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Providing coverage of Alaska and northern Canada's oil and gas industry
June 2011

Vol. 16, No. 23 Week of June 05, 2011

Stick close to home

Canadian industry leader, senior government official challenge need for exports to Asia; say proposed links to US sufficient

Gary Park

For Petroleum News

Go for the United States. Forget Asia. That was the core of messages delivered from two high-level sources in Canada as they questioned the need for Enbridge’s Northern Gateway project to export oil sands crude from Alberta to Asia.

Murray Edwards, vice chairman of Canadian Natural Resources and one of the Canadian oil and gas industry’s most respected voices, said many challenges stand in the way of opening export markets beyond North America.

He said plans to convert Western Canadian gas into LNG for delivery to Asia are five to 10 years away from being implemented and they will come before crude exports.

Edwards suggested a better bet is continued expansion of the existing pipeline network from Alberta’s oil sands to the United States, despite opposition from environmentalists and some federal and state lawmakers in the U.S.

He said the Obama administration’s desire to achieve greater energy security for the U.S. will ultimately clinch approval for TransCanada’s Keystone XL 500,000 barrels per day extension from Cushing, Okla., to Gulf Coast refineries, adding to the existing 595,000 bpd Keystone pipeline to Cushing and Enbridge’s Alberta Clipper system, with initial capacity of 450,000 bpd and design capacity of 800,000 bpd.

Ultimate capacity 2.3 million bpd

At their ultimate combined peak of more than 2.3 million bpd, these pipelines would be sufficient to handle all but 400,000 bpd of the expected spike in total bitumen production by 2016, of which only about half is destined for U.S. markets.

Edwards said the U.S. market has concluded that Canadian oil “offers security of supply they cannot get from any other countries” and high environmental standards.

As a result, the priority for Canada is to work with U.S. federal and state governments to obtain approval for Keystone XL and complete that link within four to five years.

Canadian Natural Resources has already committed 120,000 bpd to Keystone XL, making it the largest single shipper.

Along with the Northern Gateway application, now before regulators, Kinder Morgan has plans to build on its current modest shipments of crude out of Vancouver to the U.S. and Asia.

Call for tanker ban

Joining the Northern Gateway doubters is Bruce Akins, a senior oil and gas policy advisor with the Canadian government.

Even without the 525,000 bpd pipeline, Canada will have enough crude export capacity for “some considerable time,” he observed in 300 pages of internal documents.

Akins also noted in his report, obtained by Toronto-based research organization Environmental Defense, that letters from citizens are urging Prime Minister Stephen Harper to support a permanent ban on tanker traffic off the British Columbia coast, effectively scuttling Northern Gateway.

Gillian McEachern, climate and energy program manager at Environmental Defense, said the government acknowledgement that extra pipeline capacity is not needed raises concerns about why Canada is moving forward with regulatory hearings.

However, Enbridge is adamant that anticipated growth in oil sands production and a demand for the crude in markets such as China establish the need for an export link to Asia.

Tougher standards demanded

In a related oil sands concern, Pierre Duhaime, chief executive officer of SNC-Lavalin, Canada’s largest engineering and construction firm, said in a Calgary speech that the Canadian government must impose tougher environmental standards on the oil sands if the resource is to gain greater public acceptance.

He said the public must see that the government is ready to introduce rules covering water recycling, carbon emissions, land use and the cleanup of toxic wastes from mining operations.

Duhaime also voiced concern about the prospects of a fresh round of cost inflation as oil sands development gathers pace in the face of a shortage of skilled labor and engineers.






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