Enbridge has been placed in a harsh spotlight during a new phase of regulatory hearings into its Northern Gateway project, with opponents grilling the Canadian pipeline company over the true economic benefits of the venture and the extent of Chinese ownership.
The Alberta Federal of Labor, AFL, led the economic challenge, asking Enbridge-hired economists to defend estimates of more than C$300 billion of benefits for oil sands producers while saying little about the impact of the pipeline on gasoline prices.
Enbridge has forecast that Northern Gateway would allow producers to sell their output at Brent-based prices in Asia, or up to US$20 per barrel above West Texas Intermediate returns in North America.
At the same time, Enbridge economic consultant Robert Mansell told the Canadian government’s review panel that the domestic gasoline price would rise by only about 1.5 cents per liter as a result of the “price uplift” that would stem from the export of 525,000 barrels per day of bitumen to Asia.
He said it was likely that Canadian refiners would absorb that small additional cost because of the pressure on them to keep pump prices low to compete with fuel imports to Canada.
Mansell said that over 35 years the higher price of crude oil feedstock would cost refiners in Canada about C$12 billion, but he offset by the C$312 billion net benefit to Canada over the same period.
AFL President Gil McCowan argued that no one would believe Enbridge’s rosy calculations, describing the “net benefit” claims as a “house of cards … it is based on the assumption that oil producers in Western Canada, not just those with bitumen in the pipeline, will get higher prices for their product.”
“There is also no guarantee that Chinese refiners will continue to pay the ‘Asian premium’ when bitumen starts flowing,” he said.
Imperial adds to doubts
Imperial Oil Chief Executive Officer Bruce March added to the doubts, speaking outside the hearings.
He argued the current situation which has seen North American crude selling on the cheap is only temporary and will balance out over time, meaning that Asia is unlikely to be a more lucrative market than the United States, raising questions about the presumed benefits of Northern Gateway and Kinder Morgan’s planned Trans Mountain expansion.
March said both Asia and the U.S. Gulf Coast are good markets.
“If you give these markets enough time, oil and energy prices have a way of equilibriating all across the world, particularly oil, because it’s fungible, it moves, it’s easily transportable,” he said.
March suggested that over time there will be a combination of increasing Gulf Coast prices and a gradual lowering of those in Asia.
Even so, he agreed that new pipelines connecting to Asia are needed, depending on what volumes the world needs and how much Alberta can produce.
Sinopec has minor interest
The issue of Chinese ownership of Northern Gateway also got an airing.
Currently 10 companies, including China’s Sinopec and France’s Total among six companies that have been identified, have minor financial interests in Northern Gateway, which Enbridge has indicated to eventually expand to 49 percent equity stakes.
A Calgary attorney, Barry Robinson, acting for environmental opponents, warned that state-owned Chinese companies do not always act “like rational free-market companies.”
“Have you ever considered the scenario that China might want to close the loop and take a run at commercial control of the pipeline?” he asked.
Enbridge Vice President Paul Fisher offered a curt reply. “Absolutely not,” he said.
Fisher also said the nationality of any companies involved is irrelevant to the regulatory hearing, insisting that was more a policy consideration for the Canadian and Alberta governments.
Enbridge spokesman Paul Stanway said questions about China’s role were “fear mongering,” arguing that “whoever owns the pipeline has to run it under Canadian regulations.”
