual. Here we have a case of a market dynamic moving the goalposts. The unforeseen boom in domestic US shale gas production has changed the natural gas market so dramatically that the Mackenzie line is under threat. Demand must be in place for a pipeline to get into the ground, and Mackenzie will not be built if it is just going to serve as the cherry on top of the shale gas icecream sundae. The escalating costs of developing natural gas assets versus the current suppressed gas prices must have played its part in Shell’s decision to pull out of the project.

Finally, accidents and incidents can change public opinion about proposed pipeline projects. An oil spill in the Yellowstone River from ExxonMobil’s Silvertip pipeline last month has sparked fears over pipeline safety, and has been taken up as a cause by protestors who oppose TransCanada’s proposed Keystone XL pipeline, which, though unrelated to Exxon’s line, would also travel under the Yellowstone.

For more on permitting and approvals, see the CSA International article starting on p.145. This issue also includes a safety feature, not to mention our biggest ever Contractors Directory, beginning on p.20. Here’s to the contractors who make things happen once a pipeline project has survived the many potential setbacks along the way to approval.

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