Oil Sands Truth: Shut Down the Tar Sands

Growth and Pipelines Everywhere

Snippets from the Business pages:
1 Enbridge Promises to build Gateway Pipeline without PetroChina & build Alberta Clipper
2 Largest Companies trying to get in on Expansion of Tar Sands
3 CP to further Expand in Tar Sands
4 Husky adding more Refineries
5 Imperial Oil buys huge exploration permit in Arctic /Beaufort Sea

These stories paint a collective picture of development of mock "oil" out of control.

Enbridge Inc. (TSX:ENB) says there will be no further delays in its $4-billion pipeline project through northern B.C., despite PetroChina's recent announcement it has withdrawn support for the project.

The Calgary-based company announced eight months ago it was delaying the proposal while giving priority to increasing pipeline capacity inland to the United States. The timeline was pushed back two to four years until 2012 to 2014.

Earlier this month, a senior executive of China National Petroleum Corp., the parent company of PetroChina, said the company is tired of waiting for government and producer support for the $3-billion project from Canada and was walking away.

Enbridge official Jennifer Varey said the timeline of the ambitious Alberta to British Columbia pipeline project - dubbed Gateway - remains the same. She said the project is still being moved forward on a number of fronts, including environmental studies and engineering.

The Gateway pipeline is being designed to ship about 400,000 barrels per day of crude from Alberta's oilsands to Asian markets and California via a new marine terminal in Kitimat, B.C..

Industry insiders have long acknowledged that Gateway faces large hurdles, because Alberta producers have shown a clear preference for the U.S. market, and the route requires right-of-way deals with scores of Aboriginal bands.

Enbridge said last November it was slowing the pace of the project to focus on its more advanced Alberta Clipper pipeline project to eastern Canadian and U.S. Midwest markets.

The 450,000-barrels-per-day Alberta Clipper would eventually reach the Gulf Coast and the large number of refineries in the region, a crucial component for Canadian producers to access oil-hungry U.S. markets.

* * *

Other Canadian pipeline companies are looking to cash in on burgeoning demand for crude oil by the world's largest energy consumer, the U.S.

"The prize is that there are a lot of refineries on the Gulf Coast, and they can increase their capacity to turn bitumen into refined products more cheaply than anywhere else," said analyst Steven Paget, with First Energy Capital Corp.

The existing refineries have the capacity to grow bigger over time without major expansions, so don't expect any new Canadian refineries to be announced any time soon, he added.

With almost three billion barrels per day of bitumen production expected to flow from Alberta's oilsands within the next decade, the need to reach refineries on the U.S. Gulf Coast is acute, pipeline executives said in Calgary.

"We're currently in discussions with shippers providing a whole variety of options to get there," Steve Becker of TransCanada Corp. (TSX:TRP) told oilsands producers.

Federal Resources Minister Gary Lunn says Ottawa is creating a centralized process for project approvals to increase investor confidence. "Our goal is to cut approval time in half. We're open for business; we want to attract investment from all corners of the world."

TransCanada, Canada's largest natural gas pipeline operator, recently announced plans to expand its proposed Keystone oil pipeline project from Hardisty to U.S. Midwest markets at Patoka, Ill., by an additional 155,000 barrels per day due to increased shipper commitments.

The proposed expansion would increase Keystone's capacity to 590,000 barrels a day when it starts service in 2009.

But even with the flurry of announcements and pipeline projects that are going ahead, "come 2012 or 2013 we're going to be out of space again," said Greg Stringham, with the Canadian Association of Petroleum Producers.

* * *

Another oilpatch heavyweight, ConocoPhillips Co., is prepared to spend billions of dollars on pipelines and refinery upgrades to allow it to process oilsands crude throughout its refinery network stretching to the U.S. Gulf Coast.

Company chairman Jim Mulva said the extension of the pipeline network into the Gulf Coast would help ensure that oilsands projects that have already been proposed could go ahead. Mulva said Conoco, the third-largest U.S. oil company, sees few hurdles in the way of the massive expansion of oilsands production, and is upgrading its fleet of refineries to handle the tarry crude.

Last year, Houston-based Conoco and Calgary's EnCana Corp. (TSX:ECA) joined forces to boost production in the oilsands, with Conoco gaining a 50-per-cent stake in oilsands projects while the Canadian company gained a 50-per-cent share in two of Conoco's refineries.

The two companies are already pouring in some US$5.3 billion to upgrade the Wood River refinery near St. Louis, and the Borger facility in northwest Texas to handle oilsands production.

Now, Mulva said the company is considering extending pipelines and upgrading three refineries along the Gulf Coast to handle Canadian crude.

U.S.-based energy economist James Williams said access to the Gulf Coast would mean "no downside for Canada.?

Not only would it provide a new market for production, but, in doing so, it would reduce the price differential that now exists between oilsands crude output and the benchmark light U.S.

David MacInnis, president of the Canadian Energy Pipeline Association, said the regulatory hurdles remain significant and could delay projects if the various jurisdictions don't work together to expedite the reviews.

* * *

Husky Energy Inc. (TSX:HSE) will be looking south to add refining capacity as its heavy oil and bitumen operations in Western Canada ramp up, the integrated oil and gas company says.

Nabbing refining capacity for an expected 500,000 barrels per day of bitumen over the next 40 years is critical for the evolving integration of Husky's heavy-oil and oilsands operations, the company says.

The company reported a 24-per-cent drop in second-quarter profit and said a minor electrical fire at its refinery in Lima, Ohio, this month cut production sharply. Husky recently acquired the Lima refinery from Valero Energy Corp., the biggest U.S. refiner, for US$1.9 billion, plus net working capital.

The refinery has a 165,000-barrel per day capacity, with approximately 10,000 bpd capacity to process heavy oil, Husky's growth engine in Western Canada.

Husky's Tucker oilsands project, which is ramping production up to 10,000 barrels per day by yearend, is expected to triple output by the end of 2008.

Design work on the 60,000-bpd Sunrise oilsands project will be completed by the end of the year, when a startup date could be forthcoming.

* * *

Imperial Oil Ltd. (TSX:IMO) and its sister company ExxonMobil Canada have slapped down a cool half-billion-dollar bet that offshore exploration in the Beaufort Sea could result in profitable oil and natural gas production.

The $585-million bid, one of three totalling almost $600 million, signals renewed interest in a challenging frontier region where minimal activity has taken place for almost 20 years.

Imperial, Canada's largest integrated oil and gas company, and ExxonMobil Canada said they have placed the winning 50-50 bid for work rights on more than 205,000 hectares on the floor of the frigid Arctic sea.

They were joined by ConocoPhillips Canada Resources Corp. and Chevron Canada Ltd. in the 2007 Beaufort Sea/ Mackenzie Delta call for bids, according to the Indian Affairs and Northern Development department.

ConocoPhillips bid $12 million on nearly 104,000 hectares, and Chevron Canada came in at $1 million for 108,185 hectares in less attractive exploration zones.

Interest in offshore Arctic exploration started in 1965, and blossomed during the energy crisis of the 1970s.

However, activity from the 1980s and onward was virtually nil until 2005, due to low commodity prices and the natural challenges of working in the frozen North.

Part of the push into the Arctic waters could be because Imperial needs to bring more natural gas online to drive costs down on its proposed $16-billion Mackenzie Valley pipeline, suggested analyst Bill Gwozd, with Ziff Energy Group.

"You have to have more gas offshore linked into the Mackenzie pipeline to make it go. The onshore gas will not be adequate to keep the pipeline full for 20 years."

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