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Northern Pipe Dreams, Northern Nightmares

The Second Coming of the Mackenzie Valley Pipeline

Canadian PoliticsIndigenous Politics

For a moment in the seventies, the mystical North burst upon the Canadian consciousness, as “Justice Tom’s Flying Magic Circus” (a.k.a. the Mackenzie Valley Pipeline Inquiry) wound its way across the country. In 1975, at community hearings throughout the Northwest Territories, fiery Dene activists like Frank T’Seleie from Fort Good Hope condemned Bob Blair, president of Foothills Pipelines Ltd.: “You are like the Pentagon, Mr. Blair, planning the slaughter of innocent Vietnamese. Don’t tell me you are not responsible for the destruction of my nation. You are directly responsible. You are the twentieth century General Custer. You have come to destroy the Dene Nation. You are coming with your troops to slaughter us and steal land that is rightfully ours. You are coming to destroy a people that have a history of thirty thousand years. Why? For twenty years of gas? Are you really that insane? The original General Custer was exactly that insane. You still have a chance to learn.”

Packed with so many memorable quotations, it’s no wonder that Justice Thomas Berger’s report, “Northern Frontier, Northern Homeland,” went on to become a best-seller, galvanizing public opinion against the pipeline. Today, Frank T’Seleie is a director of the Aboriginal Pipeline Group (APG), which is seeking $1 billion in financing to become a one-third owner of the recently proposed Mackenzie Gas Project (MGP). Many Canadians remember that the Berger Inquiry recommended a ten-year moratorium on pipeline construction so that Aboriginal land claims could be settled. Few remember that the Berger Inquiry also stated that conservation areas needed to be set aside and land-use plans had to be completed before a pipeline should be built. It is noteworthy that, prior to the construction of the Alaska oil pipeline, about half of Alaska was set aside as conservation lands.

Almost 30 years later, all the Aboriginal land claims in the Mackenzie Valley have been settled, except with the Dehcho First Nations in the south. After many false starts, only the Gwich’in land-use plan has been approved, and the establishment of conservation areas has barely begun.

The combined influence of the Dene Nation, the Berger Inquiry and ordinary Canadians helped stop the original Mackenzie Valley pipeline. But it was also the sudden drop in world energy prices by the late seventies that made the project uneconomical and quite painless for the Trudeau minority government to turn down. Tom Berger recently stated: “And you know we did the industry a favour by turning down that pipeline proposal 25 years ago. They could have lost their shirts.”

By the year 2000, the price of natural gas had surged from ten to 50 cents per cubic metre, and there was talk of not just one, but three competing northern pipelines. The Mackenzie Gas Project (MGP), proposed by a consortium of Imperial Oil (70-per-cent owned by ExxonMobil), ConocoPhillips, Shell and ExxonMobil, intended to connect three anchor fields from the Mackenzie Delta up the Mackenzie River valley to Alberta.

The Alaska North Slope Producers, composed of British Petroleum, ExxonMobil and ConocoPhillips, were debating whether they should ship gas from the Alaska north slope along the Alaska highway through the Yukon to the south, or “over the top,” through an undersea pipeline beneath the Beaufort Sea to the Mackenzie Delta and then following the Mackenzie Valley south.

The ArctiGas Resources Company’s “over the top” route was the wild card in the bunch, started up as a retirement project by Forrest Hogland of Houston, Texas, former CEO of Enron, major Republican campaign donor and Dick Cheney’s erstwhile golf partner. Finally, there was the possibility of also connecting Mackenzie Delta gas to an Alaska Highway pipeline via the “Dempster Lateral.”

Veteran Aboriginal politicians and petroleum entrepreneurs Nellie Cournoyea, of Inuvik, and Harry Deneron, of Fort Liard, convened all the Aboriginal groups in the Northwest Territories to begin negotiating a business partnership. Faced with the prospects of several competing pipelines, negotiations were mysteriously initiated only with the MGP. With seed funding from the federal and territorial governments, the Aboriginal Pipeline Group (APG) negotiated an agreement where it could purchase a one-third share in the $3-billion MGP, assuming it could find an extra one-third more gas to put in the pipeline. By late 2001, all Aboriginal groups except the Dehcho First Nations had signed on.

