Independence Day

Now that America's presidential race is decided, Canada's need to seek energy markets beyond the U.S. has never been more urgent.

 This article appears in the January, 2013 issue of Oilweek; photo from here

By Peter McKenzie-Brown

The day after America’s presidential election, the Calgary-based Canadian Defence and Foreign Affairs Institute (CDFAI) hosted a panel discussion on the political and economic significance of President Obama’s second term.

Some of the most interesting observations came from Jonathan Baron, an American lobbyist with a primarily Republican clientele. “What you need to know about Republicans and Democrats is that they hear different things when they hear the word energy. Say ‘energy’ to a Republican, and he will think about increasing energy production. Say ‘energy’ to a Democrat, and she will think about mitigating environmental impacts. It’s like another world.”

Now he was on a roll. “When a Republican thinks about Canada’s energy resources,” he added, “they really do think that these resources belong to America. There isn’t a strong sense that they are a sovereign asset for Canadians. For Republicans, the idea of North American energy security is a no-brainer.”

The irony is that the International Energy Agency issued its annual report a few days after this panel discussion – a report which seemed to put the cat among the pigeons. According to the IEA, “The global energy map is changing, with potentially far-reaching consequences for energy markets and trade. It is being redrawn by the resurgence in oil and gas production in the United States and could be further reshaped by a retreat from nuclear power in some countries, continued rapid growth in the use of wind and solar technologies and by the global spread of unconventional gas production.” According to this respected agency, the US will become the world’s top oil producer by 2017, and could be nearing energy self-sufficiency two decades later.

A bearish outlook for Canada’s oil producers, is this report worth long-term worry? Probably not. Since the 1972 publication of The Limits to Growth, a book which forecast shortages of virtually every commodity by the end of the 20^th Century, a good rule of thumb has been that long-term natural resource forecasts are always wrong.

To a large extent, this is because major forecasts are political. IEA member governments and some oil companies vet them before they go public. In the highly likely case that the United States reviewed the IEA forecast before it hit the streets, they would have wanted the agency’s report to justify fracking, Keystone, perhaps, and the West’s embargo of Iranian oil. As one commentator observed, “Forecasters test scenarios – they assess economic and energy trends to produce numbers. Among the enormous range of possibilities, one forecast is chosen for public purposes.” Also, of course, since Adam Smith published The Wealth of Nations in the 18^th century, economies have shown repeatedly that markets eventually equilibrate.

If you focus instead on the near-term implications of the recent US election, there is a lot of good news.

·         Before campaigning began, global warming environmentalists developed traction by opposing Keystone. Notwithstanding their public protests, sources Oilweek spoke to believe the project has a good likelihood of getting State Department approval. An okay would increase the integration of Canadian oil and bitumen production into US markets and provide tidewater access to overseas buyers.

·         On the gas side, this commodity will expand its market for power generation, and Canadians will perhaps gain an advantage in the export of this commodity overseas.

Keystone

President Obama’s re-election was a near-term good news story for Canada’s oil patch. If approved, he Keystone Pipeline will move bitumen to the 7.6 million barrel-per-day Gulf Coast market. It is worth remembering that the Department of State originally deferred its decision on the pipeline as a political gesture, so as not to alienate environmentalists during the election. The reason given was concern about a proposed segment of the pipeline route through environmentally sensitive sand hills in Nebraska.

According to Maryscot (“Scotty”) Greenwood, a left-leaning Democrat, “There is awareness in the United States about the importance of energy from Canada and I believe that awareness was heightened during the campaign. There is a renewed appreciation of the importance of North American energy independence.” She is reasonably confident the project will go ahead, using TCPL’s revised route. In a separate interview, AJM Deloitte’s geoscience director Dave Russum enumerated the reasons the State Department might stand behind Keystone: “Job creation, economy boost in the US, secure supply.”

