230 000 bpd, for a total of 850 000 bpd, but the expansions
require presidential approval to cross the international border;
so far, the US State Department has been mute as to when that
might occur.
Alternative routes
All the ruckus has made pipeline companies keen to find made-
in-Canada solutions to market access. TransCanada’s Energy
East Pipeline project seeks to repurpose part of its mainline gas
transmission system running from Alberta to Ontario, then extend
it to tidewater with new-build. The 4500 km, CAN$12 billion
pipeline would deliver up to 1.1 million bpd from Alberta to
the deepwater port of Saint John, New Brunswick. Irving Oil,
which owns a 300 000 bpd refinery in St. John, is developing a
CAN$300 million terminal that would allow large tankers to carry
crude to Europe, the Gulf Coast, South America and Asia.
Likewise, Enbridge has been given approval by the NEB to
reverse Line 9B, which delivers crude from Quebec to Sarnia,
Ontario. The reversal will allow the company to deliver up to
300 000 bpd of heavy oil and lighter Bakken crude to refineries
in the Montreal region. Enbridge must meet a stringent list of
NEB directives, including a much higher density of emergency
isolation valves.
To the west, Enbridge has been given approval by the NEB
to construct the Northern Gateway pipeline, which is designed
to move up to 800 000 bpd to the deepwater port of Kitimat,
British Columbia. Although the NEB placed over 200 conditions
on the project, environmental critics and Aboriginal First
Nations along the ROW have threatened both court lawsuits
and direct action. Enbridge has been working to meet NEB
conditions, but notes that the likelihood of completing the
CAN$7.9 billion line by 2018 is ‘quickly evaporating.’
With pipeline capacities constrained by opposition,
operators have increasingly shifted transportation to rail.
Crude-by-rail has grown 42-fold since 2009, to approximately
1 million bpd. In a recent study, IHS predicted that shipments
could reach 1.5 million bpd by 2016. The shipments include
bitumen from Canada going to the US Gulf Coast region, and
shale oil from North Dakota flowing primarily to East Coast
refineries. The shift is also driven by wide margins between WTI
and Canadian and North Dakota crudes, up to US$25/bbl, more
than enough to cover the US$8 - 10 per barrel shipping charge.
Recently, however, the shrinking of crude margins to around
US$5 has largely cut out the margin advantage, and stalled
growth in crude-by-rail.
Low crude prices
The outlook for Canada’s oil and gas sector is, like all other
jurisdictions, clouded by price uncertainty. The growth in
US crude production due to shale oil plays has created an
oversupply in the market. Since late 2014, crude prices have
fallen from over US$100/bbl to under US$40, and there is no
consensus on when they might recover.
Already, Oilsands operators are revising budgets. Suncor
cut CAN$1 billion from its capex, Cenovus is reducing its 2015
spend from CAN$2.5 billion to CAN$1.8 billion, and CNRL is
lopping over CAN$2 billion this year. Shell has announced that
it is delaying a final investment decision on phase three and
phase four of its Carmon Creek in-situ project. Although works-
in-progress are expected to add up to 1.1 million bpd production
in the next three years, eventually, oilsands growth pressure
could ease to the point where future pipeline projects become
delayed or cancelled.
Similarly, gas pipelines designed to service British Columbia’s
LNG sector are coming under fire. The recent tumble in oil has
had a knock-on effect in the LNG sector, where most price
contracts are linked to crude. One year ago, Japanese utilities
were paying over US$15 per million cubic feet on the spot
market; prices are now down by 50%. In late 2014, Malaysia’s
Petronas and partners announced that they were deferring
a final investment decision on the proposed CAN$36 billion
Pacific Northwest LNG project; if eventually cancelled,
pipeline projects such as Spectra’s Westcoast Connector and
TransCanada’s Prince Rupert line would be unnecessary.
Even Canadian markets in the USGC could suffer. Mexico,
Venezuela and Saudi Arabia have long supplied the bulk of
heavy crude imports and are not about to readily give up
market share to Canada. In late 2014, Mexico heavily discounted
its benchmark Maya crude on a temporary basis when Seaway
and Flanagan South came on line. Since then, the state-owned
company has been playing its cards close to the chest, but
few see alternatives to further erosion of its market share if
it doesn’t continue discounts. If current suppliers hold off
contenders aggressively enough, projects such as Keystone XL
might lose their attractiveness to shippers.
Not all is doom-and-gloom; most pipeline companies are
confident that they can persevere through the down-cycle and
be ready when markets recover. Enbridge and Kinder Morgan
are engaged in community outreach in their Northern Gateway
and TransMountain lines through British Columbia, and are
working to comply with strict safety rules imposed by the NEB
on proposed projects going East.
And, although the transportation sector contributes only
a tiny portion of the oil and gas industry’s GHG emissions,
significant steps are being taken to address environmental
concerns. Recently, Enbridge has upped its ownership stake in
several wind power projects in Canada. The pipeline company
has agreed to spend CAN$225 million to acquire an additional
17.5% share in the 300 MW Lac Alfred wind project and an
additional 30% stake in the 150 MW Massif du Sud wind project
(both in Quebec). The transaction increases Enbridge’s holdings
to 67.5%, making it the second largest wind energy owner in
Canada, and places it on track to meet its commitment to reach
a neutral footprint for its liquids pipeline business by 2015.
Although pipeline bottlenecks have had an impact on crude
transportation, and recent low commodity prices have caused
some major projects to be scaled back, the long-term future
for Canada’s Oilpatch remains bright. The federal government
views the health of the sector as key to the national economy,
and is working to reduce regulatory red tape and encourage the
development of a variety of energy-related projects.
In spite of local opposition, new regions are also being
explored for potential, including the provinces of Quebec,
New Brunswick and offshore Nova Scotia. The establishment of
economic resources in these regions will eventually require the
development of pipelines to bring product to market.
In the meantime, the Canadian pipeline sector will work
with producers to both expand existing networks and develop
new projects to deliver oil and gas throughout North America,
and around the world.
18
World Pipelines
/
JUNE 2015
