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Pipeline squeeze chokes economy Agencies, banks fuel estimates more than C$1 trillion of economic benefits at stake; industry losing at least C$50 million a day Gary Park For Petroleum News
Canada’s Natural Resources Minister Joe Oliver is clinging firm to his conviction that Enbridge’s Northern Gateway pipeline will proceed amid a raging controversy over proposed transportation projects.
And he has a huge cheering section, with the Canadian Energy Research Institute, the International Energy Agency and two Canadian banks joining the chorus recently of those who argue that the economic health of Canada’s E&P industry hangs in the balance.
The Canadian Energy Research Institute, CIRI, said in a new report that unless three major pipeline expansions go ahead C$1.3 trillion of gross domestic product and C$276 billion in taxes will be sacrificed over the next two decades.
Oliver described that outlook as a “serious issue” with no short-term solution.
“If we do not take heed of warnings and diversify our markets for energy by building infrastructure like pipelines, then our resources will be stranded and we will lose jobs and businesses in Canada,” he told the Saint John Board of Trade in New Brunswick.
“We’re losing C$50 million every single day — C$18 billion to C$19 billion every year — because our resources are landlocked.”
He said that all of the latest reports repeat what his government has been saying “for a long time ... that the U.S. is going to be self-sufficient within the next 20 years and, at a minimum, we aren’t going to be able to rely on them for growth.”
“There is inadequate capacity in existing pipelines and it’s getting pretty stark. None of this is news to us, but it is external confirmation of what we knew and it may even be coming a little faster,” Oliver said.
He said the projections of lost revenues are likely even higher as the differential has increased, prompting CERI to project that the daily shortfall could be closer to C$75 million.
Oliver said the plight facing producers is “screaming out for us to diversify and we need pipelines to do that,” noting that the Canadian government alone has been forced to stall by two years its plans for eliminating the budget deficit because of a C$6 billion revenue shortfall.
Price gap big issue Alberta Finance Minister Doug Horner said the price gap between West Texas Intermediate crude and Western Canada Select (a blend of conventional heavy crudes and oil sands bitumen) is worse than he had originally believed when Alberta released its second-quarter fiscal update in November.
“I am very, very concerned about where those numbers are headed,” he said.
CERI senior research director Dinara Millington said the price gap means Alberta is collecting lower royalties, while the federal and provincial governments have seen their corporate tax revenues decline.
Analysts doubt that even if pipeline expansions add 1 million barrels per day of new capacity that would wipe out the differential.
Horner said that pending the construction of new pipelines, Alberta producers could move their production by rail.
“We need to take a very serious look at every opportunity we have to expand our market access, because it is a critical component for a landlocked province,” he said.
The commodity price spread, which is costing Alberta C$8.5 million a day in royalties or C$3 billion a year, is a “real ... growing concern,” Oliver said.
Hope for Keystone XL He expressed optimism that the Obama administration will soon approve the rerouted Keystone XL pipeline, connecting Alberta with the U.S. Midwest and Gulf Coast.
He also emphasized the importance of an expanded west-to-east pipeline system in Canada, as proposed by Enbridge and TransCanada, and the need for pipelines to the British Columbia coast to open routes to Asia.
Oliver said 2012 was the year that Canada “realized that diversification is utterly critical. We absolutely must be able to transport the resources to tidewater and to do that we need the infrastructure.”
Despite the ongoing opposition to Enbridge’s planned Northern Gateway and TransCanada’s expansion of its Trans Mountain system, Oliver said he is “still of the belief that we can get Northern Gateway done, on the assumption that it passes regulatory muster.”
He said that if the National Energy Board concludes the pipeline can be safely constructed that should “go a long way in respect at least to people who are open-minded to the facts.”
Oliver said that even if British Columbia elects a New Democratic Party government this May, he suggested that administration should not be opposed to Northern Gateway if the current environmental review can allay concerns.
He said the Canadian government will continue its efforts to consult with aboriginal groups and ensure pipeline and tanker safety is the best it can possibly be, but added “We have a big job to do.”
British Columbia Environment Minister Terry Lake said that far more than a favorable environmental review is needed to sway his government.
“We need to have our share of the benefits commensurate with the amount of risk,” adding that if the risks can’t be minimized “then it doesn’t really matter what the benefits are.”
However, he said that if Enbridge and the Canadian government can satisfy British Columbians they can meet the province’s environmental, safety and economic conditions, the pipeline “certainly can be a possibility.”
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