For Canada, the benefits are different. Keystone would provide Canadian oil sands producers with direct access to America’s single biggest oil market. Thus that pipeline’s throughput would not be subject to the price differentials that have become chronic – especially for the oilsands sector. More importantly, the project would provide Canadian producers with access to tidewater. This would mean overseas markets and international prices. Meanwhile “we are in for a rocky time in the Canadian industry regardless of who is in the White House,” according to Russum. “When oil prices were more than $100, many projects looked pretty attractive, but current prices in the $85 range make the economics much less robust.”

Carbon emissions kept coming up during the CDFAI forum, and Greenwood stressed the political importance of the environmental constituency. “During the second term of the Obama administration (president Obama) has an imperative to deal with some new legislation which covers coal ash, soot and other environment-related questions. This will affect core constituencies. However, there is not necessarily a conflict between these two. You can look after these regulatory issues, and also do Keystone.”

Right-leaning Jonathon Baron disagreed. “The environmental community feels frustrated, so (their protests) have moved down to the state level. The president is going to have to do quite an interesting balancing act to deal with fracturing and Keystone.”

A master of Realpolitik, Baron offered hope for crude oil prices – but hope with a bitter taste. “There’s going to be more instability in the Middle East during an Obama presidency,” he said; after all, the president campaigned on having ended “a decade of war.” If the president is not willing to use American might in response to Iran’s apparent nuclear build-up, Baron argued, there will be mischief in the Middle East. “That volatility means high prices going forward. That has important implications in American markets for Canadian oil sands and natural gas.”

Gas Prices and Markets

Canada’s gas industry is likely to benefit from President Obama’s next term through the conversion of its power industry to natural gas. According to Scotty Greenwood, who served for two terms as a staffer in the Clinton White House, suggested that he “is looking for ways to regulate more stringently, to pivot to natural gas because it’s a cleaner burning fuel than coal. He does have a desire to build demand for natural gas and to clean up the coal industry.” Since it’s his second term, the president will find America’s powerful coal lobbies less daunting.

“During the election campaign Obama virtually did say ‘I hate coal!’” Baron told the CDFAI audience. “Cheap natural gas has given the president an opportunity that didn’t exist before. Because the United States knows that it is not going to be able to implement a carbon tax, it will instead increase the price of coal through regulation, making coal less competitive.”

North American gas markets are likely to expand at the expense of coal. In itself, this may not be cause for much celebration in Canada, since the United States is nearing self-sufficiency in this commodity, and its production and transportation costs are lower. However, Greenwood noted another area where the US political environment could unwittingly favour Canadian natural gas.

In the American political system, Congressional committees have plenty of muscle, and it matters who serves as the chair. The incoming chair of the Senate’s powerful Energy and Natural Resource Committee is Democrat Ron Wyden. Wyden believes large-scale LNG exports would raise natural gas prices in the US, harming the economy. In the past he has argued that Washington should impose a “timeout” on new LNG export facilities, pending review. “That could be the end politically for (additional) natural gas exports from United States,” said Greenwood.

“There is a gigantic and very legitimate debate about whether we should be exporting natural gas,” she added. “My observation is that in the United States it will be politically very difficult to export (gas to other countries).…This could be a big opportunity for Canada, since the same political challenges do not exist here.” Baron concurred. “There are already a number of LNG export projects in the United States. LNG exports along with hydraulic fracturing will be major issues during the president’s second term.”

While the Americans dither, Canada could approve and construct facilities for overseas markets. Eastern Canada already imports about two billion cubic feet per day of gas from the US, and “this is a cheaper source than Western Canada. We are of course a net exporter to the US, but that role is shrinking. We need alternative exports” said AJM Deloitte’s Russum. He observes that Canada is ‘way behind Australia and other countries in developing or expanding LNG facilities. While the US already has gas export facilities in operation, Canada’s first plant won’t be ready until 2019.

