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Vol. 17, No. 34 Week of August 19, 2012
Providing coverage of Alaska and northern Canada's oil and gas industry

Arctic route in mix: NWT premier suggests Beaufort to Asia

Nothing is off the table when it comes to shipping Canadian crude to Asia, not even opening a route from the Beaufort Sea.

Amid the raging battle over Enbridge’s Northern Gateway project and Kinder Morgan’s planned expansion of its Trans Mountain system, to accommodate a combined 975,000 barrels per day of new pipeline capacity to the British Columbia coast, Northwest Territories Premier Bob McLeod said he will support a northern option.

Given the opposition to crude bitumen pipelines in British Columbia, he suggested the Alberta government should consider a pipeline down the Mackenzie River Valley to a tanker terminal on the Beaufort Sea.

In an interview with the Canadian Broadcasting Corp., McLeod said that although his preference is still to revive stalled plans for shipping natural gas from the Mackenzie Delta to southern Canadian and U.S. markets, “we are prepared to look at other options, including the Northern Gateway.”

Earlier in August, McLeod said that if British Columbia Premier Christy Clark’s stand against Northern Gateway reduces Canada’s energy export hopes and establishes a “new order of doing business,” by requiring a wider sharing of revenue among provinces it is important to “keep all of our options open.”

Alberta willing to talk

Alberta Intergovernmental Affairs Minister Cal Dallas was quick to welcome the suggested alternative.

He said his government would be “more than pleased to talk to (McLeod) and anyone in the NWT who is interested in cooperating on projects.

“We view McLeod’s comments as a signal that the NWT recognizes that access to markets for Alberta energy would really enhance economic opportunities and jobs across Canada.

“A northern route that would see our bitumen transported out of the NWT to Asia might be a project that could be actively contemplated at some point in the future,” he said.

Backlash predicted

But the prospect of an oil sands pipeline through the NWT would likely face the same wall of resistance as pipelines elsewhere in Canada.

Fred Carmichael, chairman of the Aboriginal Pipeline Group, which has the option of a one-third equity stake in the Mackenzie Gas Project, said a pipeline to the Beaufort Sea would face a backlash from environmental and aboriginal organizations.

He suggested the battle against a northern oil route would match that currently being waged against Northern Gateway.

Jack Mintz, director of the School of Public Policy at the University of Calgary, said that if Northern Gateway and Trans Mountain get blocked “it’s hard to see what other options there would be in terms of market diversification, like getting oil to Asia.”

He said carrying crude through the NWT is not likely to be a viable alternative, given the difficulties of establishing northern shipping lanes.

Mintz also argued that plans to expand and extend pipelines to Central Canada and the Atlantic region do not amount to true market diversification because most of the crude would likely end up in the U.S.

CAPP focused on B.C.

David Collyer, president of the Canadian Association of Petroleum Producers, told the Calgary Herald that his organization is concentrating mostly on establishing shipments to the British Columbia coast.

However, he said rail shipments to the U.S. Gulf Coast, the West Coast and possibly pipelines to Central and Eastern Canada are all part of the mix that is being explored.

Collyer argued that pipelines to tanker ports on the West Coast remain the safest and most economical way to transport large volumes of crude, which means rail offers only a limited role.

On the NWT option, he said producers “have to be realistic,” given that Northern Gateway and Trans Mountain have already involved years of work on design, community consultation and efforts to obtain commercial support.

Prospect of ice-free Beaufort

Lending some weight to the notion of year-round tanker movement in the Beaufort Sea, the European Space Agency said Arctic sea ice could disappear entirely by 2022.

Issuing results from two years of satellite studies, it estimated that 900 cubic kilometers of ice have disappeared every year since 2004, leaving only 7,000 cubic kilometers — a dramatic rate that has scientists estimating there could be no sea ice coverage within a decade.

They said the thinning of ice is advancing 50 percent faster than most has predicted, noting the absence of ice caps could see the release of more greenhouse gas methane into the atmosphere, further accelerating global warming and rising sea levels.

However, Seymour Laxon, with London’s Center for Polar Observation and Modelling, told the Guardian newspaper the latest figures are still based on preliminary studies and that the current rate of ice loss might slow down.

NWT facilities a challenge

Doug Matthews, a northern energy consultant and former NWT manager for oil and gas development, told the Globe and Mail newspaper that the challenge of building a pipeline, port facilities, icebreakers and coast guard capacity in the NWT would pose a “huge burden” and would need to be backed by a critical mass of oil or gas for export.

He said McLeod is “just expressing the frustration” of the NWT after years of trying to negotiate the development of its own energy resources.

“You can’t just say you’re an energy superpower. You have to act like one,” he said. “The guys down south can’t seem to get their act together.”

Aside from its own vast natural gas resources, the NWT is pinning hopes on prospects for the Canol shale oil find in the Central Mackenzie Valley, where companies — including Royal Ditch Shell, Husky Energy, Imperial Oil and ConocoPhillips — have committed C$627 million in the two latest bidding rounds for 13 parcels.

NWT Industry Minister David Ramsay estimates the “massive piece of real estate” could hold 2 billion to 3 billion barrels of recoverable oil, putting it in a similar league with the Bakken.

Husky has plans for this winter to evaluate two vertical wells drilled last year and, although there is concern over the use of hydraulic fracturing in Canol, the NWT government plans to meet in Calgary Aug. 20 with industry, regulators and environmental groups to learn more about the technology and it impact on water in a fragile region.

Environmental lawyer Stephen Hazell said shale oil development in the North should be rigorously studied before it proceeds to the commercial stage.

If the early indications of major discoveries are firmed up they could further reinforce the prospects of feeding oil into a pipeline destined for the Beaufort Sea and Asia.

—Gary Park

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