PM puts stamp on Arctic as shipping and resources trigger global competition for riches of NWT

BY FRANK O'BRIEN

As Prime Minister Stephen Harper wrapped up a five-day tour of the North this August - an annual trip meant to underline Canada's claims to sea lanes and resources - the 100,000-tonne Russian tanker Baltica left Europe loaded with gas concentrate for China, the first high-tonnage European tanker to navigate the Northwest Passage from west to east. A month later, a Norwegian bulk freighter owned by Tschudi Shipping Co. carried iron-ore concentrate via the Passage to Singapore, the first foreign flag bulk carrier to sail west through the Arctic waters.

Sailing along the Northwest Passage is seen as increasingly attractive by shipping companies because of the retreating ice and subsequently longer shipping season. Climate change is credited for creating a near-ice-free Northwest Passage for two months of the year, a route that can save weeks - and 10,000 kilometres - compared with shipping via the Panama Canal.

This summer marked the fourth consecutive year -- and fourth time in recorded history -- that the fabled passage was open for navigation

The melting ice is just one of the reasons why the Northwest Territories is now the subject of hot international interest - and potential conflicts.

"We must never forget that there are other nations who aggressively promote their interests in the Arctic and even when they conflict with our own," said Dmitri Soudas, Harper's director of communications, as the PM began his trip.

Northwest Territories

The Northwest Territories (N.W.T.), home to about 40,000 people, half of whom live in the capital of Yellowknife, is particularly important on the northern horizon.

The N.W.T. is not only Canada's centre for diamond mining, it also has an active oil and gas industry. Imperial Oil's Norman Wells site is the company's largest conventional oil field, producing up to six million barrels annually, and part of annual N.W.T. oil shipments of more than $375 million. The N.W.T., which has a gas industry worth about $25 million annually, is also the potential site of the MacKenzie Valley Project, a $16 billion gas line that is expected to generate 30,000 years of total employment and contribute $86 billion to Canada's economy when it is complete.

Yet, like most developments in the North, the MacKenzie pipeline has been decades in talk with little action.

MacKenzie Valley pipe

That could change this November, when the federal government is expected to decide if the massive project will go ahead. This follows a positive recommendation from a joint panel earlier this year.

"We believe it will get the go-ahead," said Jim Weller of Coldwell Bankers/Northern Bestsellers in Yellowknife.

The pipeline route would bypass Yellowknife by about 300 km, but the capital is expected to the centre for the army of consultants, engineers, oil executives and federal bureaucrats the pipeline will require.

Hay River is expected to be the pipeline's major staging area, which opens up the potential for large-scale industrial development.

Weller notes, though, that even with the pipeline approval temptingly close, there is little land speculation going on. "Up here we take a wait-and-see attitude," he said.

If approved, the MacKenzie Valley pipeline would begin as gas prices have plunged 60 per cent from its peak, but insiders say this could be an advantage in construction of the largest pipeline project in the country. The downturn in gas activity in Alberta and B.C. has lowered both labour and material costs, they note.

Diamonds

The discovery of diamonds in 1991 at Lac De Gras started the biggest staking rush in Canadian history. BHP's Ekati mine in the N.W.T. was Canada's first diamond mine. Construction began in 1997 and it opened a year later. Since then, about 78,947,507 carats worth of gem-quality diamonds have been mined in the N.W.T. - with an estimated value of $11.368 billion.

De Beers' Snap Lake Mine is the first mine ever built by the world's diamond giant outside of Africa.

The NWT diamond mines now produce 15 per cent of the world's rough diamonds, making Canada the world's third-largest diamond producer.

In the past two years, as diamond demand fell during the recession, all of the N.W.T. diamond mines temporarily shut down for weeks at a time and laid off staff. That has changed, however, with production back close to full production.

Last year, Rio Tinto's Diavik mine completed an $800 million underground expansion that includes 20 km of underground tunnels. The mine, 300 km northeast of Yellowknife, is expected to employ about 900 workers and has a lifespan of at least a decade.

Deh Cho bridge

A new bridge across the MacKenzie River, linking Yellowknife and other North Slave communities to Southern Canada year round will replace the current summer ferry service and winter ice road. It is the most expensive infrastructure project ever in the N.W.T.

Fraught with problems, the half-completed Deh Cho bridge was originally planned to cost $150 million. Taken over by the federal government and the Government of N.W.T. last year, the bridge is now budgeted at $182 million and is being finished by Prince George, B.C.-based Ruskin Construction. The toll bridge - commercial vehicles will pay $6 per tonne to start - is now forecast to complete in November 2011, but many doubt the timetable.

Yellowknife

The N.W.T. capital is experiencing a real estate recovery after a year-long downturn, and one of the key markets is multifamily residential.

The apartment vacancy rate is close to zero per cent now, after falling to 1.3 per cent last April, according to Canada Mortgage and Housing Corp. (CMHC), and the average rent is among the highest in Canada - about $1,394, to $1,600 for a two bedroom.

While much of the rentals are social housing, there are 1,771 privately owned rental apartments and CMHC found only 23 of these vacant in its April survey.

It is hard to find apartment buildings for sale, and if you do, the price per suite is a Vancouver-like $100,000, according to Weller, which has drawn investors to the tight condominium market.

A 33-unit townhouse project, by B.C.-based High Street Copper Sky Developments, pre-sold out in two weeks this spring, with prices ranging from $250,000 to $350,000.

The average price of a detached house in Yellowknife - which dropped just 6 per cent during the recession - is now $495,000, according to the Yellowknife Real Estate Board, up 10 per cent from mid-2009.

The retail sector has a vacancy rate in the 4 per cent range. A prime listing is the vacant 18,000 square foot former SAAN store, which Weller said is finally seeing some interest after three years on the market.

Yellowknife is tightly restricted on land use due to stalled land claims agreements with local First Nations that complicate government land transfers. As a result the downtown is fairly dense, with a number of highrise office towers. The office vacancy rate is 2 per cent, according to Coldwell Bankers. The latest project is a 50,000-square-foot complex built by Dundee Real Estate Investment Trust and fully leased to the federal government.

Weller expects further strength in the office sector, because of the growth of military spending in the N.W.T., and an expected influx of white-collar workers for the MacKenzie Valley project.

The complicated land issues are seen in the industrial sector, where rocky, steep and under-serviced business parks were sold by the city for $127,000 an acre two years ago and are now preselling at more than $250,000 an acre, or $6 per square foot.

For western investors, Weller said the best buy this year could be industrial land in Hay River, where the new Deh Cho bridge has made some transport land surplus and where demand is expected to accelerate when, or if, the MacKenzie Valley pipeline is approved.

from Western Investor October 2010