Time for Plan B as Keystone XL and Northern Gateway pipelines stall

Looking at the prospect of an eastern pipeline


Daniel Acker / Bloomberg / Getty Images

On a cold, blustery Sunday in February, tens of thousands of people descended on Washington’s National Mall to protest the proposed TransCanada Corp.’s $5.3-billion Keystone XL oil pipeline. They chanted, waved placards and called on U.S. President Barack Obama to kill the project, which, if completed, would pump up to 830,000 barrels a day from Alberta’s oil sands to refineries on the U.S. Gulf Coast. Referring to the energy-intensive processes needed to extract gooey oil-sands bitumen, activist and organizer Bill McKibben claimed that approving the 1,200-km pipeline would be tantamount to lighting a massive “carbon bomb.”

Few noticed, 48 hours earlier, when another Calgary pipeline company, Enbridge Inc., revealed it also planned to build a new pipeline to deliver nearly as much oil, about 660,000 barrels per day, to the very same U.S. region. Stretching from Patoka, Ill., to St. James, La., the $3.4-billion Eastern Gulf Crude Access pipeline is a joint venture between Enbridge and Texas-based Energy Transfer Partners that would repurpose 1,100 km of an existing natural-gas line to carry a mix of oil-sands crude and lighter Bakken oil from North Dakota. “The industry believes it’s easier to get regulatory approvals by using existing right-of-ways,” says Vern Yu, Enbridge’s vice-president of business and market development, adding the pipeline will connect to existing cross-border infrastructure.

Not to be outdone, TransCanada is taking a similar approach with its recently unveiled Energy East pipeline, a massive $12-billion project that would make heavy use of an existing natural-gas main line that runs from Saskatchewan to Ontario. The 4,400-km pipeline would carry 1.1 million barrels a day of crude to refineries in Quebec and New Brunswick, eliminating their need to import more expensive foreign oil. Crude could also be shipped, via ports in Quebec City and Saint John, N.B., to refineries in the U.S., Europe or even China. “It’s a bit farther off the east coast than the west coast to get it to Asia,” TransCanada CEO Russ Girling said recently. “But it can be competitive in certain circumstances.”

With the public spotlight focused on two controversial projects—the Keystone XL and Enbridge’s $5.5-billion Northern Gateway pipeline, which would connect the oil sands to a shipping terminal on the B.C. coast—many assume land-locked oil-sands producers will be forced to dial back plans to boost production to 3.2 million barrels a day by 2020, up from 1.8 million barrels now. But the industry has begun to pivot in the face of opposition—focusing more on expanding and repurposing existing infrastructure, while increasing focus on pipeline politics, as opposed to pure economics, when developing future projects.

The official line on Energy East from TransCanada’s Girling is that it’s “completely independent” from the fate of Keystone XL, but those who follow the industry argue the dark clouds hanging over other pipeline projects have raised this one’s importance. “It’s absolutely a Plan B,” George Hoberg, a professor at the University of British Columbia (UBC), says of Energy East. “The interest in that project, especially from governments, only increased after Keystone and Northern Gateway ran into trouble.”

At present, most of Alberta’s oil flows to the U.S. Midwest, where, earlier this year, the so-called “pipeline crossroads of the world” in Cushing, Okla., was swamped with crude, thanks to a boom in hydraulic fracturing, or “fracking,” of U.S. shale deposits. With insufficient pipeline capacity to move all that oil to refineries, the spot price for West Texas intermediate (WTI) oil at one point fell nearly $23 below the more global Brent price. A further discount applied to Western Canada select, which is the grade produced by oil-sands producers—a situation Alberta Premier Alison Redford dubbed a “bitumen bubble.”

