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Enbridge has a best friend in Ottawa

Canada’s largest transporter of crude oil allies with the capital, whether it wants it or not


 
Power corp.

Jimmy Jeong

Patrick Daniel started in the oil and gas pipeline business more than 30 years ago. At the time, pumping oil through thousands of kilometres of buried metal pipes was viewed as a relatively innocuous activity, to the extent it was even thought about at all. “It was generally considered to be dull, boring and well below the radar screen,” says Daniel, the chief executive of Calgary’s Enbridge Inc., now the country’s largest transporter of crude oil. “It provided an essential service to society and was something that most everyone took for granted.”

Not anymore. Enbridge now occupies ground zero in the raging debate over Alberta’s vast oil sands. The company’s proposed $5.5-billion Northern Gateway project, a pipeline running 1,177 km from near Edmonton to a shipping terminal in Kitimat, B.C., is badly needed to deliver the gooey bitumen to energy-hungry Asian markets. But activists who protest the oil sands’ heavy carbon footprint have seized on the project as a way to choke off further development in northern Alberta. They’ve joined forces with local environmentalists and First Nations groups along the Northern Gateway’s proposed route, and are seeking to have the pipeline killed. A similar strategy was successfully used to throw up a roadblock in front of rival TransCanada Corp.’s Keystone XL project, which was supposed to deliver oil sands crude to the U.S. Gulf Coast.

Fortunately for Enbridge and its shareholders, the company has found itself with a powerful new ally in recent months: Ottawa. Prime Minister Stephen Harper has made oil sands exports and greater ties with Asia a key economic focus, and his government appears to be doing whatever it can to make sure the Northern Gateway gets built. That includes reminding Canadians the pipeline is in the country’s “national interest,” passing key legislative changes that could be used to dramatically speed up the pipeline’s approval and launching direct attacks on groups opposing the project—even going so far as to name some a “terrorist threat.”

It’s the kind of government support most big Canadian corporations can only dream about. And it signifies a profound westward shift of corporate power under Harper. Where once companies like Quebec’s Power Corp. were viewed as among the country’s most politically connected—several former prime ministers had links to the company or the controlling Desmarais family at various points in their careers—nowadays it’s the gleaming office towers on the banks of Calgary’s Bow River that appear to have the most heft. Enbridge may not have a direct line to 24 Sussex like Power Corp. did, but the Harper government sees its interests and the country’s aligned with those of the company. “All the senior leaders in the federal Tory caucus know what they have out there and the value of it,” says Tory strategist Tim Powers. “And that’s always been in their mind in terms of the policies and the approaches they’re taking.”

Enbridge has at times appeared surprised with its new-found political clout, at least publicly. Insiders say that’s because Alberta oil executives are still adjusting to the reality of having industry supporters controlling the House of Commons and effectively doing its bidding. Ottawa is, after all, a place that once subjected the province to the hated National Energy Program. For one thing, Harper’s preference for tackling his perceived enemies head-on doesn’t always sit well with an industry that’s already on the losing end of a public relations war over the “tar sands.” Of course, it may ultimately prove to be a relatively small price to pay given the hundreds of billions of dollars at stake.

Ottawa’s intense interest in pipelines is a relatively recent phenomenon. But the same can’t be said of the oil industry. The Northern Gateway, backed by several big oil sands companies, is all about making sure Canada receives top dollar for a key resource: the 169 billion barrels of recoverable crude in Alberta’s oil sands. At present, nearly 99 per cent of Canada’s oil exports go to the United States, mostly through a network of pipelines. The trouble is, a combination of bottlenecks in the system and increasing production from North Dakota’s Bakken shale deposits threatens to squeeze capacity and depress prices in Cushing, Okla., a major U.S. domestic refinery hub that is currently experiencing a glut.

These days, the U.S.-focused West Texas Intermediate benchmark, against which most oil sands crude is priced, trades at a steep discount to the more international Brent index. The discrepancy costs the Canadian industry billions of dollars annually. “In the 30-plus years I’ve been in this business, I’ve watched the monthly interactions between sellers in Canada and refiners and buyers in the U.S., and there’s always one reason or another for discounting our crude,” says Enbridge’s Daniel. “All Canadian producers want is an alternative so they can say, ‘Guess what? We’re going to ship our crude to China or Korea or Japan this month.’ ” He points to studies that suggest guaranteed access to world market prices would translate into as much $8 to $13 extra on every barrel.

The problem was supposed to be alleviated, in part, by the construction of the Keystone XL, which would have relieved the glut at Cushing and meant more oil for Gulf refineries to export overseas. But the pipeline received a setback earlier this year after U.S. President Barack Obama bowed to pressure from environmentalists and declined to sign off on a key permit. The decision, in turn, dramatically raised the stakes for Enbridge, shifting the focus of both activists and the industry to B.C. Urged on by opponents such as B.C.’s Dogwood Initiative, more than 4,500 people signed up to speak (for 10 minutes each) before a joint review panel, threatening to grind the two-year-old public consultation and review process to a halt.

