Enbridge Faces Rising Costs as Northern Gateway Hearings Start

Enbridge Inc. (ENB)’s proposed Northern Gateway pipeline through British Columbia’s mountains faces rising costs as regulators and opponents weigh environmental threats in the latest battle over Alberta’s oil sands.

Canadian regulators begin a series of hearings tomorrow in Kitimat, British Columbia, the end point for the 1,176-kilometer (730-mile) pipeline. Members of the Haisla First Nation and environmental groups are expected to highlight the risks to coastal wildlife. Enbridge and Canadian Prime Minister Stephen Harper say the project is in the national interest.

Delays caused by court challenges, tougher environmental safeguards or the federal review may add as much as 30 percent to Enbridge’s C$6.6 billion ($6.5 billion) price tag, said Michal Moore, a senior fellow at the University of Calgary’s Institute for Sustainable Energy, Environment and Economy.

“The costs of accounting for environmental protection could be big,” especially near Kitimat, Moore said in an interview.

Kitimat is at the northern end of the Douglas Channel, an inlet on British Columbia’s north coast that is home to killer whales, salmon streams and farms and other marine life. An oil spill on the coast would involve complicated clean up, reminiscent of the Exxon (XOM) Valdez disaster on the Alaskan coast in 1989, according to the Pembina Institute, a Canadian environmental research organization.

“We could be looking at a whole new security agency” required to protect the maritime environment from oil spills, Moore said.

Keystone Legacy

The hearings for Calgary-based Enbridge’s pipeline begin two months after rival TransCanada Corp. (TRP) was forced to delay and reroute its Keystone XL pipeline that was planned to carry oil sands crude from Alberta, Canada, to the U.S. Gulf Coast. Regulators under U.S. President Barack Obama, pressed by Nebraska ranchers and environmental groups such as the National Resource Defense Council, objected to the risks a spill would pose to local underground water resources.

Keystone’s delay requires Canada to seek other export markets in Asia through projects such as Gateway, Harper said in November.

In the meantime, Enbridge’s own estimates show the pipeline’s price tag has been rising as its completion date gets pushed back. Cost estimates for the project rose to C$6.6 billion last year from C$4 billion in 2005 as the completion date slipped to 2016 from 2010 during the same period.

2017 Completion

Enbridge now plans to finish the project in 2017, assuming approval from the federal review panel, which said Dec. 6 it should decide by the end of next year.

While Enbridge claims Northern Gateway is worth hundreds of billions of dollars to the Canadian economy, the company must convince more than 50 native groups that the project’s benefits outweigh the risks.

Northern Gateway’s 36-inch pipes will carry thick, tar-like bitumen across more than 700 streams and rivers on its way from Alberta’s oil sands to export terminals at Kitimat.

An oil spill might pollute inland waterways and marine ecosystems, threatening commercial and recreational salmon fishing industries with a combined C$800 million in annual revenue, according to a Nov. 29 report by the Natural Resources Defense Council, Pembina Institute and Living Oceans Society.

Pipelines crossing mountainous terrain in British Columbia might be damaged by landslides, leading to spilled bitumen, the study said.

Biggest Risk

“British Columbia has very little to gain and yet bears the brunt of the risk,” Nikki Skuce, an energy campaigner for environmental group Forest Ethics, said in an interview.

Enbridge can operate the pipeline safely, spokesman Todd Nogier said. The company plans to use thicker pipes near streams and rivers, install shut-off valves on either side of major water crossings, conduct 24-hour pressure monitoring for leaks, and train local emergency responders to assist with spills.

With opposition from native and environmental groups growing, the risk federal reviewers won’t approve the project “remains very high,” First Energy Capital analyst Steven Paget said in a Dec. 8 research note. Paget hasn’t included the estimated earnings and capital costs of the project in his forecasts for the company because of the regulatory risk.

Opposition has been heightened by Enbridge’s 2010 pipeline spill of about 20,000 barrels of bitumen into Michigan’s waterways. The company estimates it will spend about C$700 million to clean up that spill.

Nuclear Plants ‘Easier’

“In the current environment, it is easier to get a nuclear power plant approved than an oil pipeline,” Paget said in the note.

The Northern Gateway hearings will take place across British Columbia and Alberta through March 2013, with the panel assessing the environmental impacts of the proposal and issuing a report including mitigation recommendations in the autumn of 2013. Opponents, government officials and Enbridge representatives will provide evidence and statements about benefits and risks of the pipeline and will meet at community centers and sports complexes to be questioned by panel members.

A recent announcement by Enbridge that it won the support of one of the First Nations aboriginal groups in the area shows how costs and delays may add up. First Nation Gitxsan hereditary chief Elmer Derrick said on Dec. 2 that he and the Calgary-based company had reached an agreement worth C$7 million.

The next day, neighboring aboriginal groups, including elected chiefs of his own nation, chastised Derrick for not having the authority to act on their behalf.

Enbridge remains confident that negotiations with native groups will yield support, said Vice President Janet Holder.

“We’ve been making what we believe is good progress and have signed a number of agreements,” she said on a Dec. 2 conference call with journalists.

To contact the reporter on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net; Andrew Mayeda in Ottawa at amayeda@bloomberg.net;

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net; Chris Wellisz at cwellisz@bloomberg.net

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