New U.S. pipeline projects such as Enbridge’s Seaway pipeline expansion, between Cushing and Freeport, Texas, have helped to clear the glut—the “spread” between WTI and Brent is now just $2, although Western Canada select remained about $16.75 below WTI in the second quarter—but any respite could prove short-lived, as North American production continues to ramp up. “Think of these as energy highways with limited capacity,” says Brenda Kenny, the president of the Canadian Energy Pipeline Association. “With Canadian oil production moving up by three million barrels per day over the next 20 years, you’re going to need more lanes to move it.”

The challenge is figuring out new and inventive ways to shepherd all those new projects through an increasingly complex approval process. “There’s a lot more scrutiny on pipeline companies and the projects we’re trying to get done,” says Enbridge’s Yu. “So when we’re out talking to customers now, we tell them the timelines necessary to get a project completed today are a lot longer than they were historically”—up to seven years, instead of three to four years previously. But even that might not be enough time. Enbridge’s Northern Gateway project was launched in 2006 and is still considered by many analysts to be a long shot. Meanwhile, TransCanada’s Keystone XL, first proposed in 2008, dangles in regulatory limbo. Obama’s recent remarks to the New York Times about Canada’s inaction on climate change suggest he may not approve the project. (Obama killed an earlier version of the Keystone XL in the run-up to the 2012 election amid pressure from the green lobby.) Yu says the reason Enbridge’s Eastern Gulf Access pipeline hasn’t drawn similar attention is because relatively few permits are required to build it, dramatically limiting the opportunity for public input. “A 100 per cent U.S. project has a much different permitting scope than a cross-border one,” he says, adding that Enbridge constantly evaluates its existing network to see where improvements can be made, either by increasing capacity or repurposing under-used lines. Another example is Enbridge’s Line 9 reversal and expansion project, which would move Canadian oil eastward from North Westover, Ont., to refineries in Montreal, instead of pumping imported overseas oil west to refineries in Sarnia, Ont.

In an upcoming paper in the journal Canadian Public Policy, UBC’s Hoberg argues that, in the current environment, the only pipeline projects that stand any chance of succeeding are ones that, like Eastern Gulf Crude Access, minimize “institutional veto points”—any junctures at which government or regulatory bodies are able to kill a project. A successful pipeline must also do more to match the tradeoff between risks and benefits for local communities along its route. By that measure, he argues TransCanada’s proposed Energy East project stands the best chance of success. Much of the pipeline is in the ground through Western Canada and Ontario, leaving most new construction in Quebec and New Brunswick—the same provinces where local refineries will benefit. “You’ve got the pipeline jobs, construction jobs and then longer-term jobs, since those refineries can access a lower cost of crude,” says TransCanada spokesperson Shawn Howard.

By contrast, Hoberg suggests that the most risky projects are Enbridge’s Northern Gateway pipeline and Kinder Morgan’s $5.4-billion Trans Mountain pipeline expansion, which would triple the flow of oil-sands crude moving between Edmonton and B.C.’s Lower Mainland to 890,000 barrels per day. Though neither requires the approval of a foreign government, and both are among the shortest in length, they face opposition from B.C. First Nations who have the ability to torpedo a project by tying it up in court. Both pipelines are also seen to pose an outsized risk to B.C.’s lush coastal environment while providing relatively few new jobs in the province, argues Hoberg, who has spoken out against the Northern Gateway project.

It says something about the current political climate surrounding oil-sands development that the industry’s most promising pipeline projects are also the longest and most expensive. That may be why Prime Minister Stephen Harper spoke in favour of TransCanada’s Energy East plans, saying during a recent visit to the Irving Oil refinery in Saint John that it would boost Canada’s “energy security.”

But just because Energy East may be more politically palatable doesn’t guarantee its success. Quebec Premier Pauline Marois has said she’s keeping an open mind about the project, but her province has already taken a hard line against fracking and is still dealing with the fallout of the train explosion in Lac Mégantic. “Quebec’s not a province that normally wants to buy into Canadian nation-building ideas,” Hoberg says. “It also has a long history, and very intense recent history, of dramatic protests once mobilized.”

