The 1,220-kilometre proposed pipeline would carry natural gas from the Mackenzie Delta in the Northwest Territories south to the Alberta border. (CBC)

The federal minister responsible for the proposed Mackenzie Valley natural gas pipeline wouldn't discuss a report Tuesday that suggested Ottawa may pull its financial support for the $16.2-billion project.

Environment Minister Jim Prentice declined to comment on a National Post article that raised questions about the future of the N.W.T.-based pipeline project, which has been plagued by ballooning costs and regulatory delays.

Citing unnamed sources, the Post said a federal cabinet committee rejected a financial assistance package he proposed for the project, based on concerns about the project's high pricetag.

"The Mackenzie Valley Pipeline Project, as I have said previously, is a private-sector investment that needs to make sense on an economic basis under market principles. That's what I've said repeatedly, and that continues to be the case," Prentice told reporters Tuesday in Ottawa.

"At the present time, the proponents continue to evaluate the project and to assess it and consider its merits."

Prentice declined to discuss any of the cabinet discussions relating to the pipeline with the newspaper.

Still on track: Imperial

If approved, the 1,220-kilometre Mackenzie pipeline would carry natural gas from the Mackenzie Delta on the Arctic coast of the Northwest Territories, south to the Alberta border, where it would connect with the network of Calgary-based natural gas shipper TransCanada Corp.

Imperial Oil Ltd. is the lead partner in a consortium of companies behind the pipeline. The group includes Imperial's parent company ExxonMobil Corp., ConocoPhillips, Royal Dutch Shell PLC and the Aboriginal Pipeline Group (APG).

Imperial Oil spokesman Pius Rolheiser said his company is still committed to developing the pipeline project.

"We've been continuing our dialogue with the federal government seeking an appropriate fiscal framework for the project, and that dialogue continues," Rolheiser told The Canadian Press.

"We are aware of nothing new."

TransCanada is involved in the project through its investment in the APG, which acts on behalf of aboriginal groups along the pipeline's route.

Companies will decide: APG

APG chairman Fred Carmichael told CBC News he was surprised by the Post article, saying he considers the story to be a rumour, because it did not identify the source of the information.

Carmichael said that while the federal government regulates environmental aspects of the pipeline proposal, people must remember that the consortium makes the final decision on the project's future.

"As owners of the pipeline — Imperial, Shell, ConocoPhillips, ExxonMobil and the aboriginal people, APG — we make the decision whether this is economically feasible or not and that we can make a dollar at it. And if it's not, we are responsible people; we will not proceed with it," Carmichael said.

"The bottom line is that we've got to see a return to make that happen. And we'll make that decision."

The Mackenzie project's price tag was most recently pegged at $16.2-billion, well over its $7.5 billion estimate.

As well, the regulatory process has been moving at a sluggish pace. A panel looking into the environmental and socio-economic effects of the pipeline is expected to hand down its report in December, years behind schedule.

Carmichael said that far as he knows, the panel's review is continuing and the federal government is still looking at a fiscal framework package.

The Post article also surprised N.W.T. Premier Floyd Roland, who told the legislature that the news was not confirmed.

Industry Minister Bob McLeod said it was the first time he had heard of possible changes in the pipeline project's status.

No details offered to date

In January, Prentice announced Ottawa had offered the pipeline's backers financial support for infrastructure and other costs associated with the project.

To date, no details of the offer have been released.

And that's just the problem, said Doug Matthews, an energy consultant in Calgary who for several years handled the Mackenzie file for the N.W.T. government.

"We never knew what (Prentice) was up to with the companies," Matthews told The Canadian Press.

"We don't know what was proposed. And we don't know why it was turned down. And that's what seems to be the most outrageous aspect of this whole thing."

By contrast, Americans have been well-informed about what their government is ponying up in support of an even bigger natural gas pipeline proposed for Alaska that threatens to overshadow the Canadian option.

U.S. incentives, low gas prices factors

For instance, the Alaska pipeline, backed by ExxonMobil Corp. and TransCanada, comes with federal loan guarantees and other incentives.

There are several other factors working against the Mackenzie pipeline ever becoming a reality.

One is persistently low natural gas prices. The Mackenzie pipeline likely needs prices above $7 US per 1,000 cubic feet to make economic sense, Matthews said.

On the New York Mercantile Exchange Tuesday, natural gas was fetching $4.50, a formidable recovery from its seven-year lows below $2 reached earlier this year but far from the $16-range highs reached in late 2005.

Another headwind is the discovery of enormous natural gas reserves further south in Canada and the United States that have only recently become accessible with the advent of new technologies.

For instance, the Marcellus shale formation in New York State and Pennsylvania contains several times the amount of natural gas the Mackenzie Delta does, and is located right next door to energy-hungry markets.

"The numbers these guys are bandying around are simply phenomenal in terms of recoverable reserves, let alone potential," Matthews said. "The numbers are tremendous."

With files from The Canadian Press