VANCOUVER — The scale of the west coast pipelines debate is hard to understate. Current and former politicians from all levels of government have come out swinging for and against; lobbyists, First Nations and non-government groups have fully entered the fray; and you would be challenged to find a citizen not aware of the projects. Add in the multi-billion-dollar costs of the projects and the many billions more in potential revenues, and Canada has itself a very public, high-stakes discussion on its hands.
The pipelines in question include Enbridge’s (ENB-T) long-proposed Northern Gateway pipeline, linking a distribution centre east of Edmonton to the port of Kitimat, and the more recently announced twinning of Kinder Morgan’s (KMI-N) Trans Mountain pipeline, linking Edmonton to Vancouver.
The $5.5-billion Northern Gateway project would pipe 525,000 barrels of oil per day to the coast and 193,000 barrels of condensate back to Edmonton, while the $5-billion Trans Mountain expansion would increase capacity from around 300,000 barrels per day to 850,000 barrels. Both lines are designed to open the oil sands to Asian markets to diversify the customer base from the United States.
Besides simply increasing the number of customers, the lines would bring much needed balance to the pricing of Alberta crude. Global oil benchmarks, such as the Brent and West Texas Intermediate, continue to diverge away from price paid for Alberta oil as the U.S. Midwest finds itself in a supply glut. In March the Brent climbed to US$124 per barrel and the WTI to US$106, while Edmonton light crude actually dropped to US$86 per barrel.
CIBC commodities analyst Patricia Mohr noted recently that there has always been a discount built into Western Canadian Select heavy oil prices compared to WTI because of the lower quality, averaging a US$17.79 discount per barrel between 2005 and 2011, but that the gap widened from US$19.33 in February to US$31.44 in March. Mohr wrote that the unusually high price discounts are due to the over-reliance on the U.S. market, and while other planned pipelines could increase export options to the U.S. Gulf Coast and somewhat narrow the gap, the ‘commercial risks’ of a single export market will remain.
Canada’s exporting of discount oil from Alberta and importing higher priced oil to Ontario and Quebec is costing the country billions in lost revenue. The Bank of Montreal pegs the cost of the price gap at roughly $19 billion a year, while CIBC says its costs the economy at least $18 billion a year.
With the lack of export options hitting producer profits, government taxes, and the economy in general, many are lining up in support of both projects.
Companies publicly in favour of the Northern Gateway include Cenovus Energy (CVE-T), Nexen (NXY-T), Suncor Energy (SU-T, SU-N), MEG Energy (MEG-T), France’s Total SA, and China’s state-owned Sinopec, all of which have paid $10-million for the right to ship oil on the line. Enbridge has also stated that PetroChina, the country’s largest state-controlled oil company, is considering an investment in the pipeline itself.
The Harper government has also come out strongly in favour of pipelines. The government’s omnibus Bill C-38 contains numerous measures that would accelerate the project review process and also gives cabinet the ability to overrule the National Energy Board on the final project decision.
But while business and the conservative governments are aligning in favour of the projects, voices of opposition are also growing, especially in British Columbia.
NDP opposition leader Adrian Dix, along with 35 MLAs, recently formally announced they were against the Northern Gateway project, with the party now exploring ways to block the project if it comes into power next year. Dix has yet to take a public stance on the Kinder Morgan expansion, but Vancouver mayor Gregor Robertson, Burnaby mayor Derek Corrigan and others recently came out strongly against that project. However the B.C. Liberals, led by Christy Clark, have not yet formally weighed in on either project.
Dix summarised the position of many in the province while announcing his decision not to support the Northern Gateway project, stating that “under the Enbridge proposal, British Columbia would assume almost all the project's risk, yet would see only a fraction of the benefits…"By any measure, such a high-risk, low-return approach simply isn't in B.C.'s interests."
B.C. would see significant investment during the construction phase, but that would taper significantly once complete, and the province is not able to extract any sort of royalty on the oil flowing though it to the coast. Meanwhile the pipelines, and the tankers that would then transport the oil, carry the risk of oil being spilled in the province.
The politicians are joining an already well-established opposition that includes numerous First Nations and environmental groups who have been vocally opposed to the pipelines for some time. Hockey great Scott Niedermayer also recently added his name to those against.
The opposition has of course expressed concern about potential pipeline leakages, but even more so seem concerned about the consequences of an oil tanker leaking somewhere along the coast. Northern Gateway’s plan includes having 220 crude tankers per year navigating the narrow Douglas and Principe Channels of the Northern B.C. coast, while Kinder Morgan’s plan would increase tanker traffic through the port of Vancouver from 5 to 10 a month to 25 to 30 per month.
Both sides are debating the safety of the proposition. Proponents point to the significantly improved safety of double-hulled vessels, the lack of incidents in Vancouver after almost sixty years of operations, and numerous safety measures proposed to augment safety including reduced speeds, escort tugs and advanced navigation technology. Those opposed point to other ship disasters on the west coast such as the Exxon Valdez and the Queen of the North and say it’s not worth the risk.
To take their opposition message straight to Enbridge, 40 representatives of the Yinka Dene Alliance, representing several First Nations that oppose the project, traveled by train to the company’s annual general meeting on May 9 to voice their opposition to the pipeline and were joined by local protestors. With a number of First Nations opposed to the project Enbridge could face lengthy legal battles as the question of duty to consult and accommodate is debated. However, at the meeting Enbridge CEO Partick Daniel noted that 22 of the 45 First Nation groups along the proposed route have already agreed to the offer of a 10% stake in the pipeline, though he did not specify which ones.
And while the public debate continues to rage, the actual formal Northern Gateway review panel is slowly moving forward with an expected final decision at the end of 2013. Kinder Morgan expects to apply for a regulatory review in 2014 with an anticipated construction start in 2016. A lot could happen between now and then.
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