Playing politics with pipe
TransCanada’s Keystone project wins NEB approval, but disdain from unions for exporting refining jobs to the United States
Dale Lunan
Back in the day, opposition to big-inch pipeline projects would come from a host of stakeholders with a direct connection to any new pipeline: First Nations protecting sacred grounds and traditional hunting territories; environmentalists concerned about the impact of pipeline construction on fragile ecosystems; farmers and ranchers worried about the loss, temporary or otherwise, of productive land.
In the swirl of development surrounding Alberta’s massive oilsands resource, with upgraders being talked about and refining partnerships being struck, the focus has shifted somewhat from environmental and land-use concerns—it seems the pipeline industry has such matters well in hand—to job protection in the Canadian oil patch.
In mid-September, the National Energy Board approved the first portion of TransCanada Corporation’s US$2.1 billion Keystone project to deliver 435,000 barrels per day of diluted bitumen to the southern Illinois refining hubs of Patoka and Wood River. A subsequent application, expected to be filed with the NEB later this year, will seek permission to extend Keystone to Cushing, Oklahoma, and boost throughput capacity to nearly 600,000 barrels per day.
In Canada, the Keystone project involves converting 864 kilometres of existing TransCanada Pipelines Limited mainline from natural gas to crude oil service and installing about 373 kilometres of new pipe and pump stations. New terminal facilities will also be built at Hardisty, southeast of Edmonton.
In the United States, Keystone involves construction of 2,219 kilometres of 30-inch and 36-inch line from the international border in Manitoba through the Dakotas, Nebraska, Kansas, and Missouri, to southern Illinois.
As part of its application, and at NEB hearings examining the project, Keystone and its supporters argued that failure to approve the project in a timely manner would have “negative economic consequences.”
But a key union representing some energy workers—the Communications, Energy and Paperworkers Union of Canada—charged that Keystone and other projects of its sort would produce their own negative economic consequences if they are approved.
“There is no way this pipeline benefits Canada in any way,” CEP president Dave Coles said after the NEB issued its approval. “It’s all about boosting the bottom line of multinational oil companies.”
During the hearings, the CEP submitted a study by Informetrica Limited that examined three development scenarios for the resources that would be exported to the United States by Keystone. The first focused on the extraction of Canadian heavy oil for export to the United States for further processing, the second involved the development of additional facilities in Canada that would move Canadian heavy oil to domestic upgraders and then to domestic refineries, while the third looked at sufficiently rapid expansion of Canadian productive capacity—mostly from the oilsands—to meet the goals of the first two scenarios.
The report argued that the Canadian public interest would not be served under the first scenario, which would “truncate” the supply of energy goods to Canadian refineries and petrochemical facilities.
In the second, the pace of Canadian oilsands development would match Canadian priorities rather than American priorities, and the export of natural gas liquids as diluent would only occur when it was not needed to meet Canadian petrochemical feedstock requirements.
Expansion of Canada’s refinery infrastructure, to soak up the 400,000 barrels per day of heavy oil that would otherwise be exported by Keystone, would create some 18,000 new jobs in Canada and boost Canada’s gross domestic product by about 0.2 per cent. Keystone’s approval, the union argued, would eliminate both those beneficial developments.
All three concerns—economic, social, and environmental—were ignored by the NEB in its ruling, Coles said, and it’s now up to the federal Cabinet to overturn the approval.
“Clearly, this is the wrong decision for Canada, and it brings into question the role of the board and the need for a domestic energy policy to protect Canadian interests,” he said. “This discussion belongs in the political arena, and the federal government should take the necessary steps to make that happen.”
Keystone, however, had its own take on the claims outlined in the Informetrica report, and on the arguments made by the CEP, the Alberta Federation of Labour and the Parkland Institute at the hearing that construction of a pipeline to export bitumen from Canada would be detrimental to the Canadian public interest.
The non-creation of 18,000 jobs, Keystone argued, was “insignificant” compared to the economic loss that would occur if the project was not approved or if it was delayed pending construction of new refining capacity in Canada.
“Keystone also suggested that if the application was denied, capacity apportionment would result in loss in value in Canada such that producers would stop developing extraction projects, upgraders would not get constructed, jobs would be lost, and this would result in significant losses in royalty and tax revenues to government,” the NEB summarized in its Keystone decision report.
