Keystone Refusal Shifts Focus to Next Oil-Sands Pipeline Sagasby and
Companies, politicians rally around conduits east and west
Denial tied to climate change boosts environmental activists
With Keystone XL shot down by President Barack Obama, the Canadian energy industry -- and its opponents -- are turning their attention to the other options.
Three pipelines proposed to carry rising oil-sands volumes from landlocked Alberta to Canada’s Pacific and Atlantic coasts face delays as activists, local communities and politicians attack their risks to the environment in a repeat of TransCanada Corp.’s seven-year saga seeking U.S. approval.
Producers from Suncor Energy Inc. to Royal Dutch Shell Plc are banking on the alternatives. TransCanada is touting an even bigger line to Canada’s eastern shores, while Kinder Morgan Energy Inc. and Enbridge Inc. are aiming for routes to the country’s west coast. The headwinds they face are putting the long-term development of the world’s third-largest oil reserves at risk.
“We’re working hard with stakeholders, and we intend to act decisively to increase the likelihood of getting our product to tidewater,” Alberta Premier Rachel Notley said Friday in remarks broadcast on TV. She told Prime Minister Justin Trudeau earlier in the day that building the pipelines should be “a national priority.”
Even with a crude slump that has crimped output growth, Canada’s energy industry will need one new export pipeline early next decade and two by 2025, according to a report by Desjardins Capital Markets.
Canadian energy producers and politicians have spent years lobbying for a U.S. permit for the $8 billion Keystone XL project that TransCanada first sought approval to build in 2008, to transport crude from Alberta to the Gulf of Mexico.
Alberta will now focus on the proposals it believes have the best chance of success, Kinder Morgan’s Trans Mountain expansion to the Pacific and TransCanada’s Energy East line to the Atlantic, Notley said. The Canadian Association of Petroleum Producers said the industry will find new ways to get its products to market, despite Obama’s “political decision.”
After Keystone XL’s rejection, however, those plans are likely to attract more attention by environmentalists who have been boosted by Obama’s move. The project is the first known piece of energy infrastructure in North America to be blocked because of climate change, said Anthony Swift, Canada project director for the Natural Resources Defense Council in Washington.
“It certainly lifts all boats,” Swift said. “At this stage when the international community prepares to head into Paris to discuss steps to move forward on climate, it really does mobilize the community and creates great tailwinds.”
A global glut of oil that has the U.S. benchmark trading around $45 a barrel has slowed, but not stopped, growth by Canadian energy producers. While CAPP, the industry’s lobby group, reduced its outlook for national oil production in 2030 by 17 percent in June, it still expects output to expand, rising from about 3.7 million barrels a day last year to 5.3 million by the end of next decade, according to the forecast.
The industry has so far found ways to get crude to market without a major new pipeline, by turning to additions to existing systems and by paying more to ship crude by rail. A new pipeline will eventually be needed, said Bart Malek, head of global commodities strategies at TD Securities in Toronto.
“Over the long, long term, assuming oil does better, the lack of export capacity could potentially impact the growth rate,” Malek said.
After 2020, there’s more uncertainty about market access for oil sands production, making the Trans Mountain and Energy East projects ever the more important, according to an assessment Friday by commodities research consultancy Wood Mackenzie Ltd.
Kinder Morgan plans to almost triple the capacity of its existing Trans Mountain line, while TransCanada’s Energy East line would transport as much as 1.1 million barrels a day. Enbridge’s Northern Gateway, while seen as less likely because of strident local opposition, would carry as much as 525,000 barrels a day to the Pacific. All three projects avoid crossing into the U.S.
“TransCanada’s Energy East and Kinder Morgan’s Trans Mountain pipeline projects are the most likely to be sanctioned,” Justin Bouchard, an analyst at Desjardins in Calgary, wrote in a note Friday. “In the event new pipelines are delayed (or cannot be built), crude-by-rail volumes are likely to increase.”
Producers need at least one of the pipelines to get built, Lorraine Mitchelmore, president of Shell’s Canadian division, said at the company’s refinery in Edmonton Friday. The lack of new transportation for Canadian crude was part of the company’s decision to defer its Carmon Creek oil-sands project last month.
Keystone XL’s rejection “really points to the fact that Canada has to look for ways to quit relying on Big Brother,” said Tim Pickering, chief investment officer and founder of Auspice Capital. “We just became too reliant on the U.S. and we need to change that.”