“To me the problem is that Canada can’t compete with gas supplies that are abundant, cheaper, and closer to market in the US – for example, Marcellus, Fayetteville, Barnett and Eagleford,” he added. “Gas is still a fossil fuel, so while it is cleaner and more environmentally friendly than coal, it still has the fossil fuel stigma and the fracking stigma. I’m unclear whether it is a problem or a solution in the US. In any case, if prices rise the US has shown it is able to drill and bring on new volumes of shale gas very quickly, which would in turn dampen prices.” Russum added that “prices for natural gas need to be considerably higher to make the industry profitable here.”

The US/Canada Alliance

Prime Minister Brian Mulroney once famously said that “the relationships (between prime ministers and presidents) are absolutely indispensable. If you don’t have a friendly and constructive personal relationship with the president of the United States, nothing is going to happen.”

According to Greenwood, the Canada/US relationship is “hugely important, writ large. It’s much bigger and more integrated than any personality. It matters who is in the White House, but in the end the relationship will do well because it has to, and because of all the history between the two countries.” She added that “the US government does not want to prevent Canadian development in any way. We have very close relationships, and those relationships are of great value on both sides of the border. I think the United States, as Canada’s most important commercial partner, wants Canada to be commercially successful in every possible way.”

Colin Robinson, a Canadian diplomat who helped broker the Canada-US Free Trade Agreement and NAFTA, stressed the importance of international cooperation to help prevent trade disputes. “The first lumber dispute between Canada and the United States goes back to the time of George Washington,” he reminded the CDFAI audience. “These kinds of things do lead to protectionism. In a lot of cases, we have to put competition aside and think of things as North American.”

“Whenever (a diplomat has) to do something in the United States you have to do it through the White House,” according to Baron. The State Department is critical for international affairs, but other parts of government are in play. Formerly Canada’s ambassador to the US, Frank McKenna once said that “The president can love you to death, but that doesn’t mean you don’t have constant harassment from Congress….The tone at the top helps, but it’s not conclusive.”

As this article went to press, there was optimism that the United States would not fall over the “fiscal cliff.” For the sake of talking about the near-term future, this article assumes a compromise that won’t suffocate North America’s economies. If America remains a house divided, though, Canada needs to declare greater independence from US commodity markets. That truth is self-evident.

Selling the Brand

Dene National Chief Bill Erasmus addresses Keystone XL pipeline protesters 

Earning the public trust has become an industry responsibility, not a corporate exercise in public relations

This article appears in the February issue of Oilweek

By Peter McKenzie-Brown

Operating an oil and gas company in western Canada has become a much more complicated endeavour in recent years – in large part traceable back to the rise of the Internet and the age of instant communication. Those living on the periphery of the industry are becoming increasingly vocal about the impact of drilling and pipelines and fracking and trucking are having on the quality of their lives.

In such a fishbowl existence, then, gaining a social license to operate becomes not just a one-off exercise for an operator dealing with a landowner, but an industry-wide commitment requiring coordinated and cooperative efforts by producers, industry associations and regulators to develop cohesive consultation plans with a broad range of stakeholders.

“We are all out there operating in the land base, but we are also in people’s neighbourhoods. Regardless of your company’s size, people see us as the industry,” according to Patsy Vik, who is EnCana’s Group Lead, Community Relations. Collectively, “we are painting a picture that all of us are going to be branded with. If we (in the industry) all work responsibly and respectfully, we will reflect positively on other companies. We should all behave in such a way that we garner respect from our neighbors.”

When the industry fails in matters of common courtesy, terrible things can happen. Consider the Keystone Pipeline, which was constantly in the headlines last fall. In an interview, the University of Alberta’s Andrew Leach suggests that “it’s important not to take this decision (to postpone a ruling on Keystone until after America’s presidential election) as an anti-oilsands measure. At least in part, it’s a reaction to high-profile oil spills in the United States by Canadian pipeline companies.” Also, he suggested, project proponent TransCanada Corporation may have been “a bit high-handed” when it planned the line.

TransCanada spokesman Shawn Howard disagrees. “Across the entire TCPL system, we deal with some 60,000 landowners,” he said. “We understand that we need good stakeholder relations to earn our social license to operate….We have held more than 300 community consultation meetings” as part of stakeholder relations for Keystone, for example.

