Rocky Road for Canadian Oil

With TransCanada’s Keystone XL pipeline snarled in a regulatory and legal struggle south of the border, Canadian oil companies are proposing many new and expanded pipelines that would connect the oil sands fields with new markets in China and across the world.

The planned projects that would snake east and west as well as south, could break the virtual United States monopoly market for Canadian oil exports, and enable oil sands production to climb by more than 25 percent in the next decade even if the Keystone pipeline is ultimately blocked.

“The regulatory uncertainty and political decisions in the United States have absolutely increased Canadian resolve to get to global markets for our oil,” said Brian Ferguson, chief executive of Cenovus Energy, one of Canada’s leading oil companies.

But there are many hurdles to clear.

The resistance is strongest in British Columbia, which oil companies envision as the gateway to fast-growing Asian markets.

The critical Northern Gateway pipeline, in particular, has faced strong opposition from Native Canadian groups, which have induced the pipeline company Enbridge to make important safety concessions and even to give an ownership stake to Native Canadians. The company also faces opposition from Kitimat, a town that is the port terminal for the Northern Gateway, which recently voted against the project in a nonbinding referendum.

Photo

Another proposed TransCanada project, called Energy East, which would revamp a gas pipeline to take 1.1 million barrels of oil a day to refineries in Quebec and on the east coast, has drawn opposition from environmentalists. Seismic work and other construction of a marine terminal, scientists say, will imperil the already declining beluga whale population in the St. Lawrence River.

More broadly, environmental groups have initiated legal challenges of the government’s streamlined pipeline approval process, which they contend is overly friendly to the oil industry.

“We’ll challenge them at every opportunity we can get,” said Hannah McKinnon, the national program manager of Toronto-based Environmental Defence.

Photo

Ms. McKinnon said the debate in the United States over Keystone XL and the battle in British Columbia over Northern Gateway have stoked a broader debate about the oil sands across Canada. “A lot of people are surprised to hear that we’re not all tar-sands zealots,” she added.

Still, the prospects for most of the proposed Canadian pipelines appear bright.

Enbridge hopes its Alberta Clipper, which already takes 450,000 barrels a day to the United States and has a 2010 United States presidential permit, can secure an amendment to its permit without much trouble to expand capacity to 800,000 barrels a day. Kinder Morgan plans to expand its Trans Mountain pipeline from Alberta to Vancouver to more than 800,000 barrels a day, from 300,000 barrels, and despite local protests, many energy specialists predict the provincial and federal governments will reach an accord that will satisfy most people.

Photo

The half-dozen or so projects total three million barrels a day of extra pipeline capacity — much more than the 700,000 barrels a day of capacity Canadian producers would acquire from the Keystone XL project.

“You would have to go back to the 1950s to see this many major pipeline proposals on the table,” said Monica Gattinger, a professor of public policy at the University of Ottawa. “Previous junctures have always been about where energy is going to flow in North America. This is the sole juncture about freeing Canadian energy reserves to the world.”

Canadian oil executives say they need most, if not all, of the proposed pipelines, including Keystone, to meet their oil production targets for 2025, which calls for an increase from a current 3.5 million barrels to six million barrels a day, including a doubling of oil sands production. Otherwise, they will have to slow development. And, just to be sure, the industry is planning to move as much as an additional million barrels of oil by train, although pipelines remain the more economical and reliable alternative.

Photo

“For us, for future investment, it’s pipeline,” said John Rhind, vice president for oil sands at Shell Canada. “We want more capacity. Long term, we need to see access to global markets.”

Some Canadian oil executives, who are losing patience with the Obama administration over its delayed decision on Keystone after almost six years of review, even see a silver lining because the delay might quicken the pace for the building of alternatives in Canada.

Among the most significant of the proposed pipelines is Enbridge’s giant Northern Gateway project, which would send more than a half-million barrels of bitumen a day to the west coast for export by tanker to Asian markets, principally China.

Photo

But it has been a lightning rod for opposition because British Columbians from across the political spectrum fear that regular trips by tankers along the province’s scenic and rugged coastline will inevitably lead to a huge oil spill.

As the final destination of Northern Gateway and the home of its planned ship terminal, Kitimat stands to gain the most in long-term jobs from the pipeline. But the remote community, which is dominated by an aluminum smelter, rejected Northern Gateway in a plebiscite, 58.4 percent to 41.6 percent in April. The town’s district council then passed a symbolic motion against the pipeline.

Mayor Joanne Monaghan said that she still wanted the pipeline, and its jobs, to come to Kitimat although she voted against the Northern Gateway to fulfill a promise to honor the result of the plebiscite. Enbridge has promised to continue its efforts to win local support.

More problematic for Enbridge is opposition from Native Canadian groups. The pipeline would run through the territories of 43 Native Canadian nations, and 17 have withheld support so far. Twenty-six of the First Nations, as the aboriginal groups are called, have signed so-called equity support agreements which give them part ownership of the pipeline. The company agreed to increase the thickness of the pipe, add more automated valve stations for safety, and committed to step up regular inspections. It also changed pipeline routes in 26 locations based on suggestions from local communities.

“We are going to continue to engage as best we can,” said Al Monaco, Enbridge’s chief executive. But in an interview he conceded, “With some of the First Nations, we haven’t had a great dialogue.”

The opposition of those mostly coastal aboriginal groups will probably set the stage for a historic constitutional battle. A decade ago, the Supreme Court of Canada ruled that native groups must be consulted and accommodated on resource development. But the native groups were not given explicit veto powers, and ambiguity surrounds the definitions of consultation and accommodation.

Gordon Christie, the director of the Indigenous Legal Studies Department at the University of British Columbia, said that while dissidents do not hold veto power, the government risks provoking possibly violent confrontations if it declares the consultation and accommodations complete and pushes ahead with Northern Gateway.

“We don’t really know what’s going to happen,” Professor Christie said. “But I think the people of the world are going to learn a lot about central B.C.”

NY Times