Enbridge Northern Gateway Pipeline Gets Canada Approval

Enbridge Inc. (ENB)’s Northern Gateway oil-sands pipeline cleared a major hurdle as Canada’s energy regulator ruled the C$7.9 billion ($7.4 billion) conduit can move ahead under certain conditions.

The National Energy Board approved the project, subject to 209 conditions, and said that Canada would be “better off” with the pipeline than without it, according to a report released today in Calgary. Enbridge must now seek approval from the federal government, which has 180 days to review the project.

The pipeline from Alberta to the Pacific Coast would help discounted Canadian crude reach international markets and earn higher prices. The project, opposed by indigenous and environmental groups, has faced delays like other oil-sands pipeline projects, including TransCanada Corp. (TRP)’s Keystone XL. The regulator said most of the environmental risk associated with the project wouldn’t result in “permanent” damage.

“This isn’t a win yet for Enbridge,” Bob Schulz, a professor at the University of Calgary’s Haskayne business school, said today in an interview. “It’s not a done deal. No one knows how much all of this will cost.”

Suncor Energy Inc. (SU), Canadian Natural Resources Ltd. (CNQ) and Cenovus Energy Inc. are among producers that need more options to transport their crude to market, including Keystone XL, which must receive U.S. approval because it crosses the Canada-U.S. border en route to the Gulf coast.

Output Doubling

Canadian oil-sands output is set to more than double to 4.5 million barrels a day by 2025 from last year, according to the Canadian Association of Petroleum Producers, an industry group. The higher cost for Northern Gateway, from an earlier C$6.5 billion cited by Enbridge, results from including preliminary work and improvements to marine safety, the regulator said.

“We will closely analyze the panel’s conditions -- many of which reflect commitments we put forward at the hearings -- and continue to listen and be open to change,” Enbridge Vice President Janet Holder said in a statement. Holder was scheduled to comment further at a press conference in Vancouver at 3:30 p.m. local time, spokesman Todd Nogier said in a phone interview.

Enbridge must have liability coverage of C$950 million, lead research efforts on heavy-oil spills in marine and freshwater environments and compensate aboriginal hunters and fishermen, the regulator said. Other conditions include building extra oil storage in the event of disruptions at Kitimat and an emergency-response plan.

Growing Opposition

“To date, not a single oil spill response study has adequately accounted for what would happen if diluted bitumen were to spill in the ocean,” Andrew Weaver, a Green Party member of the British Columbia legislature, said in an e-mailed statement. “How can we possibly gauge how well prepared we are?”

Northern Gateway would cut over the Rocky and Coast Mountains, an area sparsely inhabited by aboriginal groups, many of whom have said they oppose oil pipelines. The 1,178-kilometer (732-mile) conduit would carry 525,000 barrels a day of diluted bitumen to the Pacific port of Kitimat, British Columbia, where it would be loaded onto tankers and shipped through the Douglas Channel, which narrows to less than a kilometer.

“First Nations opposition to Enbridge’s project just keeps growing,” Chief Martin Louie of the Nadleh Whut’en First Nation, said in a Dec. 5 statement.

Price Gap

The aboriginal group helped craft the “Save the Fraser Declaration,” an indigenous law banning oil-sands pipelines and tankers from using British Columbia as a crude conduit and signed by representatives of more than 130 First Nations. Polls in the past year have indicated a majority of British Columbians oppose the project.

“No project will be approved unless it is safe for Canadians and safe for the environment,” Natural Resources Minister Joe Oliver said today in an e-mailed statement. The government will review the recommendations and consult with affected aboriginal groups, he said.

The gap between Canadian heavy crude and West Texas Intermediate, the U.S. benchmark, has widened to $23.75 a barrel from $18.25 on Jan. 9, 2012, the day before the National Energy Board began its review of the project.

Earnings Per Share

Northern Gateway will increase the price Canadian producers are paid for their bitumen by as much as $15 a barrel, according to Schulz. The pipeline will contribute C$32 million in property tax revenue for communities in British Columbia as well as 560 long-term jobs, according to the project’s website.

Northern Gateway is one of C$36 billion worth of projects that Enbridge, Canada’s largest pipeline company, is developing through 2017, Chief Executive Officer Al Monaco said Oct. 1 at an investor meeting in Toronto. Those projects include reversing an oil pipeline to carry crude to refineries in Quebec and the Sandpiper line in the Bakken. The company expects earnings per share to grow 10 percent to 12 percent from 2012 to 2017.

The regulator’s recommendation is “a bigger media event rather than one impacting Enbridge’s underlying fundamentals,” Robert Kwan, a Vancouver-based analyst at RBC Dominion Securities, said in a note yesterday to investors. Enbridge shares rose 1.1 percent to C$45.33 at the close in Toronto today.

Even with today’s NEB recommendation, the agency’s decision is not the “final straw,” RBC’s Kwan said.

First Nations

“We continue to believe that opposition to the project, most importantly from certain First Nations, as being a major hurdle that could result in future legal challenges that could ultimately be a lengthy process,” he said.

Prime Minister Stephen Harper favors oil and gas development as a means to create jobs, and Oliver has said getting Canadian oil to Asian markets is “crucial” to promote economic growth.

Meanwhile, British Columbia Premier Christy Clark has set out five conditions to protect the province’s environment and economy, including financial benefits for accepting the risks associated with potential spills. In November, British Columbia and Alberta signed a framework deal that sets the ground rules for development of pipeline projects in the nation’s westernmost province.

Opponents also have threatened legal action to stop the pipeline or delay construction.

‘Social License’

“If they try to build Northern Gateway, First Nations and residents have committed to taking the company to the courts and to putting their bodies in front of bulldozers,” Nikki Skuce, a campaigner for environmental group ForestEthics, said in an e-mail before the decision. “Enbridge will never gain social license to operate in northern B.C.”

To tackle such opposition, Harper appointed lawyer Douglas Eyford earlier this year as a special representative to address concerns raised by West Coast aboriginals about energy projects such as pipelines.

Canada should take steps to secure native support for energy projects, including measures to prevent oil spills and providing financing for aboriginal companies that want to participate in such projects, according to a report prepared by Eyford released Dec. 5 in Vancouver.

Canada’s Supreme Court has ruled that the government has a duty to consult aboriginal groups on decisions that affect their traditional land and way of life.

To contact the reporter on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Susan Warren at susanwarren@bloomberg.net

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