The NEB, for its part, accepted concerns expressed by the unions and the Parkland Institute that the issue of exporting raw bitumen for processing outside Canada was part of a broader public policy issue and outside the jurisdiction of the NEB. But it also ruled that such issues are public interest considerations, and are relevant to the disposition of the Keystone application.
“The consideration of the overall public interest must transcend the positions of individual parties as well as government expressions of current economic and energy policy,” the board says in its decision report. “While the board is informed by them, it is of the view that its decision on the public interest must balance overall competing political, economic, and social interests.”
One of the ruling tenets of the regulatory framework, the board said, is that Canadians benefit from efficient energy infrastructure and markets, with adequate transportation capacity key to a properly functioning market. “The board is of the view that well-functioning markets tend to produce outcomes that are in the public interest.”
And one of the purposes of a well-functioning market, the board notes, is that the market itself will lead development activity. On that premise, the board rejected CEP’s argument that expansion of Canada’s refinery industry would naturally follow the rejection of Keystone’s application.
“The board also finds the argument that approval of the Keystone pipeline may frustrate the development and growth of the domestic upgrading and refining industry by causing a lack of available oil and gas supply to be unpersuasive,” the decision report notes.
Forecasts entered into evidence at the hearing suggest western Canadian crude production would average some 2.94 million barrels per day by 2010, while Keystone’s initial capacity would be only 435,000 barrels per day.
“The evidence demonstrates that projected supply will far exceed takeaway capacity offered by the project,” the report says, adding that Keystone will give oilsands producers in western Canada capacity to meet projected bitumen production growth “in a time frame that would eliminate or reduce forecasted capacity constraints.”
TransCanada’s Keystone project may have grabbed recent headlines, but it’s not the only crude oil pipeline project underway in Canada at the moment. Enbridge Inc. alone has no fewer than 11 projects at various stages of development, spokeswoman Jennifer Varey says, including its $3-billion Alberta Clipper project, its $2.3-billion Southern Access expansion, and its $300-million Line 4 extension.
Southern Access construction continues, Varey says, with the program in Canada largely involving upgrades to pumps and motors at 18 stations between Hardisty, Alberta, and Gretna, Manitoba.
South of the border, Stage 1 work is underway to install 321 miles of new pipe in Wisconsin, while Stage 2 work next year will see construction of 133 miles of new pipe from southern Wisconsin to the Flanagan terminal near Pontiac, Illinois, where the Southern Access system will connect with Enbridge’s Spearhead system.
An extension is planned for 2008 that will see Southern Access pushed south from Flanagan to the Patoka hub in southern Illinois.
Alberta Clipper, a $3-billion project to build a new 450,000-barrels-per-day line from Alberta to Superior, Wisconsin, is Enbridge’s competitive answer to TransCanada’s Keystone line. Designed for ultimate expansion to 800,000 barrels per day, the initial capacity will be available by 2010, Enbridge says, after Southern Access is in place and as Alberta bitumen output continues to climb.
“With supply from western Canada oilsands developments expected to grow by as much as 1.8 million barrels per day by 2015, the industry has asked for more capacity out of the oilsands and into the U.S. Midwest markets,” Enbridge says. “Alberta Clipper is a direct response to this request.”
Kinder Morgan also has a series of expansion projects underway on its Trans Mountain Pipeline System between Edmonton and the Lower Mainland. Earlier this year, it commissioned 11 new pump stations, which boosted capacity to 260,000 barrels per day from 225,000 barrels per day, and in August, it began construction on the $443-million Anchor Loop project, which will boost capacity to 300,000 barrels per day.
“The Anchor Loop project will provide our customers with much-needed additional pipeline capacity, and it’s an important component of our overall expansion plan to provide greater access for our customers to West Coast and Far East markets,” Kinder Morgan Canada president Ian Anderson says.
The project entails looping 158 kilometres of the existing Trans Mountain mainline through Jasper National Park and Mount Robson Provincial Park.
Still under discussion with potential shippers is the so-called Northern Option, which would run from Rearguard, west of Jasper, to Kitimat, British Columbia. And high-level conceptual discussions are also underway to determine the feasibility of developing new capacity from Alberta to the Gulf Coast region, spokesman Philippe Reicher says.
“That project would involve looping our existing Express Pipeline to Casper, Wyoming, and installing new pipe from there to the Gulf Coast, but we won’t be making a final decision on that for quite some time yet,” he says.
