Is Northern Gateway quietly being shelved?

Enbridge has so far sidestepped the worst of the energy downturn, earning $88 million in fourth quarter of 2014, and $1.1 billion for 2014 as a whole, more than double what it earned in 2013.

Enbridges CEOAl Monacocalled 2014 a successful year on many fronts.

Monaco was talking about progress on several of the company'ssmaller pipeline projects, like Line 9 between Ontario and Quebec, or Flanagan South in the U.S.

He wasnt talking about the Northern Gateway pipeline project, which was approved last year by the federal government, subject to 209 conditions.

But since that June 2014 decision in Ottawa, things have been mighty quiet on the Northern Gateway front, with no mention of the pipeline in the Q4 earnings, nor in the end of quarter conference call, and only a page dedicated to the project in Enbridges 75-page year-end information form.

Thatraises the question: Is Northern Gateway being quietly shelved?

They've been posturing about this for some time. And the bottom line is that they dont have all the answers that they suggest they do in public.- Michal Moore, University of Calgary

In its annual filing, Enbridge did say that Northern Gateway is going to be substantially more expensive thanthe most recent cost estimate of $7.9 billion, in part because of the cost of satisfying the 209 conditions imposed by the federal government. The company has not yet released the new cost estimate, but did say the earliest it will be in operation is 2019.

There are numerous hurdles to be overcome before then:

• Meet 209 conditions - fewer than 30 have been fully completed
• Bring aboriginal communities onside - 26 of 45 have signed up
• Deal with First Nations court challenges
• Secure continued commercial support
• Satisfy British Columbias conditions

Enbridge may not have decided

Michal Moore, director of energy and environmental policy at the University of Calgarys School of Public Policy, says its likely that Enbridge itself doesnt know if it can make Gateway happen.

"Keep in mind that at the end of the day they just may not know,"says Moore. Theyve been posturing for a long time about this and the bottom line is that they dont have all the answers that they suggest they do in public."

Focus on smaller projects

In the earnings conference call, Guy Jarvis, Enbridges president of liquids and pipelines said that with the current opposition to pipelines, its easier to make incremental changes to the existing network to get oil flowing to U.S. ports.

"All of these involve relatively small, low cost, bolt-on projects that can be staged in increments as required to meet shipper needs,"said Jarvis.

The company also said in the call that it expects Keystone XL to be in operation in 2019 and for one of the West Coast pipelines to be operating in 2020. That would be either Northern Gateway or Kinder Morgans Trans Mountain pipeline expansion.

Its notable that it didnt express any confidence Gateway would be the pipeline in operation, even though it is further ahead in the regulatory process and Kinder Morgan is facing a lot of opposition of its own.

At the same time, with the price of oil expected to trade below $80 US a barrel for the next few years, expansion of the oilsands will slow, lessening the long term demand for pipeline capacity.

At the end of the day, is shipping crude oil anywhere but down to PADD 3 [the U.S. Gulf Coast]the answer?"says Moore.

First Nations relationships remain troubled

But as we all know, the main problem continues to be Enbridges relationship with First Nations along the pipeline route. Although more than half have signed up, many of those who havent remain staunchly opposed to the project.

Nine court challenges against Enbridgehave been merged into one case that is questioning both the reasoning for approval of the pipeline and Enbridges consultation with First Nations in B.C. That challenge is expected to go to hearing in the fall of 2015.

In the meantime, Northern Gateways spokesman Ivan Giesbrecht says that the company is still working on its relationship with First Nations and Mtis groups in BC.

"Building more long-term meaningful partnerships with these communities is our priority right now," says Giesbrecht.

Ownership shake-up

Late last year, the president of Northern GatewayJohn Carruthers said that the company is working on a new ownership structure, in which more control and ownership is given to First Nations along the route, leavingEnbridge as a partial owner and operator of the pipeline.

Ownership of Northern Gateway would be independent of Enbridge possibly a limited partnership that would be governed by the pipelines energy company shippers, the aboriginal equity partnersand Enbridge.

That ownership would allow more benefit to flow to the First Nations along the route, but also shifts the risk, says Michal Moore.

Theyll get a little farther along, than they were going the other way. But you pile up all the uncertainties and youve got a risk exposure thats probably more than the cost of the project.