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Vol 21, No. 27 Week of July 03, 2016
Providing coverage of Alaska and northern Canada's oil and gas industry

Trudeau talks ‘tradeoffs’

Prime minister cautions that not all can be satisfied if oil export line approved


For Petroleum News

Canadian Prime Minister Justin Trudeau has given a broad hint that his government is prepared to approve at least one new export pipeline out of the oil sands.

In ruling out any prospect of reaching “100 percent unanimity” among governments, industry, local communities, First Nations and environmentalists on any project, he said final decisions are all about “tradeoffs” that are “an art as much as a science.”

“We have complex situations with multiple answers, with people who do better out of some scenarios than others,” he told PostMedia News.

“What we need to do as a government is fold in a broad range of perspectives, understand the concerns, work to allay the fears as much as we possibly can on a broad range of levels” and work towards consensus, Trudeau said.

“You don’t ever hope for total 100 percent unanimity but you do hope you’re going to get a sense that this is the right way to move forward.”

If his message was intended to point towards a green light for at least one of the three projects now before the federal government or federal regulators the best chances lie with Kinder Morgan’s C$6.8 billion expansion of its Trans Mountain network from Edmonton to Vancouver - a proposal that is expected to receive a final verdict in December.

Trudeau’s comments coincided with results of a new poll by the Angus Reid Institute of 1,505 Canadians between May 30 and June 6 that showed 41 percent of respondents agreed the National Energy Board made the right decision in May when it recommended approval of the Trans Mountain expansion subject to 157 conditions. (Only 24 percent disagreed with the NEB, while 35 percent were undecided. In British Columbia, which faces the most heated opposition to the project, 41 percent supported the NEB and 34 percent were opposed.)

“What I’ve heard from business communities is that they’ve recognized that ignoring community voices, trying to run roughshod across environmental concerns, has resulted in not getting pipelines and projects built that people wanted,” he said.

Trudeau said the failure by the government of Prime Minister Stephen Harper to obtain “social license” created a barrier to pipeline plans and has forced the energy industry to acknowledge that it now needs “broad support.”

Whatever progress Kinder Morgan might have made towards swaying the Trudeau government, opposition to the project has intensified, with the City of Vancouver now joining a First Nation and two environmental groups in launching a court challenge to quash the NEB’s endorsement of the plan to triple capacity on Trans Mountain to 890,000 barrels per day.

Mayor Gregor Robertson said the regulatory review by the NEB was “flawed and biased” because it ignored scientific evidence on the consequences of a major oil spill and the impact of associated greenhouse gas emissions.

“An expanded Kinder Morgan pipeline is not in Vancouver or Canada’s economic of environmental interest,” he said in a statement.

The city is also asking the Federal Court of Appeal to prevent the federal government from making a decision until after the NEB conducts a “lawful” review of Kinder Morgan’s application.

Although it comes too late to affect the Trans Mountain case, the Trudeau government has announced it will overhaul the NEB’s mandate as part of an effort to rewrite and strengthen environmental laws.

Natural Resources Minister Jim Carr said the strategy to “modernize” the federal regulator’s role will give Canadians “trust in the regulatory process” and “restore credibility” to the system.

As part of the changes, Environment Minister Catherine McKenna said a panel will be established to review current environmental-assessment laws.

Fisheries Minister Dominic LeBlanc, who said his department will ensure the protection of fish habitat, said Canadians “want us to ensure that economically beneficial and environmentally responsible projects are advanced and projects with minimal benefits and high risks are not.”

Candice Bergen, a Member of Parliament for the opposition Conservative Party, said Trudeau is creating “massive uncertainty when it comes to building pipelines.”

Also in the uncertain category is when and how the Trudeau administration will meet a promise made in last year’s federal election campaign to “formalize” a ban on oil tanker traffic off the northern British Columbia coast.

“We’re working every day to get both the environmental and the economy protected right across the country,” Trudeau told PostMedia.

Beyond that he would not say whether a ban will be imposed by early 2017 - the deadline promised by Transport Minister Marc Gurnee.

But Trudeau, who has repeatedly voiced opposition to Enbridge’s Northern Gateway project to ship 525,000 bpd of oil sands bitumen from Kitimat, said again that “crude oil supertankers have no place” in that region.

Gavin Smith, a staff lawyer with West Coast Environmental Law, said that a ban imposed through legislation or regulation would give the government time to determine what offshore geographic area it wanted to cover and deal with possible diplomatic issues with the United States.

Enbridge, which was required under the terms of the NEB’s 2014 approval of Northern Gateway to start construction by the end of 2016, recent asked the NEB for a three-year extension of that permit to the end of 2019.

The company said the extra time would allow it to increase community and aboriginal support.

Smith said it “could be more palatable” for the federal government to refuse Enbridge’s request for an extended lease “on the grounds that it was granted a federal approval but failed to meet its conditions.”

That would in turn set the stage for the “natural death” of Northern Gateway and allow the government to act quickly on a tanker ban, he said.

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The price of delays

Canada’s oil producers’ lobby group has made clear the cost of stalling on new pipelines by trimming 1.4 million barrels per day from its targeted output by 2030.

Although volumes are expected to grow over the next 14 years, the rate will be slower than expected in the conventional and East Coast sectors, the Canadian Association of Petroleum Producers said in its annual forecast.

All told, the industry is counting on 4.9 million bpd in 2030, up 1.1 million bpd from the forecast for 2016, but far short of the 6.4 million bpd in the outlook CAPP issued in 2014.

The report said oil sands producers intend to add 850,000 bpd between 2015 and 2021, largely from projects begun before oil prices started their slide in 2014.

Another 700,000 bpd is expected between 2021 and 2030, despite cancellations or postponements of major projects over the past two years, CAPP said.

Aside from the economic factors which have cut into anticipated growth, CAPP said the numbers are affected by a desperate shortage of new pipeline capacity.

“The need to build new infrastructure within Canada is clearly urgent,” said CAPP President Tim McMillan.

“New pipelines will deliver more Canadian energy (to markets), build our country’s prosperity and help Canada meet the world’s growing energy needs.”

McMillan said the Canadian industry is “sitting on a knife’s edge,” noting that its pipeline system is limited to only 4 million bpd, with current output at 3.98 million bpd.

What is keeping Canada’s upstream sector moving ahead is the rise in global demand, with all forecasts showing that the demand for crude oil will “increase fairly substantially between now and 2030,” McMillan said, adding that Canada can be “that supplier of choice.”

Despite repeatedly slashing their capital budgets, Suncor Energy and Husky Energy are among the oil sands producers poised to generate significant cash flow as commodity prices edge back into the US$50-US$60 a barrel range this year, said analysts at Citigroup Capital Markets.

However, they said growth prospects remain challenged, even after accounting for deflation and lower natural gas input costs, adding that companies will need to significantly lower costs under a scenario in which U.S. shale output caps future oil prices at or under US$75.

“The large upfront costs of the oil sands also pose a challenge in a volatile oil price environment by exposing capital for a longer period,” the Citibank analysts said.

CAPP said it expects its member companies will spent C$17 billion on the oil sands this year.