Will Canada Ever Build Another Oil Export Pipeline?

Paul Stanway
December 7, 2015
It is estimated that there are 3.5 million kilometres of pipelines in the world today. This vast network has expanded rapidly in recent years, driven by demand for hydrocarbons used in power generation, transportation, heating and cooling, and manufacturing. But in Canada, four big pipelines that could increase our energy self-sufficiency and exports have been stalled by environmental protests and politics. Without them Canadian energy will be landlocked in a continental market that is awash in U.S. oil. The economic consequences of that, writes Paul Stanway, should be much more frightening than our present pipeline phobia.

Will Canada Ever Build Another Oil Export Pipeline?

Paul Stanway
December 7, 2015
It is estimated that there are 3.5 million kilometres of pipelines in the world today. This vast network has expanded rapidly in recent years, driven by demand for hydrocarbons used in power generation, transportation, heating and cooling, and manufacturing. But in Canada, four big pipelines that could increase our energy self-sufficiency and exports have been stalled by environmental protests and politics. Without them Canadian energy will be landlocked in a continental market that is awash in U.S. oil. The economic consequences of that, writes Paul Stanway, should be much more frightening than our present pipeline phobia.
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October 15, 2005: An enthusiastic crowd gathered in Terrace, British Columbia to hear Calgary-based pipeline giant Enbridge announce that, after years of consultation and research, the port of Kitimat has emerged victorious in what has been an intense competition between northwest B.C. communities to become the terminus for the company’s Northern Gateway crude oil pipeline.

“Certainly this is great news for Kitimat, and Terrace, and the region,” said Kitimat Mayor Richard Wozney. “This will add to our reputation as being an energy hub and a petrochemical centre. We hope they will get through all of their regulatory approvals, start construction in 2008 and be in operation in 2010.”

Fast forward a decade and not a single section of Northern Gateway pipe has been laid. Indeed, rather than communities competing for the benefits of hosting critical pipeline infrastructure, the very idea of accommodating oil pipelines has become political poison in B.C. and across Canada.

Until quite recently pipelines were the unseen, unremarkable face of the energy industry, quietly moving billions of barrels of oil around North America with a 99.99 percent safety record. Yet since Stephen Harper declared in 2006 that Canada was on the verge of becoming an energy superpower by exporting our oil resources to the world, we haven’t completed a single new oil export pipeline. Not even to the United States – the market for about 97 percent of our existing oil exports.

It hasn’t been for lack of effort. There are currently four major projects in various stages of development that would expand the market for Canadian oil: Northern Gateway, Keystone XL, Trans Mountain and Energy East. They have differing goals, but all face such stiff opposition that at this point the completion of any one of them would be a major victory for Canada’s embattled oil industry.

So what, exactly, are these projects?

Northern Gateway:

This $7.9 billion pipeline would carry around 525,000 barrels per day (bpd) of heavy oil from Edmonton to Kitimat. The public review of Gateway – 180 days of hearings, 80 expert witnesses and 30,000 pages of evidence – was the most exhaustive in Canadian pipeline history. In all, the review took almost four years to complete and cost Enbridge and its partners half a billion dollars. Final approval last year came with a staggering 209 conditions, including further consultations with First Nations.

Court challenges by eight First Nations, four environmental organizations and one labour union were heard in Vancouver this fall. The fate of the project is now in the hands of a trio of Federal Appeal Court judges who have reserved their decision on whether to uphold or quash the government’s approval of the project.

Trans Mountain:

The other pipeline project to the Pacific involves twinning the existing Trans Mountain Pipeline from Edmonton to Burnaby at a cost of $5.4 billion. Owned by American company Kinder Morgan, the pipeline has been in operation since 1953 and currently provides the only West Coast access for Canadian oil products, including being the major transporter of gasoline to the Interior and Lower Mainland of B.C.

With its long-established right-of way, Trans Mountain seemed to face less regulatory obstacles than Gateway, and originally attracted less opposition. That’s changed over the past couple of years as it became clear the project would mean some significant re-routing through suburban Vancouver and perhaps tunneling under the Burnaby Mountain conservation area.

National Energy Board (NEB) hearings into the project are set to begin in Calgary on December 17. The first round of public hearings in B.C. begins January 18 in Burnaby. We can expect a reprise of the Gateway experience – emotional pleas to protect B.C. and the planet from the evils of fossil fuel, dire warnings of environmental catastrophe, and a daily parade of noisy, colourful protest.

