Northern Gateway to Asia on the rocks again
Plans for an energy bridge to Asia from Canada’s oil sands are looking shaky, writes Gary Park
Municipal governments, landowners and a coalition of 150 aboriginal and environmental groups are aligning against Enbridge’s C$5.54bn ($5.4bn) Northern Gateway pipeline and a possible rival scheme by Kinder Morgan. Troubled by BP’s Gulf of Mexico blowout and Enbridge’s own pipeline mishaps in the US, they want nothing to do with overland pipelines and oil-tanker traffic in treacherous waters off the British Columbia (BC) coast.
The opposition points to a rough ride ahead for Enbridge, which faces 18-24 months of regulatory hearings into environmental and socio-economic issues before a Canadian government review panel. The outcome of that process, assuming it stays the course, will make or break its chances of exporting 0.525m barrels a day (b/d) of crude to Asia and importing 193,000 b/d of condensate from the US on a parallel pipeline, starting in 2016.
Backed by C$100m of financing from potential producers and shippers, Enbridge has filed a 10,000-page application with another 11,000 pages of technical and scientific data, including third-party reports on environmental protection and marine transportation and safety. The filing estimates Northern Gateway would contribute C$270bn to Canada’s GDP over 30 years and pay taxes and royalties of C$81bn.
With the oil-sands gaining momentum, shippers and producers, and the Alberta government, are anxious to diversify export markets beyond the US, amid pressure on US state and federal governments to ban imports of “dirty oil” from Canada. “We will always be price takers in global markets, but we end up more vulnerable if we are dependent on one market,” says Bob Dunbar, president of Strategy West, a consultancy.
An obvious alternative
The obvious alternative to reliance on the US is a pipeline to deep-water ports on the BC coast, where tanker routes to Asian markets are shorter than those from the Middle East. Almost unnoticed, oil-tanker traffic has been leaving Kinder Morgan’s Vancouver terminal for the past five years, testing the ability of Chinese refineries to process Canadian heavy crude. Aided by expansion of the Kinder Morgan terminal, those numbers have steadily risen to the point where 20,000 b/d now leave Vancouver en route to Asia.
“We are hearing more and more that optionality, flexibility and growing demand in Asia will be an outlet for producers in Canada,” says Kinder Morgan president Ian Anderson.
With Kinder Morgan dropping hints that it was exploring possible trans-Pacific shipments of 0.85m b/d, eight years ago, Enbridge joined the race to supply Asia with the Northern Gateway project. Briefly, PetroChina was a possible anchor shipper and 49% equity partner in before, in 2007, the Chinese national oil company accused Canadian governments of failing to support the pipeline.
The revival of Northern Gateway has attracted the most vehement opposition of any recent Canadian energy project, with Enbridge chief executive officer Pat Daniel acknowledging his surprise that it is “as strong as it is”. Dunbar reckons “overcoming the opposition will be extremely difficult,” despite the urgency of finding another market for Canadian oil.
How events unfold over the next two years will be just as important to Kinder Morgan’s undeclared ambitions and to a joint venture of Apache and EOG Resources planning to export 0.7bn cubic feet a day of liquefied natural gas to Asia from around 2015.