Howard believes “a well-financed, well-organized group of anti-hydrocarbon environmental groups have taken on the project. The original Keystone pipeline was approved without any problem. For them this is a very important symbolic victory.” Clearly frustrated, he blusters that “A lot of the information (these groups) submitted to the hearings was simply not true and certainly not scientific. They would submit each other’s news releases instead of scientific studies….”

Worst Case Scenario

While Keystone is the most celebrated recent example of a project at risk because of public engagement issues, it has many predecessors. For example, a decade ago Shell was seeking a permit to develop a sour gas field at its Farrier location near Rocky Mountain House.

A consultant specializing in community engagement, Gay Robinson picks up the story. “Shell put in an application to drill this well but in the hearings they began with their emergency plan rather than starting in a positive manner,” she says.

The result was a classic: the locals became frightened and upset and TV personality David Suzuki got wind of the controversy. “He came in and did a documentary called Worst Case Scenario, which aired on CBC-TV. The license was denied and the hearing alone cost Shell many millions.” The mega-corporation also had to forgo the Farrier property’s profit potential, and its reputation suffered.

Robinson continues, “A number of years later, Shell had another significant (sour gas) discovery fairly close to Rocky Mountain House, at Tay River. That time, they realized they had to work in a different way to develop it. They had a different attitude about how to engage the community. They talked to people, asking ‘What do you think we need to do?’” The outcome was a license to operate.

Having focused the last 15 years of her career in public consultation, Robinson is passionate about both the process and the reasons behind it. “There is a need for it. I think there are opportunities for this, and I enjoy sitting down at the kitchen table with people in the community and talking about how we can do things better.”

She adds, “Good stakeholder relations are based on the belief that stakeholders have a right to be involved in decisions that will affect their lives. If companies don’t believe that, we have a basic disconnect from the beginning. People remember the mistakes the industry made in the past, and they don’t want them to see them repeated.”

What they see is a truck

Whether companies are large or small, “they face exactly the same problems,” according to Terry Bachynski, a vice president of emerging oilsands producer Athabasca Oil Sands Corp. (AOSC). “When local people see a truck driving by, they don’t know or care who the truck belongs to. What they see as a truck. If any company is unresponsive to the needs of the people, then we as the industry can all be affected.”

While in one sense stakeholder relations is fundamentally the same for every company, local factors to make a difference. “We have a wide network of stakeholders we have to deal with,” according to EnCana’s Patsy Vik.” These include the media, community leaders, organizations we provide community investment support to, synergy groups, different industry groups and interested environmental groups. Our contractors are another really important stakeholder. They are out there representing us on a daily basis.” EnCana’s interests stretch across the continent.

By contrast, Bachynski works primarily with aboriginal groups. “Because we are up in northeastern Alberta, most of the stakeholders we have to deal with are aboriginal communities. They have deep concerns: how will oilsands development affect their land treaty rights? Will it interfere with their use and enjoyment of their traditional lands? When we talk to them, one of the areas we talk about is how they can benefit from our efforts – for example, through employment and business development. “There are some cases where it’s really important for all the operators to work together – road building, for example. People in those areas really don’t want a lot of roads going through their traditional territory. What’s important is for the industry to work as one on these projects, making sure they meet the needs of local communities.

“New operators do have particular challenges in some ways,” he concedes. “The companies that are already established have a reputation among the local people. If it’s a good reputation, they do have an advantage. New operators have to go in and prove themselves.”

Unlike Bachynski’s AOSC, gas giant EnCana mostly produces from more populated parts of the Western Canada Basin – thus, different constituents with different issues. According to Patsy Vik, “A lot of the issues are related to dust, noise and traffic. We try to identify the impacts of our developments on our neighbours so we can be proactive and manage them. We need to talk to people and listen to people and create some kind of awareness and understanding around what we’re doing. It depends on the scope and scale of the project. We have different groups in our company that address different parts of the issues. A lot of people work with landowners on issues like gathering lines, for example, that might affect them.”

