Canadian pipelines face crunch in 2008

NEB report gave attention to obstacles in gas delivery system; North America demand expected to surpass domestic supplies

Gary Park

For Petroleum News

Canada has enough pipeline capacity to move its petroleum products to consumers, but the National Energy Board says those days could be over by 2008.

In its second annual report on Canada’s transportation network, which covers 28,000 miles of regulated pipelines, board Chairman Ken Vollman said the challenge is to have “adequate capacity for the right products to the right markets at the right time.”

“With pipelines, timing is everything,” was his message.

On the upside, Vollman said the rising demand is reflected in the number of applications before the board and the proposals that are pending.

For now, the report said that not only is capacity meeting output, but pipeline companies are providing services that meet the needs of shippers “at reasonable prices.”

They are also able to obtain the necessary financing to maintain their systems and build new facilities to meet the changing needs.

The report paid special attention to potential new obstacles in the gas delivery system, answering forecasts that gas demand in North America is expected to surpass domestic supplies.

Gas consumption growing

“The growing interest in liquefied natural gas could be key in meeting this demand,” the board said.

But that means more pipelines to feed LNG from receiving terminals into the pipeline system at a time when there is uncertainty surrounding the potential impact LNG will have on supply, demand and the pattern of natural gas flow.

The board projects that LNG could account for 15 percent of Canada’s gas supply by 2016.

Greg Stringham, vice president of the Canadian Association of Petroleum Producers, told the Calgary Herald that oil producers agree with most of the board’s conclusions, which are similar to his association’s own assessment in May.

Stringham expects the industry will survive through 2008 and 2009, beyond which pipeline expansions will depend on an efficient regulatory program.

He said the key is to ensure that refineries in both the U.S. and Canada are ready for the new volumes.

Companies expanding lines

One of Enbridge’s major endeavors is the proposed C$4 billion Gateway system covering 720 miles from Edmonton to a deepwater port at Kitimat on the northern British Columbia coast.

Gateway President Art Meyer said at a Vancouver conference June 27 that, despite concerns raised by CIBC World Markets about opposition from aboriginal communities along the right of way, Enbridge is counting on regulatory approval by late 2007, a start of construction in 2008 and completion in 2010.

CIBC analyst Matthew Akman said in a report that his firm’s consistent view has been that Gateway is likely to be delayed, given that seven of 42 First Nations along the route have issues with the Canadian government’s approval process.

The Carrier Sekani Tribal Council, whose land covers about one-third of the pipeline’s route, has warned it may try to block the project because its 5,700 residents would receive only “limited” benefits.

A coalition of seven groups, including the Alberta-based Pembina Institute for Appropriate Development and the David Suzuki Foundation in Vancouver, has also claimed the moratorium on oil and gas exploration in the B.C. offshore applies to the so-called very large crude carriers which would use the Kitimat port.

But Meyer took issue with that claim, insisting there is no ban which would affect the 13 tankers a month expected to use the Gateway facility.

Meyer countered those concerns by noting that Gateway should generate about C$2 billion in direct and indirect construction wages in B.C. and Alberta, creating 5,000 construction jobs over two years.

Enbridge is targeting completion of commercial agreements this year which are expected to include tanker shipments to Asia and California, with a possible equity stake in the pipeline for Petro-China.