Clock ticks on Canada's pipeline debate
The oil sands need new outlets to grow. Will it get them?
US President Barack Obama's rejection of the Keystone XL pipeline in November 2015 shifted the oil sands pipeline debate from Washington DC back north of the border. With KXL seemingly off the table, pipeline proponents have looked west, east and even through the Arctic north for an outlet for the land-locked oil sands. It has sparked a debate across Canada no less contentious than the highly polarising KXL fight was in the US.
The dividing lines are stark and entrenched. Advocates argue the economic benefits of allowing oil sands crude to flow to overseas markets. That access would lesson crippling price differentials that have seen Canadian crudes trade at steep discounts to global benchmarks-wreaking havoc on the economics of producing Canada's heavy oil. Without new outlets, Canada will never reach its goal of becoming, in the words of former prime minister Stephen Harper, a "global energy superpower". Instead, it would remain a regional player in the North American market almost totally reliant on the US.
Detractors and activists say new pipe-lines will only facilitate oil sands expansion and increase Canada's dependence on fossil fuels, making it virtually impossible to meet international obligations to reduce greenhouse gases agreed to at the UN summit in Paris last winter.
The stakes are high and no less than the future of Canada's oil industry is on the line.
Stuck in the middle is newly elected prime minister Justin Trudeau-a Liberal-who was elected last spring on a dual-pronged platform of balancing economic development and strengthening environmental policies. Nearly all observers on both sides agree he can't have it both ways. The urgency to come down on one side or the other is building as Canada rapidly fills existing pipes.
According to industry group Canadian Association of Petroleum Producers (Capp) the day of reckoning could come as soon as 2020 as oil sands output nears 5m barrels a day. Canada has about 4m b/d of capacity on existing pipeline networks against present production of 3.8m b/d, says Capp.
Alternatives in sight
Neither the pipeline capacity concerns nor low prices have done much to slow short-term output growth. The oil sands are expected to grow by 65,000 b/d in 2016 followed by a further 0.85m b/d by 2021 as new mines and expansions presently under construction are completed.
To address the shortfall, Canadian pipeline companies have proposed three domestic alternatives to KXL-Kinder Morgan's TransMountain Expansion to Vancouver, British Columbia (BC) on the west coast; Enbridge's Northern Gateway to Kitimat, BC; and TransCanada's Energy East to St John, New Brunswick. Combined, they would add roughly 2.5m b/d of capacity, providing a much-needed cushion and access to global markets outside the US.
The C$6.8bn ($5.21bn) TransMountain project has been approved by the National Energy Board (NEB), the country's federal regulator. The line would more than triple shipments through Vancouver to 0.99m b/d from 300,000 b/d now. But opposition from local municipalities as well as environmental and native groups has stalled the project and could ultimately derail it altogether. Prime minister Trudeau has vowed to make a final decision on the route by the end of the year.
The C$7.9bn Northern Gateway line remains mired in litigation after a federal court overturned the project's NEB approval, ruling that the previous government failed to adequately consult with aboriginal groups on the route. Trudeau has echoed the court's ruling, criticising the previous government's approach as a "rubber stamp" for the industry. He has vowed to overhaul the entire regulatory process and restore public confidence. Trudeau also opposes oil tankers sailing off Canada's west coast, which leaves the project effectively dead in the water.
That leaves TransCanada's Energy East as the project with the best chance of get-ting built by 2020. The C$15bn conduit would ship more than 1.1m b/d some 4,000km across half a dozen provinces from Alberta to the coast. Though Canada is a net oil exporter, it still imports 0.75m b/d from the Middle East and West Africa via the east coast. Proponents say the line would have the added benefit of essentially backing out of foreign barrels and making Canada virtually self-sufficient in crude.
On 8 August the NEB finally began what will no doubt be an arduous round of public hearings in St John. The NEB has promised the most thorough review in Canadian history before delivering a recommendation by next spring. Provincial-level politics could help sway the decision. Although the coastal provinces support Energy East, it is bitterly opposed in Quebec and Ontario is offering only lukewarm support.
In the interim, rail is taking up the slack. According to NEB data, Canada exported 109,000 b/d on rail cars in May, a tenfold increase from 9,000 b/d in 2012. But rail is a higher-cost stop-gap measure and considered less safe after exploding oil tankers destroyed the town of Lac-Mégan-tic, Quebec in 2013 killing 47 people.
In the end it will be one man's decision to make-Justin Trudeau's.
This article is part of a report series on Canada's oil sands. Next article: Digging deep