Despite the Canadian government’s formal claims of neutrality on the routing issue, repeated slips made it clear that Prime Minister Chrétien was lobbying George W. Bush for the MGP. During a press conference about Dick Cheney’s National Energy Policy in March, 2001, Bush volunteered that he had been having extensive discussions with Chrétien about Canadian natural gas. In a speech to the Canadian Association of Petroleum Producers in April, 2001, Chrétien stressed his follow-up phone call to Dick Cheney promoting Mackenzie Delta gas. By July, 2001, the cat came out of the bag when a live microphone at the Genoa G-8 summit caught Chrétien chatting up Bush about the merits of a single gas pipeline through northern Canada.

Having converted most of the Aboriginal elites to novitiate investors, the federal government was suddenly hard-pressed to provide a loan guarantee for $1 billion, perhaps fearing that this would be really bad form. Curiously, neither the Inuvialuit, nor the Gwich’in, nor the Sahtu, all of whom had settled their land claims for cash payouts totalling over $300 million, were willing to risk any of their own cash in the venture.

After being turned down by conventional lenders, the APG finally found an angel investor in TransCanada Pipelines, which lent the APG $80 million in 2003 for its share of engineering and environmental studies in exchange for a possible five-per-cent ownership share in the MGP project. The remaining cash still remains to be raised, and the additional one-third gas still remains to be secured. The APG’s own documents predict borrowing costs at an astounding eight-per-cent interest at a time when the prime business lending rate is 4.25 per cent. As pipeline tariffs are regulated by the National Energy Board, the gross rate of return is predicted at a modest 12 per cent. This will result in a net rate of return of only four per cent, even before any management and administration fees are deducted.

It’s clear that the real money isn’t in the pipeline, but in the producing gas fields, where the rate of return can exceed 80 per cent. Conveniently, many of the new gas fields will be built on sub-surface lands owned by the Inuvialuit Regional Corporation. In 2000, some of these lands were leased to industry for $75 million, with a royalty rate of five to 10 per cent and subject to the Inuvialuit’s right to acquire an interest in successful projects of up to 25 per cent.

Without a doubt, the Inuvialuit are shrewd entrepreneurs. By convincing the other Aboriginal groups to sign on to the APG, they have defused most political opposition to the MGP, since the APG deal requires all the groups to actively support the pipeline in the regulatory process. Even more importantly, the Inuvialuit have significantly reduced the costs of the MGP to cross other Aboriginal lands. As partial owners of the MGP, the Sahtu and the Gwich’in will be deterred from negotiating costly access and benefits agreements on their own lands, since they would in effect be negotiating with themselves and cut into their own potential profits.

Having negotiated and settled most land claims on a regional piecemeal basis, the federal government was faced with the task of co-ordinating dozens of regulatory and environmental assessment boards to review the pipeline project. Starting in late 2000, well before a formal pipeline proposal had been submitted, the federal government convened all the regulators, including the Inuvialuit, Gwich’in and Sahtu co-management boards, to develop a “pipeline co-operation” plan. Although competing pipeline proposals were still on the table, only the MGP was invited to brief the regulators. With 40 per cent of the pipeline covering their territory, and as the only Aboriginal group without a stake in the APG, the Dehcho First Nations were not invited as participants based on the rationale that they did not have a settled land claim and did not have any formal jurisdiction over their land.

