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Pipelines a Canadian cash cow New development challenged by opposition; costs of getting into new projects up, resulting in fewer major infrastructure developers Gary Park For Petroleum News
The operation of crude oil, natural gas liquids and natural gas transmissions pipelines pumped C$8.8 billion into Canada’s gross domestic product in 2012, setting the stage for an infusion of C$130 billion over the next 30 years, according to a study commissioned by the Canadian Energy Pipeline Association.
Labor income generated by the sector last year was estimated at C$1.9 billion, representing 25,000 full-time equivalent jobs, with Alberta and Saskatchewan claiming about half.
“Canada’s energy pipelines are an overlooked source of economic prosperity,” said CEPA President Brenda Kenny.
“Not only do they add billions to our GDP, they’re also a source of high-income jobs for thousands of Canadians.”
She said the report also clearly shows that, despite the concentration in Canada’s two leading oil and gas producing provinces, the economic benefits are spread across the country.
The analysis was compiled by Gerry Angevine of Angevine Economic Consulting in collaboration with Rick DeWolf of R. DeWolf Consulting.
Study findings The breakdown of findings showed that:
•Alberta received 45 percent of the C$8.8 billion contribution to GDP, followed by Saskatchewan at 19 percent and Ontario at 16 percent.
•Of the C$1.9 billion in labor income, Alberta claimed 40 percent, Ontario 20 percent and Saskatchewan 19 percent.
•Of the 25,000 jobs, 30 percent were in Alberta, 21 percent in Ontario and 20 percent in Saskatchewan.
CEPA said the report did not capture the spinoff benefits of pipeline infrastructure, which are estimated at 21 percent of the total value of Canadian exports of goods generated by the shipment of energy products through pipelines.
Demand for higher standards CEPA board chair Brendan Dolan acknowledged that despite the positive impact of the pipeline industry and a “shared commitment to excellence,” the public is demanding even higher standards.
“We have agreed to become more nimble and collaborative in all areas of our operations, including being more accountable to our stakeholders” in areas of pipeline integrity, safety and environmental performance, as well as becoming more transparent to Canadians, he said.
But Dolan emphasized that an overhaul of CEPA’s governance structure is designed to streamline the decision-making process and “clear barriers to ensure we can make decisions in a more timely and efficient manner.”
Cost to industry The cost to the pipeline business of falling behind opposition to infrastructure projects was reflected by TransCanada executives in a presentation to investors Nov. 19.
Alex Pourbaix, the company’s president of energy and oil pipelines, said that delays in gaining regulatory approvals for projects such as Keystone XL have forced his company to start offloading a larger share of advance capital spending and development costs to shippers.
He said the “pretty complex dance” at the regulatory stage now requires cost-sharing arrangements because of the significant amount of capital that has to be spent upfront before final permits are obtained.
Pourbaix noted that the base Keystone system, which currently ships 500,000 barrels per day from the Alberta oil sands to Steele City, Neb., needed 21 months to obtain a U.S. Presidential Permit, whereas the 830,000 bpd Keystone XL project to reach Texas Gulf Coast refineries “is now at 61 months and counting.”
To date, TransCanada has spent US$2 billion on Keystone XL, which was projected a year ago to cost US$5.4 billion and is now facing increases which Chief Financial Officer Don Marchand hinted would be at least US$100 million. .
“Make no mistake, it’s a challenging world, especially for linear energy infrastructure,” Pourbaix said. “The opposition realizes they don’t have to fight us at every single community. They just have to pick one or two and they can make it very challenging.”
Fewer infrastructure developers The result has also been a decline in the number of infrastructure developers, who once competed for business on just a per-barrel cost, Pourbaix said.
“We’re getting to the point where it’s becoming a very small world of developers competing for large-scale developments,” he said.
During the delays in obtaining a Presidential Permit for Keystone XL, TransCanada has been directing the bulk of its capital to Alberta and Canada, said TransCanada CEO Russ Girling.
“There is a strong recognition across the political spectrum (in Canada) of the cost to the economy of not allowing market access in an efficient way” for crude from Western Canada, he said, but expressed hope that new Canadian government legislation, which imposes firm timelines on the regulatory phase, will face its first test when TransCanada files its Energy East application next year to move 1.1 million bpd of Western Canadian crude to Ontario, Quebec and New Brunswick by 2018, Girling said.
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