Tue, Nov 10, 2015 - Page 15 News List

Keystone refusal turns attention to other pipelines

RACE TO SEA:Canada’s landlocked oil industry is planning to expand its production in the coming decades, but it has to find a way to reach the coastlines if it wants to grow

Bloomberg

With Keystone XL shot down by US 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 the landlocked province of 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 US 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 on 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 would 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 US permit for the US$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 would 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 (CAPP) said the industry would 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 US benchmark trading around US$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 would 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.

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