That hasn’t happened yet, but Enbridge’s Yu is quick to remind people Northern Gateway seemed promising out of the gate, too. “The amount of opposition we had was initially pretty limited,” he says. “Then we filed our regulatory application.”


Time for Plan B as Keystone XL and Northern Gateway pipelines stall

  1. Our only hope is that a carbon fee will be put in place worldwide before all this carbon is spewed into the atmosphere. Also, folks wake up and realize that almost ALL the scientists are straight about the crisis we are ignoring because of the profits being made by these corporations. The head CEO’s know the science is true but continueto undermine the political system for their own enrichment.

  2. The TransCanada mainline conversion isn’t a new Plan B idea. I’ve urged them to do this since 2011. Maybe an end run could be done with it and Line 9. Deliver crude to eastern Ontario with the conversion. Take some of it west on Line 9 to Sarnia. Keep that oil which was to cross into Ontario at Sarnia to go into a reversed Line 9 in the US and divert it to the Gulf Coast.

  3. None of the pipeline proposals are about shipping crude . the plan is to ship Dilbit , a mixture of highly toxic carcinogenic petrochemicals and bitumen, heated under pressure . Dilbit is not crude , nor is it highly explosive Bakken light crude , it’s crud , and three years after the Marshal Michigan pipeline rupture bitumen still flows in the Kalamazoo River .

    • Yeah, that’s what I was thinking. This is just a round-about Keystone XL. Instead of piping the bitumen directly to the Gulf of Mexico refineries, they will pipe it to the East Coast then ship it to the southern refineries.

      Any bitumen spills from tankers will sink right to the bottom of the ocean. Like the Deep Sea Horizon, there will be no contingency plan when a huge disaster strikes.

      This is a bad idea. It’s best to refine it then ship it. Or better yet, leave the dirty, inefficient oil in the ground.

  4. The fixation on shipping raw bitumen rather than refined oil from Alberta is to ensure that the refining is done on the coast, so that the huge amounts of petroleum coke created by refining can be shipped to third world markets . Each barrel of bitumen produces 60-130 pounds of petcoke , which can be sold as fuel. Per unit of energy, burning petcoke creates 10% more CO2 than coal . If the oil was refined oi Alberta , and pipelined from there, the petcoke wouldn’t be worth shipping to markets, and would remain a pollutant in Alberta , rather than the worlds dirtiest fuel on the open market , at 25% cheaper than coal , even Nova Scotia burns the stuff.

  5. How much will a pipeline cost an Albertan ? We will get the bill for the pipeline to export an Alberta product. This will create an artificial shortage of fuel at the pumps and our gasoline will be three times as much in two years .Oh! but our imported workers will have jobs .and the Government will get more money from taxes .

  6. People need to realize that these pipelines mean employment and tax revenue.

    If you have been to a hospital or doctor anywhere in Canada you have benefited from oil sands revenue. If you are employed by a federal or provincial government (or one of the many companies they have contracts with) you have benefited from oil sand revenue. If you are employed in the auto industry which was bailed in part by the government of Canada you are benefiting from oil sands revenue.

    Chances are if you have a pulse and Canadian passport you have in some way benefited from the taxes and opportunities generated by the oil sands.

    • Another overstated comment.
      Read national bestseller “Stupid to the Last Drop: How Alberta is Bringing Environmental Armageddon to Canada (AND DOESN’T SEEM TO CARE). by William Marsden

  7. any new pipeline anywhere in Canada will face strong public opposition. If the Harper government pushes the Canadian public by building bitumen pipelines the resistance to building it would likely topple the Harper government or even possibly end up with the burning of Parliament as happened many years ago in 1849. No one knows what will happen, but it will dwarf all other Canadian protests and possibly fracture Canada (Alberta separate from Canada). There is no good in this except profit for the Chinese and Enbridge stockholders, and crumbs for Canadians.