Vik stresses that public engagement is mostly about communities and neighbourhoods. “People are protective about their homes – that’s the one domain that they want to have influence and control over. That’s why we developed our signature Courtesy Matters program, which specifically addresses those things that affect people when they’re driving to their homes and through their neighbourhoods. Some of the things we do can make it less appealing for them to enjoy their homes and enjoy their space. We know that. We try to mitigate those impacts” through Courtesy Matters, which she describes as a policy focused on “working with the community to understand our impacts and working to resolve, mitigate and minimize them.”

She adds, “One of the things we really stress is how people utilize natural gas in their daily lives. We want it to be personally relevant to people. We also communicate with people around the different stages of our activities, and what it will mean to them.”

Moving On

Returning to Gay Robinson’s Tay River case study, “the community recommended that the partners form a synergy group. I helped them do that.” She adds that global best practices “show that public acceptance of the decision-making process is the key to implementing a public engagement program.” A strong advocate of synergy groups, she describes this relatively new approach to public consultation as a public consultation best practice.

The purpose of these groups “is to bring people together to resolve issues, lessen impacts and encourage the use of best practices in the areas of health, safety and the environment,” according to Synergy Alberta, a not-for-profit organization which promotes this form of conflict resolution. “They connect people and organizations to a particular project, facility or neighbourhood. With relevant people at the same table, true information sharing happens and projects or facilities can be tailored to meet the needs of all stakeholders including industry, residents and landowners and regulators.”

According to the organization’s website, synergy groups “form for a variety of reasons. Sometimes it’s community-driven to seek more information, provide information or rally against something the community opposes. Other times, groups are created by industry looking to proactively share information on proposed projects and gather input from the community and others with a stake in the project or area.”

Those working in the area are adamant that good stakeholder engagement is critical if you want a controversial project to move on – be it sour or shale gas, bitumen or an environmentally contentious pipeline.

According to Robinson, “There is actually a solid business case for meaningful stakeholder relations. It’s not something you do just to avoid grief. You do it to get a social license to operate.” Quoting a colleague, she says “‘the government grants the permits but the community grants the permission.’ The idea is that if the community is not in support, and you don’t have the social license to operate, you will have a lot of trouble getting the project off the ground.”

To a very large extent, those decisions reflect changes in the law. In 2004, for example, a Supreme Court decision articulated the notion that governments and industry have a “duty-to-consult.” Alberta’s recent Aboriginal Policy, Water for Life, Land Use Framework, Biodiversity Monitoring Institute and other policy-related pronouncements incorporate this notion. The same now applies in one way or another across the country.

The duty of government, public agencies and industry has simply become good practice.

The Granddaddy of them All

The granddaddy of Canada’s public consultation regulations probably comes from Alberta’s Energy Resources Conservation Board (ERCB). The Board has required public consultation for decades, thus making Alberta a leader in public engagement. According to ERCB historian Gordon Jaremko, the board’s first major public hearing involved Imperial’s proposed Cold Lake project in 1978-79, although it had done hearings on sour gas development earlier in that decade.

The ERCB and its much younger sibling, the Natural Resources Conservation Board (NRCB), have broad discretion and little legislative guidance on what “the public interest” actually means.  In practice, these organizations consider social, environmental and economic effects of development when they determine whether a project is in the public interest.

Since regulatory agencies have so much latitude, they can be very responsive to well-organized campaigns opposing a particular project. For the proponent, therefore, it is better to over-consult than to do too little.

“Companies should recognize that the regulations are just the starting point. They are the minimum requirement,” Gay Robinson stresses. “The ERCB has a document called Directive 56 which outlines the application process. It specifies that in some cases the public may require greater consultation (than the directive specifies). Unfortunately, some companies only perform to those minimums. They need to develop a principled approach to stakeholder engagement rather than just use the one that is prescribed – the regulatory minimum, as it were.”