The media will eat it up. It’s a contest for public opinion that no company can win, with emotion trumping science and engineering. And even if the NEB panel can sort through the bluster and recommends approval, this time the final decision will be made by Justin Trudeau’s cabinet.

Keystone XL:

TransCanada’s $8 billion, 1,900-kilometre KXL Project was planned to run from Hardisty, Alberta to Steele City, Nebraska. It would have given both Canadian and American oil producers increased access to the large refining markets of the American Midwest and along the U.S. Gulf Coast.

There was a great deal of support for KXL in the U.S., from unions, businesses and a majority of Americans who saw it as a boon for the economy and a boost for energy security. But as a cross-border pipeline, KXL also needed support from the Obama administration. At first that didn’t appear to be an insurmountable hurdle: on March 1, 2013 the U.S. Department of State released a Draft Supplementary Environmental Impact Statement on KXL that affirmed there would be no significant environmental impacts along the route and its operations would not influence global greenhouse emissions in any meaningful way.

Nevertheless, last month President Obama finally rejected KXL. Although the rejection was presented as primarily an environmental decision, to save Americans and the planet from Alberta’s “dirty oil” (NAFTA allows restrictions of trade based on environmental concerns), the President also said the pipeline “did not serve the national interests” of the United States. More on that in a moment.

Stanway - Inset #1

Energy East:

Perhaps the most potentially transformational of all the current major projects involving Canadian pipelines is TransCanada’s Energy East, a 4,600-kilometre line that would carry oil from Alberta and Saskatchewan to refineries in Eastern Canada and export terminals on the Atlantic. The project could replace the more than 600,000 bpd of oil that Canada imports each year at a cost of $8 billion, while at the same time providing 500,000 bpd for export.

Stephen Harper called KXL a “no-brainer”, but in truth it’s Energy East that deserves the label. What’s not to like about a pipeline that would supply Canadian crude for Canadian refineries, open new international markets for a struggling Canadian oil industry, and save us billions of dollars each year in foreign exchange?

Well a lot, apparently. Familiar green lobbies are lining up to oppose Energy East on environmental grounds, First Nations once again look set to use the project as political leverage, and the governments of Ontario and Quebec are demanding more tangible economic benefits to offset alleged environmental risk.

On the plus side Alberta, Saskatchewan and New Brunswick are supportive, and during the federal election campaign the Liberals seemed at least interested – although how Energy East could be reconciled with Prime Minister Trudeau’s impending national carbon reduction plan remains to be seen.

(There are two other more marginal proposals to move oil to the Pacific through northern B.C. which have generated media interest by claiming they can deliver the “social licence” that has eluded other proposals. Both require the construction of hugely expensive refineries at remote northern B.C. locations, yet neither have been able to get the signed contracts from producers and shippers that would allow them to move forward on financing and they are not, as yet, being taken seriously within the oil industry.)

So which, if any, of these projects might actually get built?

With Obama’s stake through the heart of KXL, the Trudeau government promising to ban oil tanker traffic on B.C.’s northern coast (which would effectively kill Northern Gateway and any other northern B.C. pipe dream), and Trans Mountain about to flayed in public hearings, Energy East seems the last, best hope for getting more Canadian oil to tidewater.

It does not require U.S. approval, much of the route follows an existing right-of-way, and it will provide jobs for Eastern Canadians. Perhaps most importantly, it would validate the Trudeau government’s message that it can succeed where the Harper government failed in advancing “responsible and sustainable” resource development.

However, recent history suggests caution. The NEB has just begun its review of the project and the regulatory process will undoubtedly be long and grueling. As usual, the opposition will be vocal and aggressive, and final approval will rely more on political will than science and engineering.

As grim as all that sounds, the Canadian pipeline industry is by no means doomed.

“We’re at the worst combined commodity cycle that I’ve seen in my career… yet our assets are performing exceedingly well,” TransCanada CEO Russ Girling recently told investors. TransCanada expects over the next three years to undertake projects worth a whopping US$36.7 billion – mostly bite-sized expansions and additions to its existing network that don’t face the same opposition as large projects such as KXL. Enbridge has adopted a similar strategy.

