BC pipeline debates rage on

The scale of the West Coast pipelines debate is hard to play down. Current and former politicians from all government levels have come out swinging for and against: lobbyists, First Nations and non-government groups have fully entered the fray, and you would be challenged to find a citizen not aware of the projects. Add in the multi-billion dollar costs of the projects and the many billions more in potential revenues, and Canada has a very public, high-stakes discussion on its hands.

The pipelines in question include Enbridge’s (ENB-T, ENB-N) long-proposed Northern Gateway pipeline, linking a distribution centre east of Edmonton to the Pacific port of Kitimat, B.C., and the more recent plan to twin Kinder Morgan’s (KMI-N) Trans Mountain pipeline, linking Edmonton to Vancouver.

The $5.5-billion Northern Gateway project would pipe 525,000 barrels of oil per day to the coast and 193,000 barrels of condensate back to Edmonton, while the $5-billion Trans Mountain expansion would increase capacity from around 300,000 barrels per day to 850,000 barrels. Both lines are designed to open the oilsands to Asian markets and diversify the customer base from the U.S.

Besides increasing the number of customers, the lines would bring much-needed balance to the pricing of Alberta crude. Global oil benchmarks, such as the Brent and West Texas Intermediate, continue to rise higher and higher than the price paid for Alberta oil as the U.S. Midwest finds itself in a supply glut. In March the Brent climbed to US$124 per barrel and the WTI to US$106, while Edmonton light crude dropped to US$86 per barrel.

Canadian Imperial Bank of Commerce (CIBC) commodities analyst Patricia Mohr noted recently that there has always been a discount built into Western Canadian Select heavy oil prices compared to WTI because of the lower quality — averaging a US$17.79 discount per barrel between 2005 and 2011 — but that the gap widened from US$19.33 in February to US$31.44 in March. Mohr wrote that the unusually high price discounts are owing to overreliance on the U.S. market. And while other planned pipelines could increase export options to the U.S. Gulf Coast and somewhat narrow the gap, the “commercial risks” of a single export market will remain.

Canada’s exporting of discount oil from Alberta and importing higher-priced oil to Ontario and Quebec is costing the country billions in lost revenue. The Bank of Montreal pegs the cost of the price gap at $19 billion a year, while CIBC says its costs the economy at least $18 billion a year.

With the lack of export options hitting producer profits, government taxes and the economy in general, many are lining up in support of both projects. 

Companies publicly in favour of the Northern Gateway include Cenovus Energy (CVE-T, CVE-N), Nexen (NXY-T), Suncor Energy (SU-T, SU-N), MEG Energy (MEG-T), France’s Total SA and China’s state-owned Sinopec, all of which have paid $10 million for the right to ship oil on the line. Enbridge has also stated that PetroChina, the country’s largest state-controlled oil company, is considering an investment in the pipeline itself.

The Stephen Harper-led federal government also favours pipelines. Its omnibus Bill C-38 contains numerous measures that would accelerate the project review process, and gives cabinet  power to overrule the National Energy Board on project decisions.

But while businesses and the federal and Alberta governments are aligning in favour of the projects, voices of opposition are also growing, especially in B.C.

NDP opposition leader in B.C. Adrian Dix, along with 35 members of the Legislative Assembly, formally announced they were against Northern Gateway, with the party exploring ways to block the project if it gains power next year. Dix has yet to take a public stance on the Kinder Morgan expansion, but Vancouver mayor Gregor Robertson, Burnaby mayor Derek Corrigan and others came out strongly against the project. The ruling B.C. Liberals, led by Christy Clark, have yet to weigh in on either project.  

Dix summarized the position of many in the province while announcing his decision not to support Northern Gateway, stating that “under the Enbridge proposal, B.C. would assume almost all the project’s risk, yet would see only a fraction of the benefits . . . by any measure, such a high-risk, low-return approach simply isn’t in B.C.’s interests.”

B.C. would see significant investment during construction of the pipeline, but that would taper off significantly once complete, and the province is not able to extract any sort of royalty on the oil flowing through it to the coast. Meanwhile the pipelines, and the tankers that would transport the oil, carry the risk of oil being spilled in the province and along its coast. 

The politicians are joining a well-established opposition that includes numerous First Nations and environmental groups who have been vocally opposed to the pipelines for some time. Retired hockey great Scott Niedermayer also recently added his name to those against.

The opposition has of course expressed worry about potential pipeline leakages, but even more so seem concerned about the consequences of an oil tanker leaking somewhere along the coast. Northern Gateway’s plan includes having 220 crude tankers per year navigating the narrow Douglas and Principe Channels of the northern B.C. coast, while Kinder Morgan’s plan would increase tanker traffic through the port of Vancouver from five to 10 tankers a month, to 25 to 30 per month.

Both sides are debating the proposition’s safety. Proponents point to the improved safety of double-hulled vessels, the lack of incidents in Vancouver after almost 60 years of operations and numerous measures proposed to augment safety, including reduced speeds, escort tugs and advanced navigation technology. Those opposed point to other ship disasters on the West Coast — such as the Exxon Valdez and the Queen of the North — and say it’s not worth the risk.

To take their opposition message straight to Enbridge, 40 representatives of the Yinka Dene Alliance, representing several First Nations that oppose the project, travelled by train to the company’s annual general meeting in Toronto on May 9 to express their opposition to the pipeline and were joined by local protestors. With a number of First Nations opposed to the project, Enbridge could face lengthy legal battles as the question of “duty to consult and accommodate” is debated. But at the meeting, Enbridge CEO Partick Daniel noted that 22 of the 45 First Nation groups along the proposed route have already agreed to a 10% stake in the pipeline, though he did not specify which ones.

And while the public debate rages, the formal Northern Gateway review panel is slowly moving forward with a final decision expected at the end of 2013. Kinder Morgan plans to apply for a regulatory review in 2014 with an anticipated construction start in 2016. A lot could happen between now and then.