Lamphier: Northern Gateway may be first big pipeline approved, last to be built
$7.9 billion pipeline faces many hurdles beyond Ottawa’s OK
BY GARY LAMPHIER, EDMONTON JOURNAL JUNE 15, 2014
Douglas Channel, the proposed termination point for an oil pipeline in the Enbridge Northern Gateway Project, is pictured in an aerial view in Kitimat, B.C. First Nations and environmental protests and court challenges could tie up construction of the massive $7.9 pipeline project even if the federal government gives its blessing.
Photograph by: DARRYL DYCK , THE CANADIAN PRESS
EDMONTON - Neil Young insists “rock stars don’t need oil,” but since crude is Canada’s top export, our resource-driven economy certainly does.
So unless Stephen Harper suddenly changes his tune — which seems as likely as Young retooling his LincVolt to run on gasoline — Ottawa appears close to approving Enbridge’s $7.9 billion Northern Gateway pipeline project.
The Prime Minister and several of his key cabinet ministers have broadly hinted as much in recent days, so the decision itself appears to be little more than a formality, although some speculate it may yet be delayed.
But don’t attach too much significance to the ruling. This is a marathon, not a sprint, and the jockeying and legal games have just begun.
Multiple court challenges are already filed or expected from various First Nations and environmental activist groups, and the project’s many critics in British Columbia are as vocal as ever.
Given the widespread opposition to it on Canada’s environmentally sensitive west coast, few expect the planned 525,000-barrel-a-day bitumen pipeline between Bruderheim, just east of Edmonton, and Kitimat to get built any time soon.
“Getting Northern Gateway approved and getting it built are two different things,” says Leo de Bever, CEO of Alberta Investment Management Corp. (AIMCo), the province’s $75 billion pension fund manager.
“It’s going to take a long time and there’s going to be a lot of negotiation to get First Nations’ co-operation. My guess is 2020 is probably optimistic” as a projected startup date for the pipeline.
In fact, many observers figure three other proposed oil export pipelines — including TransCanada’s Energy East project that would transport bitumen to refineries in Quebec and New Brunswick; TransCanada’s Keystone XL pipeline from Alberta to the U.S. Gulf Coast; and the expansion of Kinder Morgan’s existing Trans Mountain pipeline from the Edmonton area to Burnaby — are likely to come onstream well before Northern Gateway.
“The industry is still pretty optimistic on Trans Mountain, and less so on Gateway obviously,” says Robert Johnston, CEO of New York-based Eurasia Group, which tracks global energy issues. “And if I had to bet I still think Keystone XL probably will get approved (by the U.S. government). But whether it happens in early 2015 or late 2015 is hard to say.”
Until one or more new pipelines start shipping crude (or diluted bitumen, to be precise), Alberta’s growing oilsands output will have to rely on the railways to fill the transportation gap. Which is exactly what’s happening.
Canada’s crude-by-rail shipments soared 10-fold between early 2012 and the first quarter of 2014, to more than 160,000 barrels a day, and are now forecast to reach 700,000 barrels a day by 2016.
Although rail is more costly and less safe than pipelines when it comes to transporting large volumes of crude oil, it is also more flexible, allowing producers to go where demand is greatest. And with crude oil prices well above $100 US a barrel, there’s still enough profit margin to justify using rail.
That will keep Alberta’s energy-fired economy humming along for the foreseeable future. “Alberta is expected to sit head-and-shoulders above the pack in the coming year,” raves Robert Kavcic, senior economist with BMO Capital Markets, in a recent report. “Indeed, by many measures such as employment growth, retail sales and housing market performance, the province is in a league of its own.”
Still, since oilsands production is expected to reach 4.8 million barrels a day by 2030 — 2.9 million barrels above last year’s level — new pipelines that connect Alberta’s landlocked oilsands to global markets, especially in Asia, are absolutely crucial. So the push is on.
Johnston figures TransCanada’s $12 billion Energy East project, which would convert an existing east-west natural gas pipeline into an oil pipeline by 2018, has the best chance of being built first.
“I think Alberta is going to have to make an offer to Quebec, whether it’s by industry or government, where Quebec City becomes an export port serving the east coast of the U.S. and even the Gulf Coast,” says Johnston.
“Then Saint John could become the deep water port for oil exports to Europe, India and wherever else. There’s a deal to be had and the Couillard government in Quebec is more likely to sign it than the previous one,” he argues.
“Without Keystone XL (which the Obama administration has repeatedly declined to approve), Energy East has become a very strategic project.”
For many average Canadians, however, the battle over new oil pipelines remains little more than a puzzling war of words, featuring B-list Hollywood celebs, aging rock stars, native groups and eco activists on one side, and Big Oil on the other.
What many Canadians fail to see is that this is their fight too. Without the corporate and personal tax revenues, royalties, well-paying jobs and export revenues that Canada’s oil industry generates, there would be a big hole in funding for the nation’s social programs, health and education systems and pensions.
Even federal equalization transfers to have-not provinces like Quebec and Ontario would be affected.
“Oil is the number-one commodity export from Canada and it really does drive economic activity across Canada,” says Patricia Mohr, Scotiabank’s commodity guru.
“If you look at exports, it’s absolutely dominant. So the oil industry really dominates Canada’s economy and our export picture. And of course Canada is really a trading nation. We’re not a country with a big domestic consumer market. We’re a country that really earns its living from exporting.”
In 2013 Canada’s oil and gas exports totalled nearly $93 billion. Another $22.2 billion of refined petroleum products were exported, for a total of about $115 billion. That was up almost 80 per cent over the past decade.
On the flip side, Ontario’s vehicle manufacturing sector has gone in the other direction, shrinking dramatically. Once Canada’s leading export sector, vehicle exports totalled just $45.7 billion last year — some 60 per cent below the oil and gas sector — and are down nearly 20 per cent since 2004.
The decline of manufacturing is not unique to Canada, of course. Millions of factory jobs have been lost in the U.S. and across the western industrialized world, as factories moved to places like Southeast Asia, India and Bangladesh, where labour and other costs are lower.
Although manufacturing has rebounded somewhat since the 2008-2009 recession, it’s not likely to regain its former importance in the Canadian economy. All of which underlines the significance of growing this country’s energy exports in the years ahead.
“Building more oil export capability to the B.C. coast and elsewhere is really critical for the health of Canada’s economy, not just for Alberta’s,” says Mohr.
“Often the public doesn’t connect the dots between having a healthy industry and also having government funds for social expenditures, roads, schools, or pensioners. Because we are mostly a trading nation, it’s all tied to the health of the Canadian economy.”
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