The resulting “co-operation plan” looked more like a plan about how not to co-operate. For most Canadian pipeline projects, standard practice has been to establish a single “Joint Review Panel” composed of the National Energy Board, the Canadian Environmental Assessment Agency and sometimes a provincial or territorial agency. For the MGP, the largest-ever pipeline project in Canadian history, the “co-operation plan” inexplicably de-linked the National Energy Board’s “public interest” mandate from the Joint Review Panel charged with environmental assessment. The “co-operation plan” went further, stating that parallel and concurrent hearings would somehow be carried out between all these separate agencies. Finally, the MGP ends exactly 15 metres south of the NWT border, leaving the Alberta Energy and Utilities Board to assess the remaining connections to the Alberta pipeline network. After years of fruitless attempts to become full participants in the “co-operation plan” and offering numerous positive suggestions for real co-ordination and streamlining, the Dehcho First Nations initiated legal action against the signed inter-agency agreement in August, 2004.

For months there had been rampant speculation about the cumulative effects of the MGP. How many new gas fields would be required to feed the pipeline? How much of the gas from the MGP would be diverted to feed the hungry Alberta tar sands, further escalating greenhouse-gas emissions? On October 7, 2004, the MGP finally submitted its environmental impact statement to the Joint Review Panel and its application for a “certificate of public convenience” to the National Energy Board for the project whose price tag had now escalated to $7 billion. Running at close to nine thousand pages, the size and weight of the document didn’t astound anyone, but its glib conclusion about the absence of any significant cumulative effects certainly did.

Much to everyone’s surprise, the Joint Review Panel sent the MGP back to the drawing board in early December, 2004, with a 21-page list of deficiencies including the need to map out all the wells and infrastructure required to keep the pipeline running at its maximum capacity of 1.8 billion cubic feet per day. However, the Canadian Arctic Resources Committee (CARC) had already been busy doing the very same thing by simply mapping out the MGP’s own future gas-production data. These data had been submitted to the National Energy Board as part of the requirement to prove there is enough gas to justify building a pipeline. Reprinted in newspapers across Canada in January, 2005, the CARC maps showed how the northern half of the Mackenzie valley would become covered with a spider’s web of pipelines, wells and seismic cut-lines by 2027.

The connection of the MGP to the Alberta tar sands, recently recognized as the world’s second-largest proven source of oil next to Saudi Arabia, still remains to be fully disclosed. By splitting the project at the NWT-Alberta border, government regulators are effectively evaluating a pipeline to nowhere. Based on TransCanada’s own system reports, there is not enough capacity to accommodate an extra 1.2 to 1.8 billion cubic feet in the northwestern portion of its pipeline grid. While publicly denying media reports that it was going to build a pipeline directly to the tar sands, TransCanada was simultaneously promoting the tar sands as a consumer of an additional 2.3 billion cubic feet per day of gas to investors. As shown in TransCanada’s own promotional material, the MGP really involves the construction of the “North-Central Lateral” pipeline directly to the tar sands.

The tar sands are like composting caviar or alchemy-in-reverse, where a clean fuel (natural gas) is burned to steam out and upgrade a dirty fuel (crude oil). In 2000, the tar sands were already the fourth-largest source of greenhouse gases in Canada. With billions of dollars being invested in new pits each year, the tar sands are expected to increase their emissions to 90 million tonnes of carbon dioxide by 2020, even before the synthetic crude oil is actually refined or burned. Fuelled by arctic gas, the tar sands would become the single-largest addition to Canada’s greenhouse-gas emissions, which already exceeded Kyoto targets by 156 million tonnes in 2002.

The owners of the MGP also just happen to be the majority owners of the tar-sands projects, representing a combined investment of over $30 billion in 2003, with a planned total investment of $80 billion by 2020. The MGP is the ultimate in vertical integration, bringing very low-royalty arctic gas to extract one of the last gigantic sources of oil on earth.

For a combined project of this scope and immensity, resistance or indeed even criticism has been remarkably muted. After over 30 years as the “Voice for Citizens on the Canadian North,” CARC is in dire financial straits. The Dehcho First Nations are trying to negotiate an out-of-court settlement to limit the impact on their lands, while the Sierra Club of Canada takes a few pot-shots all the way from Ottawa. The children of yesteryear’s Aboriginal radicals have formed the small-but-growing Arctic Indigenous Youth Alliance (formerly Dene Youth Alliance), inspired by both the traditional teachings of their Elders in their home communities and the anti-globalization movement during their southern university sojourns. The largest environmental groups in Canada, World Wildlife Fund (WWF) and the Canadian Parks and Wilderness Society (CPAWS), have recently secured $9 million in federal funding to study the possibility of establishing protected areas, but have been silent on the MGP and tar-sands connection.

