Canadians Push New Routes for Oil
11.26.2011 - NEWS

November 25, 2011 [The Wall Street Journal] - Canadian politicians and energy executives are ratcheting up support for several big infrastructure projects aimed at redirecting the country's growing oil output to thirsty Asian markets—a move seen as crucial in preventing a looming bottleneck of crude.


The push has taken on fresh urgency after Washington this month pushed back approval of a pipeline envisioned to boost oil exports from Canada to the U.S. Canadian officials lobbied hard for the line, TransCanada Corp.’s Keystone XL, which would run from Alberta to the U.S. Gulf Coast.

While Canadian government officials and TransCanada executives expect the U.S. to eventually approve Keystone, the delay underscored the importance in Ottawa of not having “all our eggs in one basket,” Canadian Energy Minister Joe Oliver said last week in a speech to energy executives in Toronto.

“We favor the construction of infrastructure that will move resources to markets that want them,” in particular China and Asia, he said in a subsequent interview.

Two proposed projects—a new pipeline and an expansion of an existing one—envision pumping crude from landlocked Alberta, where most of Canada’s reserves reside, to the Pacific Ocean, where oil could be shipped by sea. Current pipeline capacity out of Alberta is expected to fill up by the end of the decade.

Enbridge Inc. is proposing a $5.5 billion, 730-mile line running from Alberta to a deep-water terminal in Kitimat, British Columbia. Kinder Morgan Energy Partners, meanwhile, is considering a $4 billion expansion of a small, existing line that runs from Alberta to the U.S. and Canadian west coast. The company has also considered building a new segment that would take oil to the Kitimat terminal.

If the lines are completed, they would represent the latest manifestation of a fundamental shift in North American energy markets. The continent’s energy infrastructure has long been configured to feed climbing demand in the U.S., the world’s largest consumer.

But output is rising quickly in both the U.S. and Canada. As a result, North America’s dependence on energy imports from elsewhere is expected to decline through 2030, according to recent research by London-based think tank Chatham House. That will free up more domestic resources for export to the rest of the world.

Last week, Enbridge bought a 50% stake in a small pipeline that transports oil from the U.S. Gulf Coast to the oil-storage hub of Cushing, Okla. Enbridge said it would reverse the direction of the line, uncorking a bottleneck in Cushing. The move will also provide more U.S. and Canadian crude to Gulf Coast refiners, which are feeding rising demand for gasoline and other refined products from Latin America.

The shift isn’t limited to oil. U.S. and Canadian companies are exploring opportunities for exporting natural gas after a boom in shale-gas exploration and production across the U.S. and Canada deflated domestic prices. Japan and other Asian markets, meanwhile, are clamoring for natural gas.

But getting any of Canada’s proposed projects built may be difficult, as Enbridge’s Northern Gateway pipeline demonstrates.

Enbridge, which has received financial backing for the project from Asian, U.S. and Canadian firms, says regulatory approval could come in early 2013, and the pipeline could be up and running by 2017.

The line faces opposition, however, from native groups, whose traditional territory the pipeline would cross, and from environmentalists, who have lined up against the project for a number of reasons, including the heightened risk of oil spills along the line’s path and on the coastline. Most of the oil would be from Alberta’s oil-sands developments, which critics have attacked for its greenhouse gas emissions.

Opponents are expected to be vocal at more than a dozen public hearings in Alberta and British Columbia in January.

Enbridge spokesman Paul Stanway said the company is making progress winning over native groups, and says the pipeline would be built to the highest safety standards. Enbridge would also upgrade the sea terminal with advanced tanker navigation and accident-response systems, the company has promised.

Carl Kirst, an analyst at BMO Capital Markets, said the Keystone delay has increased the chances of a western pipeline eventually getting built. But he says it still isn’t likely to be a fast process.

The Keystone delay, he said, “doesn’t make the process any easier.”

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