Elusive pipe dreams

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Prime Minister Stephen Harper and his wife Laureen at Moose Pond, N.W.T. (ADRIAN WYLD / THE CANADIAN PRESS)

During his five-day tour of northern territories this week, Prime Minister Stephen Harper heard a great deal about the need for roads, seaports and pipelines to bring the region's minerals to buyers in southern Canada and overseas. Physical remoteness from industrial markets is one of Northern Canada's most obvious economic handicaps, and it's a tough one to deal with.

Mr. Harper is a big believer in the importance of the Arctic for Canada. He visits the region every year and has promised a deep-water port at Nanisivik, a research station in the Arctic islands and a satellite communications service -- all of which still await fulfilment. Plans for enhanced military presence in the North fell foul of the government's cost-cutting drive.

The Mackenzie Valley Gas Pipeline project of Imperial Oil and others is one of Canada's greatest unbuilt infrastructure projects. After years of investigation and litigation over aboriginal title and further years of environmental review, the project won National Energy Board approval in 2010. It is not being built, however, because U.S. oil and gas exploration companies have found ways of extracting great volumes of natural gas that were previously not recoverable. In the present glutted natural-gas market and low natural-gas prices, the expense of the Mackenzie Valley line is difficult to justify.

Northerners eager to see the Mackenzie Valley line built believe it was killed by too much environmental review. The Harper government agreed and changed the National Energy Board Act to allow itself to set limits to environmental review and speed up approval. The three-member panel studying Enbridge Inc.'s proposed Northern Gateway gas pipeline from Alberta to the Pacific Coast is now operating under the government's tighter timeline.

But it is just as reasonable to conclude that the Mackenzie Valley line is a technically good project that just has to wait until somebody needs the gas badly enough to pay for construction of the line. Environmental review didn't kill a good project -- it delayed an unnecessary project. If the Mackenzie Valley line was reaching completion today, it might stand idle for want of buyers for the gas. The investors would be stuck with an engineering marvel that lacks, for the moment, an economic purpose.

The global energy landscape is littered with the detritus of last year's big ideas. In the U.S., builders of wind turbines and towers are laying off workers because the federal tax credit for wind farms may not be extended past the end of this year, depending on the November election outcome. Without the assurance of the tax credit, nobody's buying equipment for next year. Solar-panel manufacturing became so competitive that manufacturers in the U.S. and overseas are losing money. The sector awaits consolidation. In Germany, the government decided to phase out nuclear plants and asked the power companies to switch to coal or natural gas. Coal is so cheap and abundant in Germany that the newest power station, commissioned last week near Cologne, burns lignite. The move away from nuclear power will therefore sharply increase Germany's carbon dioxide emissions.

A power station or a pipeline or a deep water seaport will last many years and must be paid for over many years. The decision to build such a project should not be based on the market conditions or the political fashions of the moment but on the enduring usefulness of the project. If a buyer of minerals from the Canadian North wants a steady supply of mineral over a period of years, let them buy at a price and over a term that will pay for the infrastructure cost. If there is no such buyer, then the project will just have to wait.

Mr. Harper is quite right to look for opportunities to support northern development. Canadian governments have looked in that direction off and on for many decades. But Canada does its northern people no kindness by announcing projects that cannot pay for themselves.

Republished from the Winnipeg Free Press print edition August 25, 2012 A14