Patsy Vik puts the matter into a continental context. In her view, EnCana’s stakeholder relations emerge out of “a reputation we have that we’re proud of, and (that reputation) is based on standard values we hold across the company. They are values that are dear and near to us, and they don’t stop at the border.”

Pipeline Politics

The fate of two key oilsands projects is anything but certain. In red, above, Keystone.

This article appears in the September issue of Oilweek.

By Peter McKenzie-Brown

A web of oilsands pipelines is spreading from Canada’s oil hub at Hardisty, Alberta into American markets. At the beginning of summer, TransCanada’s Keystone Pipeline began delivering 435,000 barrels of oil to refining centres in Illinois. This fall, Enbridge’s Alberta Clipper will begin delivering an additional 450,000 barrels per day to Superior, Wisconsin.

That’s just the beginning, though. The Alberta government believes US imports from the oilsands will increase from today’s level of about 1.5 million barrels daily to nearly 4.3 million barrels daily in 2030, and there is plenty of potential to expand production beyond those numbers. So much expansion calls for a lot of pipelines. Will they reach primarily into the US, or will East Asia also become a key market?

The answer lies with the fate of two great pipeline proposals – TransCanada’s Keystone expansion and Enbridge’s Northern Gateway lines – which are both before the regulators. Although they reflect fundamentally different approaches to the market, TransCanada’s Keystone Expansion and Enbridge’s Gateway line represent vitally important industrial links from Alberta to the outside world. In different ways, the two proposals are embroiled in a conflict of old issues pitted against the new.

The old issues are technical and economic. The barrel of oil is blackening everywhere as supplies of light, sweet oil decline, and global demand is rising. Oilsands production is increasingly available and needs markets. The world’s big refining centres need feedstock and have the capacity to refine bitumen; pipelines are efficient and safe. The proposed pipelines are mega-projects which will provide jobs and economic stimulus. Oil-importing countries around the world want to develop secure, longer-term supplies.

The new issues are soft and ecological. Some environmental groups are aggressive against hydrocarbons, especially bitumen; they have successfully painted the oilsands black and want to further punish Canada’s merchants of dirty oil. Citizens wanting a greener world worry that the pipelines may lead to industrial accidents which spoil the environment. Politicians respond by supporting green measures that are sometimes ill-considered. Regulatory hearings drag on for months or years, and court challenges add to the delay.
In different ways, these are the issues facing Keystone and Gateway. Taken together, they are a fascinating study in pipeline politics.

Keystone
The Keystone Pipeline focuses entirely on delivering oilsands oil to US markets. The first phase of Keystone line began deliveries to the US Midwest in June.

About 3,500 kilometres in length, the pipeline transports oil from Hardisty, Alberta to US refineries in Wood River and Patoka, Illinois. The Alberta section involved construction of some 375 kilometres of pipeline, pump stations and terminal facilities from Hardisty. The next section involved the conversion to oil of nearly 900 kilometres of TransCanada’s natural gas mainline in Saskatchewan and Manitoba. The American section, to Illinois, is about 2,200 kilometres in length.

That was only the beginning, however. Phase II will involve a 480-kilometre extension from Nebraska to the marketing/refining and pipeline hub in Cushing, Oklahoma. Then comes the $7-billion Keystone Gulf Coast Expansion Project – approximately 2,700 kilometres in length, 36 inches in diameter, with completion planned for 2013. If constructed, this line would extend the system to 5,150 kilometres of total length: from Cushing it would be extended to Port Arthur, Texas and possibly also to Houston.

Keystone already has capacity of 435,000 barrels per day, and that will increase to 591,000 barrels per day with completion of the Cushing leg at the end of this year. With the completion of the expansion, the project would be able to deliver 1,100,000 barrels per day. Completion would run the total tab for the Keystone project up to US$12.2 billion.

