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Vol. 20, No. 52 Week of December 27, 2015
Providing coverage of Alaska and northern Canada's oil and gas industry

Market access jitters

US move to resume oil exports could undo Canadian hopes of selling crude in Asia


For Petroleum News Bakken

TransCanada, Enbridge and Kinder Morgan are making what could be their last attempts at persuading Canada’s new government to ultimately approve plans for three of the biggest crude pipelines in the country’s history and open the way for exports beyond North America.

But the already shaky hopes for the three proposals to move an incremental 2.2 million barrels per day out of the Alberta oil sands may have taken a fatal setback with the U.S. Congress vote to end a ban on oil exports that has been at the core of U.S. energy policy for more than 40 years.

This dramatic shift in the U.S. could signal that Americans are more than willing to put economic interests ahead of environmental concerns at a time when the administration of Prime Minister Justin Trudeau is tying itself to commitments made at the just-completed United Nations climate change summit to move the world away from fossil fuels and advance a greener energy sector.

The message from the U.S. was loud and clear, with Senate Majority Leader Mitch McConnell proclaiming that the Congressional vote means “more jobs, more opportunities and more economic growth.”

That view was echoed by Scott Sheffield, chief executive officer of Pioneer Natural Resources, who said that lifting the export ban will “help the entire economy and energy security (and) will help our trade balance. To me, it’s very, very big.”

New markets for US oil

Industry executives and other experts say the repeal, if ratified by President Barack Obama, would open new markets for U.S. oil in South Korea, Japan and China over the next several years - all of them key targets for Enbridge’s 525,000 bpd Northern Gateway pipeline and Kinder Morgan’s planned expansion of its Trans Mountain system to 890,000 bpd from 300,000 bpd.

The American public appears to have fewer concerns about the impact of pipelines than Canadians.

A recent poll by the Pew Research Center showed 48 percent of Canadians opposed TransCanada’s Keystone XL pipeline from Alberta to Texas compared with only 38 percent of U.S. respondents.

But Trudeau, despite assurances during the Canadian election campaign that he would explore ways to overcome resistance to TransCanada’s Energy East and the Trans Mountain expansion, has since done an apparent about face.

In a mandate letter he sent to Natural Resources Minister Jim Carr, Trudeau made 11 references to “clean technologies,” “renewable energy” and “pressing environmental challenges” - the sort of agenda that might have been more appropriate for his environment minister.

His only reference to developing natural resources was contained in a phrase that Carr’s “overarching goal will be to ensure that our resource sector remains a source of jobs, prosperity and opportunity.”

That comes at a time when the Canadian Association of Petroleum Producers estimates the oil and gas sector will see 100,000 job losses by the end of this year, including 40,000 direct jobs, as a combination of policy uncertainties and low commodity prices causes investors to retreat from the industry.

Grim prospects

For the pipeline proponents, these grim prospects cast an even darker cloud over their desperate hopes for new markets.

TransCanada has filed an amended application for Energy East that has raised the projected cost to C$15.7 billion from C$12 billion, reflecting hundreds of route changes and a decision to abandon a planned export terminal in Quebec.

And that estimated price tag could climb even further to C$19.3 billion when accounting for potential future financing costs as well as a related expense tied to increasing natural gas pipeline capacity in Ontario and Quebec.

“This amended filing has been shaped by direct, on-the-ground input from Canadians across the country,” said Chief Executive Officer Russ Girling. “However, Canadians also want assurances this project does not come at the expense of safety and the environment - and this application shows we can do that.”

But a TransCanada spokesman said Energy East remains viable and would help replace about 800,000 bpd of imported oil to Ontario and Quebec refineries while reducing crude-by-rail shipments by displacing about 1,570 rail tanker cars of crude per day.

He also said that TransCanada has received no indication from the Canadian government that the review process will be suspended, despite demands from about 100 groups, leaving intact the hopes of starting shipments of 1.1 million bpd by October 2019.

Hopes for early hearing end

Meanwhile, Kinder Morgan, which has already spent more than C$300 million on the Trans Mountain project, while raising the projected final cost to C$6.8 billion from C$5.4 billion, is hoping for an early end to the National Energy Board’s regulatory hearing.

The final decision on the application is expected from Trudeau’s cabinet by about August 2016.

Shawn Denstedt, a lawyer for the project, told the NEB earlier in December that proceeding with the Trans Mountain expansion is “critical to the country and all Canadians. We cannot accept that our resources will be forever held hostage and sold at a discount.”

“There are no environmental or social impacts that cannot be mitigated,” he said. “Real and important benefits for all Canadians cannot be cast aside based on improbable risks.”

Denstedt said the review has been one of the most comprehensive in the NEB’s history, involving the filing of a 16,000-page application two years ago, answering 17,000 questions and allowing participation by 400 interveners and 1,250 commentators.

Ian Anderson, president of Kinder Morgan’s Canadian subsidiary, told the Financial Post he plans to start working with the Trudeau government in coming weeks to “reinforce the critical nature of the (pipeline’s) timing. We have almost four years until we have to be in service. The market needs this pipeline capacity.”

Enbridge has also said it is seeking meetings with the new government, though its hopes of gaining approval are rated as the least likely to succeed since Trudeau requested a draft proposal to bank oil tankers in the northern waters of British Columbia.

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