No wonder, as both WWF and CPAWS are almost exclusively funded in the North by the Pew Charitable Trusts of Philadelphia. With $4.1 billion in assets and hundreds of millions in revenue from petroleum investments, the Pew Charitable Trusts were originally established to acquaint Americans with “the evils of bureaucracy, the paralyzing effects of government controls on the lives and activities of people, and the values of the free market.” J. Howard Pew lived up to “his reputation as a champion of free enterprise and an enemy of godless communism” by sinking $240 million into the first tar-sands project at Fort McMurray in 1967 to wean North Americans off foreign oil. Sunoco, the Pew family company, is also now a major refiner of tar-sands crude. After years of funding right-wing extremists like the John Birch Society and Jerry Falwell’s Heritage Foundation, the Pews may have realized by the 1990s that a mere $40 million a year spread among virtually all the mainstream environmentalists in North America might yield a better bang for their buck, after all.

However, the Pews don’t have to spend a dime influencing the Aboriginal corporate class. Nellie Cournoyea, CEO of the Inuvialuit Regional Corporation, who oddly happens to be a director of the national Inuit organization ITK, which has just begun a major national campaign about global warming, speaks loud and clear:

“Much more important to a northern, and I think to a Canadian perspective, is the potential for development of Canadian frontier natural gas reserves…. The Beaufort-Mackenzie basin represents one of the last major undeveloped hydrocarbon basins in North America, containing what is estimated to be 64 trillion cubic feet of Canadian natural gas reserves, plus additional and significant oil reserves…. I appeal to you to engage with Northerners in forging public policy approaches that will serve the interests of northern aboriginal people, and other northern Canadians who have invested their lives here, and of Canadians generally…. It is important to Northerners, and I think to all Canadians, that engagement in northern public policy be founded on an informed understanding of northern Canada as it truly is today. We do not need decisions to be distorted by the uninformed yearnings of some urban Canadians, nostalgic about canoeing trips they will never take anyway into a wilderness they only imagine…. The definition of environmental issues is a job for Northerners, not for southern or international environmentalists, nor for corporate or government bureaucrats whose families are thousands of miles away from the impacts.”

Canadians can choose to be bullied and intimidated by these paradoxical double-bind statements that simultaneously invite and repel. Or Canadians can take to heart that we all have legitimate and deep attachment to the Spirit of the North, regardless of whether we can ever afford to see it for ourselves or even actually have the privilege of living up here.

This northern public-policy dialogue should not be about stopping a pipeline and choking off all industrial opportunities in the North, but about the scope and scale of energy development. All Canadians should rightly question whether we can afford to export most of our finite oil and natural gas to the United States, which can never be cut back under the terms of NAFTA. All Canadians should rightly question whether we can afford to over-heat the planet and undermine our international treaty obligations by digging up every square inch of the Alberta tar sands. And all Canadians should rightly question why Justice Berger’s common-sense recommendations about land-use planning and conservation areas still haven’t been implemented after almost 30 years. Just like the Dene and the Inuvialuit of the North, we all have a choice of struggling for self-determination or mutating into hypocritical patsies beholden to multinational petroleum capitalists who think they own the world.

Petr Cizek is an independent environmental consultant living in Yellowknife. He is also a contributing editor for Alternatives Journal at the University of Waterloo, and a columnist for the Far North Oil and Gas Review. His technical work has been published by the Canadian Arctic Resources Committee (Ottawa), the International Working Group on Indigenous Affairs (Copenhagen) and the United Nations Environment Program (Oslo-Nairobi).

This article appeared in the March/April 2005 issue of Canadian Dimension .

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