Canada faces offshore test

Enbridge files for Northern Gateway, pledging ‘model of world-class safety’; environmentalists, First Nations ready for battle

Gary Park

For Petroleum News

Amid a swirling debate over future oil and gas activity in Canada’s offshore, spawned by the Gulf of Mexico blowout, Enbridge is fanning the flames by officially placing its plans to ship Alberta oil sands crude to Asia before regulators.

As it has promised all along, the Calgary-based pipeline company is pressing ahead with the Northern Gateway project, regardless of what could be a full-scale showdown with environmentalists and First Nations.

The proposal, submitted to the National Energy Board for an environmental review, carries an estimated capital cost of C$5.5 billion (C$6.65 billion once financing costs are rolled in) for twin pipelines covering 730 miles between the oil sands and the British Columbia deepwater port at Kitimat.

One 36-inch diameter line would carry 525,000 barrels per day of petroleum product for export and one 20-inch line would deliver 193,000 bpd of imported condensate to thin petroleum products for pipeline transport. The scheduled in-service date is 2016.

Enbridge Chief Executive Officer Pat Daniel indirectly acknowledged the regulatory battle that lies ahead by declaring his company takes “pride in our long-standing reputation as a safe pipeline operator and socially responsible company. Construction and operation of the Northern Gateway pipeline system and marine terminal will be a model of world-class safety and environmental standards.”

Strong opposition to project

Coastal and inland First Nations and a host of environmental groups are girding for a fight over a project they argue is certain to result in a spill that could jeopardize the land, people and wildlife for generations to come.

As the environmentalists marshal their arguments they point out that a recent survey shows 80 percent of British Columbians don’t want crude tankers in their coastal waters; they rate the federal environmental review process as “inadequate” to cover the full range of tanker traffic concerns; they question Enbridge’s motives in pressing ahead against First Nations resistance; and warn that approval of the project is “virtually guaranteed” to face court challenges.

Enbridge said the primary purpose of the pipeline is to provide access for Canadian oil to international markets, with Northeast Asia offering the best prospects, but a market analysis by consultant Muse Stancil did not include California as a possible secondary destination because implications of the state’s low carbon fuel standards are not yet clear.

However, the study did estimate that total potential crude demand in the western United States is 110,000 bpd, more than half of which could come from heavier Canadian crudes to offset falling California volumes.

The Muse Stancil research focused on the key markets as China and Japan, each with the potential to take 100,000 bpd, South Korea at 53,300 bpd and Taiwan at 27,500 bpd.

It said that region holds the best prospects because of its size, increasing demand, existing refinery infrastructure, proximity to the B.C. coast, which is estimated to be 20 percent closer than Middle East supply sources and the desire by Asian refiners to reduce their dependence on Middle East supplies.

Muse Stancil said there is also a strong prospect of other markets for Canadian crude opening in the Asian-Pacific region or India.

Canadian Beaufort ban urged

William Adams, a former scientist at Environment Canada, urged federal lawmakers to place a moratorium on drilling in the deeper waters of the Beaufort pending a comprehensive study.

“If you look at the leasing that has been done in the Beaufort, it extends out into the moving pack ice,” he said. “I believe drilling in that area would be extremely risky.”

He said the behavior of a big spill in the Arctic is difficult to predict without more field research, but cautioned that such a spill would inflict significant damage on mammals and seabirds.

Adams was one of the researchers involved in a joint government-industry study of the impact of an oil spill in the Canadian portion of the Beaufort.

That work, which simulated a spill of about 1,000 barrels per day in water about 10 meters deep, stretched over a decade from 1976 and remains the only “comprehensive” study of its kind, he told the House of Commons Natural Resources Committee.

The committee is studying whether Beaufort drilling by a partnership of Imperial Oil and ExxonMobil and possibly BP in several hundred meters of water should be permitted without a toughening of safeguards.

Imperial: drilling 4-5 years away

He said Imperial plans to learn what it can from the Gulf incident and implement any measures that are adopted by regulators.

Imperial and ExxonMobil made work commitments of C$585 million for 507,000 acres of Beaufort leases, 70 miles north of the mainland and in water depths of up to 4,000 feet.

Max Ruelokke, chief executive officer of the Canada-Newfoundland and Labrador Offshore Petroleum Board, told the same committee of federal legislators May 25 that would not be possible for a blowout at the Chevron Canada-operated well currently being drilled in the deepwater Orphan Basin to match the size of the Deepwater Horizon spill in the Gulf.

“The understanding we have is that (what) occurred (in the Gulf) is not something that would ever have been allowed to happen in Canada,” he said.

Even if a major spill did occur, wind and sea patterns would make it unlikely that oil would reach the shores of Newfoundland, he said.

The Chevron well is drilling in water 2.6 kilometers deep — a record for Canada — while the BP well in the Gulf was drilled to a water depth of 1.5 kilometers.

Ruelokke said his board, in tightening offshore drilling scrutiny in the wake of the BP disaster, has mandated a dual barrier, requiring a well to be sealed off using both a concrete plug and a blowout preventer.

Based on his information, Ruelokke said drilling mud keeping the oil underground at the BP well had been flushed out before a concrete plug was properly installed.

Review of Orphan operations

“We’ll make sure the dual-barrier concept remains valid and both barriers will have to be in place,” he told legislators. “So before there’s any potential to take away the drilling mud we’ll make sure there’s a cement plug in place. We’ll also make sure the blowout preventer is fully tested.”

Ruelokke said detailed modeling of the potential fate of a spill in Atlantic Canada , using 40 years of weather data, “indicates that even if a large spill were to occur, it would be unlikely that oil would approach the Newfoundland and Labrador shoreline. “Thus scenes that we see off the Gulf … would not occur here.”

He said offshore Newfoundland has produced 1.1 billion barrels of oil since 1997 and spilled only 1,100 barrels of crude in that time — a record he described as “quite respectable.”

Canada is continuing to seek bids for exploration licenses in the Beaufort and Mackenzie River Delta, including a parcel about 120 miles offshore to the west of the existing rights held by Imperial and BP.

A spokeswoman for Indian and Northern Affairs Minister Chuck Strahl told the National Post that the government is continuing to “consider its options with respect to the calls for bids in the Beaufort. But no decision has been taken with respect to the current call.”

—Gary Park