Indian and Northern Affairs Minister Jim Prentice denied reports that said the federal government is eyeing a stake in the massive Mackenzie Valley natural gas pipeline project.

"No, it's erroneous, that is not happening," Prentice told CBC News on Friday.

"It's not an option that I am looking at as minister. Plan A or Plan B or any plan has to be a free enterprise-based model for the Mackenzie Valley pipeline."

Published reports Friday in the National Post, citing anonymous sources, indicated Ottawa is looking at buying out a consortium led by Imperial Oil.

The newspaper said cabinet has given Prentice approval to look into the option of the federal government buying a controlling interest.

Fred Carmichael, the chairman of Aboriginal Pipeline Group, which represents aboriginal groups in the Northwest Territories, said he was disappointed to hear Ottawa will not become a partner in the project.

Aboriginal Pipeline Group is aiming at getting a one-third stake in the pipeline. Carmichael said having Ottawa as a partner in the project would be an investment in northern infrastructure.

"They've been doing it all over the country. I don't know why they can't do it in the North," he said Friday.

"You don't win battles by laying down and giving up and I'll continue to push someone like Imperial or anyone else. If they don't think they want to be in this, they should do the honourable thing and get the heck out ... open it up for others to step in here."

Carmichael said his group would welcome "equity participation by the federal government because we know this project is economically challenged."

Tax concessions preferred to equity stakes: Imperial

On Thursday, a spokesman for Imperial Oil said that having the federal government buy a stake in the pipeline is possible, but it's not the preferred option.

"For the federal government to simply assume an equity position in the project wouldn't change the fundamental economic challenges of the project, which is to produce this gas and … to bring it to the burner tips of our customers at a cost that's competitive," said Pius Rolheiser.

He said other measures, such as royalties and tax reductions, would have a bigger impact on the project's economics.

In March, Imperial Oil said the projected cost of the project in the Northwest Territories is $16.2 billion, more than double previous estimates. The previous cost estimate for the project was $7.5 billion.

In a filing with the National Energy Board, Imperial also revealed that production will start no sooner than 2014, three years later than the previously scheduled startup date.

Link to southern markets

A consortium led by Imperial wants to build a 1,220-kilometre pipeline along the Mackenzie Valley in the Northwest Territories to the Alberta border, where it would connect with existing pipelines and link to southern markets.

The consortium includes ConocoPhillips Canada, Shell Canada, ExxonMobil Canada and Aboriginal Pipeline Group.

An oil and gas sector analyst downplayed the notion of Ottawa getting involved in the project.

"Once they got out of Petro-Canada, I think the federal government made it clear that they were going to stay out of the oil and gas business," David Doig, of Research Capital in Calgary, told CBC News.

The economics of the project are a major stumbling block to its development, he said, adding that he believes double-digit natural gas prices are necessary for it to go ahead.

Natural gas prices are trading on the New York Mercantile Exchange at around $8 US.

With files from the Canadian Press