Imperial Oil Ltd has upped its cost estimate for the Mackenzie Gas Project in Canada’s far north by about 40% because of rising prices for materials and labor, meaning the entire project would cost more than $20 billion if it goes ahead.
Imperial, 69.6% owned by Exxon Mobil Corp, said it has still not decided whether to proceed with the long-delayed project given the weak state of the North American natural gas market.
Imperial is the lead company in the Mackenzie Gas Project consortium, which also includes ConocoPhillips, Exxon Mobil Canada, Royal Dutch Shell PLC and the Aboriginal Pipeline Group.
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“The Mackenzie Gas Project proponents have not yet made a decision to construct the project because of the current natural gas market conditions,” Imperial said in a filing to Canada’s National Energy Board (NEB).
The project involves building a 1,196-kilometre (750-mile) pipeline system along the Mackenzie Valley in the Northwest Territories to link natural gas wells in the far north to southern markets.
It has been beset by delays and rising costs as well as concerns about North American gas prices, which have dived in recent years due to rapid development of shale supplies.
Imperial Oil said cost estimates for the gas-gathering system and Mackenzie Valley pipeline have increased to a total of C$16.1 billion, compared with a 2007 estimate of C$11.3 billion.
That does not include the cost of developing three natural gas anchor fields in the Mackenzie Delta on the Beaufort Sea coast, which in 2007 Imperial put at close to C$5 billion.
The company did not provide an updated total cost estimate for the entire project but it would have to be more than C$20 billion now, even if the gas-field estimate has not risen.
Imperial’s 2007 estimate for the entire project was $16.2 billion.
Increasing costs for materials and labor are problems that could haunt other major energy infrastructure projects being proposed in Canada, including Enbridge Inc’s Northern Gateway pipeline, which was given the green light by the NEB last week.
The tight labor market in Western Canada, home to the country’s vast oil sands, is a persistent headache for energy producers building new oil and gas projects.
Thomson Reuters 2013