Trudeau signs off on Alberta pipeline expansion

  • Canadian Prime Minister Justin Trudeau greets Japanese Prime Minister Shinzo Abe at the G-20 summit in Osaka, Japan, on June 28. Ten days earlier, Trudeau gave the green light to an expansion of the Trans Mountain pipeline to deliver oil from Alberta to the western coast of Canada. (Photo/Susan Walsh/AP)

Alberta’s oil sands producers have done a good job of overcoming technical challenges to boost output of the gooey stuff. It’s moving all that oil to market that’s become the problem.

It took almost 40 years to get from the first barrel in 1967 to 1.3 million barrels per day in 2008. It then took less than 10 years to more than double that to 2.8 million barrels per day in 2017.

Even better, global energy analysts at IHS Markit forecast production could climb to as high as 4 million barrels per day in another decade.

All that oil means Western Canada needs more pipeline capacity.

The industry received some good news when the government of Prime Minister Justin Trudeau on June 18 ruled that expansion of the Trans Mountain pipeline could proceed. The expansion will almost triple the line’s carrying capacity to 890,000 barrels per day from the oil sands pipeline hub of Edmonton to an export terminal in Burnaby, British Columbia. Construction could begin as early as this year.

The Cabinet move came almost 10 months after a federal court tossed out an earlier approval of the $7.4 billion (Canadian) project, finding that the government’s decision was based on flawed consultation with Indigenous communities and inadequate consideration of the effects of increased oil tanker traffic in coastal waters.

The divisive project pits Alberta and its supporters, which talk of the economic gains, against British Columbia and other opponents, which worry about spills, other environmental risks and climate change.

Federal approval is about balancing those interests, Trudeau said.

“To those who want sustainable energy and a cleaner environment, know that I want that, too,” he said. “But in order to bridge the gap between where we are and where we’re going, we need money to pay for it.”

The Cabinet decision is expected to be a key issue in Canada’s federal election in October.

This isn’t about a private company building an oil line. The federal government is now the pipeline’s owner, having bought the existing line and expansion project for C$4.5 billion from Kinder Morgan last summer when the company threatened to walk away from the venture over constant regulatory and legal delays. Kinder Morgan first proposed the expansion more than seven years ago.

Without enough pipeline capacity to get their product to market, oil sands producers have endured painfully lower prices. Benchmark Western Canadian Select was selling for $13 less per barrel than U.S. benchmark West Texas Intermediate and almost $20 less than the global Brent price on June 28 — though that is far better than the $40 discount to West Texas crude late last fall.

Moving more oil to the B.C. coast would give producers access to higher-priced export markets.

But even with the cabinet decision to proceed with the Trans Mountain expansion, opponents are not ready to quit. Several coastal First Nations said June 18 they plan to appeal the government’s action, and Vancouver Mayor Kennedy Stewart said the city would do “everything in our power” to support local First Nations in their court battles.

Analysts are betting on first oil through the expanded line in 2021 or 2022, depending on legal challenges.

“I am not ready to do a victory celebration, especially on the back of a reapproval of a project that should have been built by now,” said Rob Broen, CEO of Athabasca Oil, which has contracted to move oil on the pipeline, as quoted by a Calgary Herald columnist.

Many First Nations, however, support the project, and some are interested in taking an equity stake in the venture. The government plans to sell the line back into the private sector, though it’s not clear if the sale would come before or after the expansion is complete.

The government plans to start a series of meetings with interested First Nations starting July 22 in Vancouver, with stops in Victoria and Kamloops, British Columbia, and Edmonton, Alberta. The Trudeau government is prepared to discuss equity ownership, revenue sharing and royalty agreements with 129 First Nations, according to Canada’s Department of Finance.

There is strong interest from First Nations. The Calgary Herald reports that the Indian Resource Council, representing more than 130 First Nations that own oil and gas resources on their territories, already has consulted with the federal government and held preliminary meetings with First Nations about making a bid for the Trans Mountain pipeline.

There even is competition for the right to buy an equity stake in the Trans Mountain system, according to a Canadian Press report in June. An Alberta coalition, calling themselves the Iron Group, said it has invited 47 First Nations and about 60 Métis organizations in the province to sign up for an investment try.

And there is a group called Project Reconciliation, a consortium inviting Indigenous participation from British Columbia, Alberta and Saskatchewan in a bid for a controlling stake in the pipeline.

Meanwhile, supporters of the project saw some visible progress in June when a train carrying stacks of steel pipe rolled through Calgary.

Pipe segments have been arriving at work sites for weeks, where nearly a third of all the pipe needed for the project is now staged, according to the Calgary Herald.

But stacking up pipeline sections doesn’t mean construction is imminent; just ask the backers of the Keystone XL project, which would move Western Canadian oil more than 1,600 miles to a connection point in Nebraska for delivery to U.S. Gulf Coast refineries and export terminals.

The project developer, TransCanada, proposed the line in 2008. Under pressure from opponents, the U.S. government denied an essential permit in 2012. The government’s attitude changed with the election of President Donald Trump in 2016, but legal challenges in federal and state courts have continued.

The U.S. Court of Appeals for the 9th Circuit on June 6 overturned a lower court injunction that prevented Calgary-based TC Energy — formerly TransCanada — from beginning construction, but the decision came too late for this year.

“There will be no mainline construction in 2019 in the U.S.,” TC Energy spokesperson Matthew John said.

Besides, the company is still waiting on a Nebraska Supreme Court ruling on whether its permits to build the pipeline through the state are valid.

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Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide. He is the incoming Atwood Chair of Journalism at the University of Alaska Anchorage School of Journalism and Public Communication.

Updated: 
07/10/2019 - 9:29am

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