War of Words
The day after TransCanada Corp.’s outgoing chief executive officer Hal Kvisle went to Wood River to ceremonially turn on the Keystone tap, Alberta premier Ed Stelmach published a half-page ad in the Friday edition of The Washington Post. His letter was partly a response to a letter to Secretary of State Hillary Clinton from 49 Democratic representatives. The letter urged her to halt the Keystone expansion on grounds the bitumen represents damaged environments in northern Alberta and higher carbon dioxide emissions in North America. For construction to proceed, the project needs approval from Clinton’s State Department.

Hoping to face down these congressmen, Stelmach argued that the oilsands are a reliable source of energy, and that the province is reducing pollution. His hottest zinger: “A good neighbour lends you a cup of sugar. A great neighbour supplies you with 1.4 million barrels of oil per day.” The response? Heavy-hitting U.S. Congressman Henry Waxman sent yet another letter hostile to the oilsands to the Secretary of State.

Consistently using the pejorative term “tar sands,” he described the Keystone expansion as “a multibillion-dollar investment to expand our reliance on the dirtiest source of transportation fuel currently available.”

The Keystone expansion, he added, “is a $7 billion pipeline that would transport up to 900,000 barrels/day of tar sands crude oil almost 2,000 miles from Alberta to refineries in the Gulf Coast. This pipeline would roughly double the quantity of tar sands fuel currently being imported, and in conjunction with two previously permitted tar sands pipelines that are not yet in full operation – Keystone and Alberta Clipper – would more than triple the quantity of tar sands fuel imported to the United States. The cumulative effect of the three tar sands pipelines would be to increase tar sands imports to over 3 million barrels per day. To process this large increase in tar sands imports, U.S. refineries will invest billions of dollars more in refinery upgrades.”

Outside the American Congress of course, there are many proponents of oilsands imports. According to lobbyist Tom Corcoran, executive director of the Washington-based Center for North American Energy Security, “ensuring access to affordable, reliable energy from our North American allies…should be a national priority. Projects such as the Keystone pipeline ensure increased domestic energy security, stable prices for consumers (and) minimal environmental impacts.” He added that “any evaluation of the indirect (greenhouse gas) emissions (such as from oil sands production or the transportation sector) would be purely speculative.” In all likelihood the energy security argument will prevail in Washington, and Secretary of State Clinton will issue a Presidential Permit allowing the Keystone Expansion to proceed.

Northern Gateway
But with so much resistance to bitumen imports from America’s environmental camp, why not just export the stuff to other countries? That’s the concept behind the other big pipeline project, Enbridge’s Northern Gateway Pipelines. This project is also being jeopardized by environmental concerns, but of quite a different kind.

The $5.5 billion Northern Gateway project would take oil from the Edmonton area to the nearest deepwater port – at Kitimat, on a British Columbia inlet.

To export the stuff would involve building a marine terminal with two ship berths, condensate tanks and 11 petroleum tanks. Only modern, double-hulled tankers could use the terminal, and escort tugs would be in charge of moving them in and out of risky waters. The Enbridge proposal also calls for third-party tanker inspections. The terminal would have a radar monitoring station and first response capabilities in the event of safety incidents or spills.

The 1,172 kilometre dual pipeline project would have a 36-inch pipe able to carry about 525,000 barrels of upgraded bitumen and bitumen blends into export markets every day. For the first time, Canadian oil would have significant access to overseas markets, primarily in East Asia. Northern Gateway would have a parallel 20-inch pipeline for flow of imported condensate from Kitimat to Alberta.

Condensate is the low-density (63o API) mixture of hydrocarbon liquids used as diluent to enable bitumen to flow, and this line would carry 193,000 barrels per day. Domestic supply is very short and there is little potential for internal growth because of declining gas production. To make up for shortfalls, for years the industry has been shipping condensate into Alberta by railway.

This line would thus assist the oilsands industry by opening up overseas markets, but also by bringing in the thinning solution needed to take the product to port. Enbridge wins both ways, but so does the oilsands sector.