That’s when Ottawa revealed it was prepared to intervene. Powers, the Tory strategist, says Keystone’s troubles lit a fire under Harper to take advantage of his majority and to realize a key policy goal: establishing Canada as an energy superpower. “You almost have a perfect storm that allows you to make significant moves to push your agenda forward,” Powers says. “Now, you’ll take some heat for it, but the calculation of the government is that, ‘I’ll take the bruising and the potential for a slip in the polls now in exchange for the economic benefits that will come later.’ ”

In January, Natural Resources Minister Joe Oliver fired a shot across the bow of the pipeline’s opponents, with a scathing open letter that warned of “environmental and other radical groups” that “threaten to hijack our regulatory system.” Oliver promised major reviews could be accomplished in a “quicker and more streamlined fashion.” Last week, the government passed a number of regulatory changes in the federal budget that will allow reviews of major resource projects to be completed in less than 24 months. Depending on how they’re implemented, the changes could mean environmental approvals for the Northern Gateway later this year, instead of in 2013.

Much work remains to be done. So far, Enbridge has said that nearly 60 per cent of First Nations communities along the pipeline’s proposed route have accepted an equity stake in the project. But, unlike Alberta, B.C. Premier Christy Clark has so far declined to speak out in favour of the pipeline, saying the province would prefer to wait until the environmental assessments have been completed.

There were also new measures in the federal budget aimed at neutering anti-oil sands groups—namely more resources to help the Canada Revenue Agency crack down on charities violating rules that limit political advocacy to less than 10 per cent of budgets.

Environmentalists say it’s all part of Ottawa’s effort to reframe the debate. “We’re no longer talking about the issues,” says Jay Ritchlin, with the David Suzuki Foundation. “Now we’re just shouting at each other.” Meanwhile, others have pointed to the recent pipeline spill by a rival company in central Alberta, or Enbridge’s own spill in Michigan’s Kalamazoo River two years ago, as evidence of the ongoing risks involved.

As for the question of foreign money being used to “hijack” the pipeline’s review process, Ritchlin says it pales in comparison to the billions backing the oil sands industry. “There are people all over the planet who share our air and water,” he says. “They have a legitimate interest in this [project], just like all those foreign shareholders who want to get that oil out of the ground.”

Despite interests that now seem almost perfectly aligned, the degree to which Enbridge and Ottawa might be working together isn’t clear. Federal records show a dramatic spike in meetings between company lobbyists and federal officials last year, suggesting Enbridge sought government help as the controversy over Northern Gateway heated up.

Daniel, however, downplays Enbridge’s pull with Harper’s team. “The only meetings I have had on this subject with the Prime Minister was in a room with about 20 or 30 people when I went to China as part of a trade mission,” he says, referring to a trip earlier this year. “But I know the whole industry is supportive and that a number of members put forward the case to the federal government that we need to get this western outlet and tidewater access.”

Still, Daniel claims he was “a bit surprised” the government proposed changes to streamline the system in this year’s budget, saying he’s been complaining about the issue since becoming CEO in 2001. Nor does he believe the changes will impact the Northern Gateway review process in any meaningful way.

The government suggests otherwise. “Transition measures in the legislation outline how changes will apply to existing projects,” said Oliver in a statement provided to Maclean’s by his office. In the case of Northern Gateway, he said the new timelines would “take into account the current status of the review process, as well as the information that has already been collected.”

But it’s not all good news for Enbridge. It has spent the past two years trying to work with key stakeholders, from environmentalists to First Nations. The last thing it wants is for those same people to now suspect the entire process has been rigged. “[Enbridge] might be able to tolerate an additional several months of hearings in order to increase how smoothly the pipeline gets built once it gets approved,” says George Hoberg, a professor in the University of British Columbia’s department of forest resources management who has spoken against the Northern Gateway project. “It could be quite costly for it to get into a situation where it’s trying to bring in backhoes and bulldozers while native elders are lying on the ground in front of them.”

Indeed, insiders say Alberta’s oil executives have privately cringed at some of Ottawa’s recent rhetoric, particularly efforts to label environmentalists and activists as radicals. “That letter didn’t go down well in Calgary,” says one lobbyist, who spoke on the condition of anonymity, referring to the jarring missive Minister Oliver’s office shared with newspapers earlier this year. After all, these are companies that have invested heavily in renewable energy projects and, in many cases, have sought unlikely partnerships with environmental and other groups in a bid to establish themselves as good corporate citizens.

Daniel says he supports Oliver’s characterization of some of the pipeline’s more extreme opponents, although he’s careful to draw a distinction between acceptable and unacceptable behaviour. “Some of the environmentalists opposed to this project have said, if it is approved, they’re going to break the law and blockade it,” he says. “Now if I told you that I didn’t care what the National Energy Board says, and I was going to build [the pipeline] anyway, you would call that ‘radical.’ So I consider it very radical for people to say they’re going to break the law after we’ve gone through a decision process.”

But even as he tries to strike a conciliatory, apolitical tone, Daniel, who is retiring later this year, can’t resist a little political speak himself—even though he prefaces his remark as tongue-in-cheek. “I noticed that in B.C. the senior health officials have concluded the drug ecstasy is safe for consumption,” he says. “And I find it rather ironic that a province has implied a crude oil pipeline is unsafe, but that ecstasy is. I guess I’m getting too old for this business.”


 

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