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Vol. 17, No. 37 Week of September 09, 2012
Providing coverage of Alaska and northern Canada's oil and gas industry

Multi-billion $ showdown

Canadian debate over crude oil pipelines to coast impacts Kinder Morgan, Enbridge

Gary Park

For Petroleum News

Kinder Morgan finds itself as caught up as Enbridge in the showdown debate over plans for crude oil pipelines to the British Columbia coast that analysts’ reports say are vital for Canadian producers to receive full value for their crude.

Opposition to Enbridge’s Northern Gateway line to Kitimat has spilled south to Vancouver, where Kinder Morgan’s proposal to expand its 55-year-old Trans Mountain system got a taste Sept. 1 of building aboriginal resistance.

On the other side of the fence, Scotiabank issued a report estimating that the double discounting of Canadian crude will likely continue indefinitely unless producers can gain access to Asian markets.

The bank’s commodities analyst Pat Mohr said Western Canadian heavy oil producers missed out on about C$5.8 billion of revenues in the first half of 2012 because they were unable to sell into Brent-priced markets.

“If we had a second major export outlet for our crude, it would raise competition among buyers,” she said. “And if we were to access Asian markets we would be getting world prices.”

Wide price differential

Western Canada Select, a blend of 25 conventional and unconventional crudes faced an average price differential of US$22.69 per barrel in July, about US$5.60 higher than a year earlier, despite increases in West Texas Intermediate.

Mohr said that gap increased by about US$15 when WTI was compared with Brent crude.

The Scotiabank report echoed findings in March by CIBC World markets which said Canadian producers were losing US$18 billion a year because of persistent discounts and projected those lost opportunities would continue into 2014, partly influenced by rising volumes from the Bakken.

CIBC analyst Paul Lechem said that if all proposed export pipelines are built capacity out of Western Canada will increase to 6.3 million barrels per day from the current 3.6 million bpd.

“Our outlook suggests this pipeline capacity could be fully utilized by the mid-2020s, including amounts needed for oil sands diluents as well as Bakken production picked up by export pipelines,” he said.

Mohr said various pipeline expansions designed to alleviate the bottleneck at Cushing, Okla., will allow more northern crude to reach Gulf Coast refineries, but will only partially alleviate the Western Canadian discount.

Differential expected to narrow

She expects the WTI-Brent differential to narrow in 2013, but added “it may not go down to zero because the U.S. has a lot of new crude production coming on stream and you can see their increase in production is quite extraordinary.”

Mohr said oil consumption in non-Organization for Economic Cooperation and Development countries is expected to outstrip that of OECD countries by the second quarter of 2013, making it vital that Canada gain access to those markets.

But the cloud over the Northern Gateway and Trans Mountain plans, which would create combined export volumes of 1.3 million bpd, builds as First Nations, environmentalists and some political parties threaten to take whatever action they can to block those plans.

Tsleil-Waututh Chief Justin George, whose community organized 20 protest canoes, said the Burrard Inlet in the Vancouver port is already experiencing a slow death, with oil spills from tankers wiping out clams, mussels and oysters.

He fears the expansion of Trans Mountain to 750,000 bpd from 300,000 bpd would see tanker traffic in the inlet increase to 400 trips a year from 80, arguing “human error is inevitable.”

“The reality of what is being proposed is that the Vancouver waterway becomes a major oil-port city,” George said. “And oil port cities throughout the world become waterway dead zones.”

Richard MacVicar, director of the Pacific Wildlife Foundation, said there not enough information for anyone to form an opinion on the expansion.

He said the project should not go ahead “without a good database and a good understanding of the ecosystems and the way they work.”



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