British Columbia Vote Risks Oil-Sands Exports
British Columbia’s provincial election threatens to stymie efforts by Canadian Natural Resources Ltd. (CNQ) and other Alberta oil-sands companies to sell crude to Pacific markets.
Adrian Dix, 49, whose New Democratic Party is leading in polls ahead of tomorrow’s vote, opposes plans to pipe oil across the country’s westernmost province for shipment by tanker to Asia. Premier Christy Clark, 47, whose ruling Liberals trail Dix by nine points in an Angus Reid Public Opinion poll, has laid out five conditions for her to support Enbridge Inc. (ENB)’s planned conduit through British Columbia, one of the two lines proposed.
A win by the NDP may force Alberta to seek alternative outlets given that the Keystone XL pipeline through the U.S. is still under review and a glut of bitumen is filling existing pipes and lowering heavy crude prices. Proposals include a pipeline to Tuktoyaktuk on the Beaufort Sea in the Arctic, and rail shipments to Manitoba’s northern port of Churchill or Valdez, Alaska.
The projects through British Columbia by Enbridge and Kinder Morgan Energy Partners LP (KMP) would together move more than 1 million barrels a day from Alberta, home to the third-largest oil reserves. Oil-sands output will increase to 3.8 million barrels a day by 2022, double that of a decade earlier, according to Alberta’s main energy regulator.
British Columbia “has economically and politically priced itself out of the market” as an oil route, John Stephenson, who helps oversee C$2.7 billion ($2.67 billion) at First Asset Investment Management Inc. in Toronto including shares in oil-sands developer Suncor Energy Inc. (SU), said in a May 6 phone interview. “We can’t have people holding up the markets for what is really short-term gain.”
The NDP has 45 percent of voter support and the Liberals 36 percent, according to an Angus Reid online poll of 808 people published on May 11. The survey’s margin of error is plus or minus 3.5 percent, 19 times out of 20.
Dix reaffirmed his opposition to Calgary-based Enbridge’s proposed C$6 billion Northern Gateway line from Alberta to Kitimat, British Columbia, in a release on April 22. He also has said on several campaign stops he is now against Kinder Morgan’s plan to turn Vancouver into a major oil export hub with the twinning of its existing Trans Mountain line that ends near the city, Shruti Joshi, a party spokeswoman, said by phone on May 10. Dix had previously reserved judgment on Trans Mountain, pending Kinder Morgan’s regulatory application for the expansion.
Neither Dix nor John Horgan, the party’s energy critic, were available for additional comment, Joshi said.
“Northern Gateway is committed to working constructively with B.C. government and elected officials after the election,” and continues to listen and talk to communities along the route, Todd Nogier, an Enbridge spokesman, said in an e-mail on May 10.
Kinder Morgan is “confident” it can address the “many questions and concerns” about its proposal to be filed with regulators this year, Greg Toth, senior project director, said in an e-mailed statement on April 23. Kinder Morgan declined to comment further, Lisa Clement, a spokeswoman, said in an e-mail on May 10.
Dix has pledged if elected to take back British Columbia’s power to block pipelines by scrapping an agreement with Canada’s National Energy Board that allows the regulator to review projects for both the provincial and federal governments.
Brianne Rohovie, a National Energy Board spokeswoman, declined to comment in a May 10 phone interview.
Clark, the Liberal leader, has said her support for Gateway comes with five conditions, including a “fair share” of economic benefits for her province, according to a statement from her office.
“Obviously we have an important resource, the future of Canada, sitting in northern Alberta, that needs to get to market and we want to work with them,” Liberal Energy Minister Rich Coleman said in a May 2 phone interview.
Both parties say they support a liquefied natural gas industry that would export British Columbia’s stores of natural gas in liquid form on tankers from the province to Asia, where prices are more than four times higher than in North America. The Liberals said they will tax the LNG industry while the NDP said it will widen the province’s carbon tax to include emissions from gas drilling.
Alberta is studying new crude routes “in whatever direction makes economic sense,” Ken Hughes, that province’s energy minister, said at a Calgary conference on April 29.
Steve Laut, president of Canadian Natural, said he favors an outlet on the Pacific Coast.
“It would be good for Canada, all of Canada,” Laut said in a May 3 phone interview. An Arctic line would be a “more difficult option,” he said at the Calgary-based company’s annual meeting a day earlier. Canadian Natural has booked 75,000 barrels a day of capacity on the expanded Trans Mountain line, he said.
“Pipelines to the west make sense,” Suncor Chief Executive Officer Steve Williams told reporters on April 30, offering support for both pipelines. “We recognize there’s opposition, it’s going through its regulatory process and people are working hard to try and address those issues.”
Western Canada Select, an oil-sands blend, traded at $19 per barrel less than the U.S. benchmark today, according to data compiled by Bloomberg. Canadian Natural, the largest contributor to the blend, was paid 8.5 percent less for its crude and gas liquids in the first quarter as the price gap widened, from a year earlier, the company said on May 2.
Canadian Prime Minister Stephen Harper is encouraging new pipelines as environmental and political opposition delay Enbridge’s Gateway and TransCanada Corp. (TRP)’s proposed Keystone XL link from Alberta to the U.S. Gulf Coast.
Pacific Coast crude exports will be blocked by “fierce” opposition to tankers, Jessica Clogg, executive director at West Coast Environmental Law Association, said April 30 in a phone interview, calling the NDP stand “another nail in the proverbial coffin” for pipelines.
An NDP victory isn’t certain, and Dix’s public opinion advantage over the Liberals has narrowed since the campaign began. Whichever party is elected must soften its stance on energy, particularly taxation of the gas industry, or scare away investment, First Asset’s Stephenson said.
“Getting an oil pipeline built is a non-starter for both,” Stephenson said.
China will probably halt investments in the oil sands if Pacific lines aren’t built, Bob Shultz, a professor at the University of Calgary’s Haskayne School of Business, said in an April 29 phone interview. Chinese companies have spent $54.7 billion since 2005 acquiring Canadian oil and gas companies and assets, according to data compiled by Bloomberg
“The Chinese bought into the oil sands and they figured that was a relatively easy route,” Shultz said.