Northern Gateway’s condensate pipeline is part of a two-pronged effort by Enbridge to bring diluent to the oilsands and heavy oil sectors. The company’s Southern Lights project from Chicago to the Edmonton area has already begun to fill, and will begin delivering 180,000 barrels per day of condensate this fall. The Southern Lights project runs roughly parallel to Enbridge’s Alberta Clipper line, but in this case the hydrocarbons are coming into Canada for use by oilsands producers.

Looming Engagement
As described earlier, the Keystone expansion is already dealing with political opposition, and its proponents have joined battle with its political and ENGO opponents. By contrast, Northern Gateway has barely begun the struggle. However, the company has employed armies of public relations and public consultation teams to do battle.

Armies they will need, because public opinion on the West Coast seems to be strongly against the project.

According to a poll commissioned by Forest Ethics, an ENGO, 80 percent of British Columbians support a crude oil tanker ban for BC’s coastal waters, while 15 percent think tanker traffic should be allowed. Significantly more British Columbians oppose the Enbridge Northern Gateway pipeline (51 percent) than support it (34 percent). And British Columbians who strongly oppose Enbridge’s pipeline (31.7 percent) outnumber four-to-one strong supporters (8.1 percent).

The basic issues are two: transporting oil across aboriginal territory, and using tankers to transport oil along the B.C. coast. Both of these are greatly complicated, however, by the perception that oil from the oilsands is dirty.

Enbridge needs to secure rights-of-way to construct the line through the lands of 48 Aboriginal communities located along the pipeline route – half of them in B.C. To prepare for hearings in this area, Enbridge commissioned studies on the project’s potential cultural, social and economic effects; its impact on traditional land and resources use; and its potential effects on heritage and archaeological resources. However, in March nine coastal First Nations declared a ban under their traditional laws on the transport of oilsands oil through their territories, and announced at a news conference that they would take whatever steps were necessary to stop the project.

Getting approval for tankers to carry oil through the passage from Kitimat to the Pacific, and thence within Hecate Strait, to the east of the Queen Charlotte Islands, is becoming a political football. In 1972 the Liberal government of Pierre Trudeau imposed an informal ban on oil tanker traffic in this area. At the beginning of summer, Liberal Leader Michael Ignatieff announced that the federal Liberals would formalize a moratorium on crude oil tanker traffic in British Columbia’s northern coastal waters. He was clearly playing to public opinion in the province. Oil tankers have been moving through southern coastal waters for half a century, carrying oil from a Kinder Morgan pipeline terminal in Burnaby at Burrard Inlet without a major spill.

“It’s been (our) vision...to find another market for Western Canadian oil,” Enbridge’s engineering manager Raymond Doering told the Caledonia Courier, which is published in the town of Fort St. James. Gateway has “been described as the largest private infrastructure investment in B.C.” He added that the company has established positive working relationships with 24 First Nations communities in Alberta and 18 of the 24 affected First Nations in B.C. So far, so good. Then he added that there is a small, vocal minority of First Nations people opposed to the project
.
“A small group of (First Nations) people object to the dirty oil pipeline?” an infuriated reader wrote in response. “There are thousands of BC people opposed to the dirty oil tankers in our pristine coastal waters....When (an oil spill) happens, the beautiful Orca and Humpback whales, and all the marine life will perish. I don't give a dam (sic) if the dirty tankers have 10 hulls, those are dangerous seas, and hard to navigate. There is still oil collecting on the rocks from the Valdez spill, 21 years ago....”

Struggles
As we said at the beginning, after the engineering and the economics come soft issues which can be hard to deal with. America’s Department of State will make the final decision for the Keystone Expansion – probably buying the energy security argument.

In Canada, the National Energy Board will make the final decision for Gateway. The NEB has appointed a joint review panel to examine the project’s environmental effects, look for ways to mitigate negative effects, hold public hearings and consider comments from the public and Aboriginal peoples, and submit an environmental assessment report with reasons and recommendations about the project to the federal government. Gateway’s fate is far less assured than Keystone’s.

For the oilsands sector, which needs expanding export markets to continue to grow, the pipeline struggles are vital. Watch them closely.