N.W.T. feeling crunch in oil sector
More than $2.6 billion worth of energy-related capital commitments in the Northwest Territories are threatened by the plunge in oil prices, says the region’s minister of industry, tourism and investment.
“When you look at Northwest Territories today, it is a high-cost environment. So, certainly we are going to be impacted [by falling prices],” David Ramsay, who oversees the N.W.T.’s oil and gas sector, said in an interview.
“If low oil prices become the norm over the next, say, two to three years, it will have an impact,” Mr. Ramsay said. “If it is a short excursion to US$50 range and it bounces back, then it’s not going to have as big an impact.”
The price crunch comes less than a year after N.W.T. took over responsibility for public land, water, and resources in the territories as part of the devolution of powers from the federal government.
Chevron Corp. is among the major companies that had made sizable commitments totalling about $2 billion to drill in the Beaufort Sea and another $635 million for an onshore shale play.
In December, Chevron Canada Ltd. told the National Energy Board it was putting its Arctic drilling plans “on hold indefinitely,” citing “uneconomic certainty” as one of the reasons. The company also withdrew from an NEB hearing on Arctic drilling rules. Chevron has two licences to explore in the Beaufort Sea, holding one outright and a 60% stake in another with Statoil ASA.
Husky Energy Inc. has already halted work on its onshore Canol shale assets.
“Last spring, we deferred our exploration program at Slater River to further evaluate how best to move forward. No further decisions have been made since that time,” said Husky spokesperson Mel Duvall.
N.W.T. forms part of Husky’s long-term “2020+” plan, according to its latest presentation, suggesting the company does not see the region as an immediate opportunity.
Undeterred, Mr. Ramsay says he is working to complete the first draft of a new oil and gas strategy unveiled by the spring, with the aim to finalize it before elections in the fall.
“We need to be looking at incentives to be a favourable jurisdiction for companies to want to invest in. You will see the Northwest Territories more aggressive in promoting the opportunities that exist here.”
Royal Dutch Shell PLC’s troubles in the nearby Chukchi Sea where its drilling rig ran aground underscores the challenges of operating in the tough environment. However, the company said it is returning to the Arctic this summer.
Meanwhile, Imperial Oil Ltd., which leads a joint venture with Exxon Mobil Corp and BP PLC, said its plans to test the deepwater Beaufort play have not changed and is proceeding with the regulatory process in the region. The company expects to start drilling in the summer of 2020.
Mr. Ramsay says Japanese companies showed considerable interest in the region’s resources during his government’s trade mission to Asia last week.
Japan Petroleum Exploration Co. Ltd. (JAPEX) has expressed an interest in the long-delayed Mackenzie Valley pipeline to take natural gas from the Beaufort Sea to Alberta.
The pipeline was approved in 2010 after a long drawn-out regulatory process, but never got off the ground due to high costs.
JAPEX, which has a US $4billion stake in Petronas’ liquefied natural gas project in Prince Rupert, B.C., is possibly eyeing the N.W.T. to ensure its LNG project has a steady stream of supply, although discussions are exploratory in nature for now.
“The further LNG advances in British Columbia, the more hope we have for Mackenzie gas,” Mr. Ramsay said.
The government is also hoping to tap into N.W.T.’s 16.4 trillion cubic feet of marketable natural gas in the area, the Beaufort Sea and the surrounding islands.
“We are in discussions with some companies for smallscale LNG. We are looking at the technology right now, so we could see LNG replace diesel in small communities and also in industrial use.”
Despite its hydrocarbon riches, diesel prices in N.W.T. averaged about $1.60 per litre, compared to 92.5¢ in Toronto at the end of last year, according to government data.
The N.W.T. government is also looking to engage Ottawa in the Arctic Gateway pipeline propose that would connect Alberta oil to the port of Tuktoyaktuk en route to the transAlaska pipeline.
Premier Bob McLeod and his cabinet are in Ottawa for a three-day trip that started Thursday to discuss the development of the region’s natural resources.