To understand why, it’s important to understand that there’s really no such thing as a “Canadian” pipeline system. Our energy infrastructure is part of a continental web that we share with the U.S. Oil and gas flow both ways. Canadian pipeline companies operate in the U.S., and U.S. pipelines operate in Canada. They serve what has traditionally been a single, highly integrated energy market.

Upwards of 97 percent of Canada’s oil production – averaging around 3 million barrels per day – is exported to the U.S., most of it via Enbridge or TransCanada pipelines. Enbridge alone delivers an astonishing 15 percent of all U.S. crude oil imports. This huge and valuable trade in energy between our two countries is so tightly integrated it’s not going to fade away – but it is undergoing significant change.

In recent years the development of new “unconventional” oil sources – like Alberta’s oil sands and in particular vast shale oil deposits in the U.S. – has prompted a dramatic “rewiring” of the continental pipeline system, with thousands of kilometres of new pipe being laid. Canadian companies have been a big part of this, building new capacity on both sides of the border.

In fact, while President Obama has been complaining about KXL and its potential impact on the global climate, his country has almost doubled its production of oil over the past half dozen years and added over 19,000 kilometres of oil pipeline since 2010. All of that has occurred with almost no political or environmental protest south of the border.

Call it hypocrisy if you want, but U.S. energy policy reflects market reality, and right now the reality is that the Americans are producing so much of their own oil they don’t need increased imports from Canada. As Obama said in nixing XL, it’s just not in their “national interest”. He killed XL because he could afford to – which left him free to enhance his green credentials in advance of the UN Climate talks in Paris, at Canada’s expense.

Welcome to the world of global energy politics. So as a major energy producer, what’s in our national interest? What’s Canada’s market reality?

While the Americans may not want or need more Canadian oil, according to the International Energy Agency global oil demand will climb by 1.8 million barrels a day over the coming year, and will keep on growing as consumption increases in the developing world. Clearly there are other customers for the oil we produce.

The Canadian Association of Petroleum Producers (CAPP) estimates that domestic production could increase 43 percent by 2030, although that projection was made before Alberta’s new NDP government released its “Climate Leadership Plan” setting a hard cap on oilsands emissions, among other limitations to future oil development.

CAPP’s production forecast is also qualified by its prediction that without new transportation infrastructure, by about 2020 we will have run out of capacity to move more oil. Even oil by rail, which has grown exponentially over the last decade, won’t solve the problem of accessing new overseas markets. In other words, we’ll be cut off from the international customers who would buy our increased production, and stuck with the one customer that doesn’t want or need more Canadian oil.

This looming crisis in market access has some in the industry already starting to pull back from Canada. Shell recently announced it was halting development of its Carmon Creek oilsands project, citing the lack of pipeline capacity. Around that time, according to a December 2 report in the Financial Post, Shell and three other oilsands majors were negotiating a “secret deal” with the NDP government and environmental groups whereby they would support the new Climate Plan in return for some pipeline expansion.

That would make sense. Creating the pipeline capacity to export our oil beyond North America and get better prices for it would be in Canada’s national interest. As study after study has shown, oil production and oil exports create wealth, jobs, and revenue for all levels of government that pay for health care, education, and all the other social programs we love so much.

For the past decade we’ve had a federal government that understood this, yet still haven’t managed to build a pipeline that would give us access to global markets and global prices for our most valuable export. And now Canada’s new Liberal government has promised more regulatory restrictions and opportunities for provinces, First Nations and lobby groups to oppose pipeline projects.

Under the circumstances the odds against getting any export pipelines built seem higher than ever. But hope springs eternal, and as companies like Enbridge and TransCanada clearly understand, being the major foreign supplier of oil to the world’s largest economy is hardly the worst situation to be in. It’s a great place to start.

The fact that we can’t or won’t do more to advance our own national interest is not the fault of our neighbor. The shackles we place on the pipeline industry are mostly stamped “Made In Canada.”

~

Paul Stanway is a veteran columnist, editor, and author of several books on Canadian history. He has worked as a communications consultant for major corporations (including Enbridge on the Northern Gateway Project), and from 2007 to 2010 served as Communications Director for former Alberta Premier Ed Stelmach.

 

IMAGES:

– AP Photo / Susan Walsh

– Mediacoop

 

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