May 30 (Bloomberg) -- Exxon Mobil Corp., the world's largest oil company, said plans to build a pipeline to get natural gas from the Canadian Arctic to the U.S. may be shelved after cost projections more than doubled.

Imperial Oil Ltd., about 70 percent owned by Exxon Mobil, in March raised its cost estimate for the Mackenzie Valley gas project to C$16.2 billion ($15.1 billion) from an October 2004 target of C$7.5 billion.

``At those costs, it's not viable to build that pipeline,'' Exxon Mobil Chief Executive Officer Rex Tillerson told reporters today after the Irving, Texas-based company held its annual shareholders meeting in Dallas. ``It may just be that this project will have to wait for a different cost environment.''

Calgary-based Imperial blamed more than half of the cost increase on surging steel prices and regulatory delays. ``The basic costs of commodities just shot past them,'' Tillerson said. ``It's not economical at this point.''

Soaring costs also may make the tapping of Alaskan gas fields too expensive to pursue, Tillerson said. Exxon Mobil and its partners in an Alaskan gas project estimated three years ago that building a pipeline to the North Slope would cost $22 billion to $25 billion.

``My expectation is if we went back and looked at the costs again, they would have gone up dramatically,'' Tillerson said. ``It involves lots of steel, lots of compressors, lots of valves, all the same things you need for the Canadian project.''

Project Delays

Imperial, Exxon Mobil and their partners in the Mackenzie project would need as much as C$2 billion in government aid or incentives such as accelerated depreciation to proceed, Chris Theal, an analyst at Tristone Capital Inc. in Calgary, said in a report last month.

Plans in the 1970s to build a pipeline to tap Canada's northern gas reserves were halted by falling prices and concerns the development would disrupt the lives of aboriginals. A doubling in gas prices and an agreement for Indian groups to own a stake in the line helped revive the proposal this decade.

In March, Imperial pushed back its target completion date for the pipeline to at least 2014, six years later than planned when the company applied for regulatory approval in 2004.

The Mackenzie pipeline would carry about 1 billion cubic feet of gas a day from Canada's Northwest Territories and would span 1,220 kilometers (758 miles). It would connect to the North American pipeline grid in northern Alberta and supply enough gas for almost 10 percent of U.S. households.

Arctic Oil

The pipeline also would open up the Northwest Territories and the Yukon to more petroleum exploration, said Robert Hunt, president of Calgary-based Horizon North Logistics Inc. The gas line would create a right-of-way through the Mackenzie River Valley that could be used to build a line that would haul crude from fields beneath the Arctic Ocean, Hunt said.

Exxon Mobil and other energy producers have discovered more than 10 billion barrels of oil in North American arctic seas that remain stranded by a lack of pipelines, Hunt said.

Besides Imperial and Exxon Mobil, partners in the Mackenzie project included Exxon Mobil, Royal Dutch Shell Plc, ConocoPhillips and the Aboriginal Pipeline Group, a company formed by Canadian Indian groups.

In Alaska, state lawmakers on May 11 approved a plan by Governor Sarah Palin that gives companies incentives to build a pipeline to transport gas from the North Slope fields to the contiguous 48 states.

The bill grants as much as $500 million in state funds for permitting costs and exempts gas shipped through the pipeline from production tax increases for 10 years. Exxon Mobil has said the bill's provisions are flawed.

Shares of Exxon Mobil rose $1.38, or 1.7 percent, to $84 in New York Stock Exchange composite trading. The stock has climbed 9.6 percent this year.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net.

Last Updated: May 30, 2007 16:50 EDT