Pipeline possibilities: what different scenarios mean for Canada

On Friday, a noncommittal environmental impact statement from the U.S. State Department breathed new life into TransCanada’s bid to build an oil pipeline from Hardisty, Alberta to the Gulf Coast. But Keystone XL’s fate remains uncertain – so does that of numerous other proposed pipelines out of Canada’s oilsands. The Alberta government knows it needs to ease off its bitumen royalty dependence; it just isn’t sure how.

With Thursday’s provincial budget looming, Global News takes a look at potential pipeline prognostications: 

Keystone – TransCanada

The pitch
The extension to an existing TransCanada pipeline, redrawn after an unexpected rebuff last year, is designed to ease a dilbit buildup and give TransCanada room to transport more crude south to Texas and the Gulf of Mexico. Its southernmost leg, from Cushing, Okla. to the coast, is already well under way. Canada’s National Energy Board gave it the stamp of approval in 2010; the pipeline has Ottawa behind it as well as the Alberta and Saskatchewan governments.

The problem
Virulent anti-pipeline sentiment in the U.S. – centred around its potential impact on Nebraska’s Ogallala aquifer – and President Barack Obama’s kybosh of the original route last year took everyone by surprise. Now, the president appears torn between Canadian and environmentalist allies (the European Union’s top climate official urged him last week to reject the proposal). Alberta Premier Alison Redford has been shuttling back and forth to Washington, DC to make the pipeline’s case; Saskatchewan Premier Brad Wall has been a similarly vocal advocate.

The prognosis
The U.S. State Department gave Keystone a boost March 1 with a Supplemental Environmental Impact Statement that found the proposal wouldn’t have a significant impact on oilsands development or the environment: oil would just be transported some other way. Supporters see this as great news: “Alberta applauds the U.S. Administration,” Redford said in a statement, calling the report “another step” towards a positive decision. But it could still be months before that final call.

“Out of the three … Keystone has the highest probability of going through,” says Dinara Millington, senior research director at the Canadian Energy Research Institute. She co-wrote a study outlining the economic impacts each pipeline could have on Ontario and Canada. But strident, successful opposition “caught the industry by surprise,” she added. “The Keystone base was built with no issues.”

Northern Gateway – Enbridge

The pitch
As U.S. demand for Canadian oil diminishes, oil companies will need to seek customers elsewhere. Asia makes a tempting target, and Enbridge’s Northern Gateway is meant to augment the oilsands’ Pacific access. Like many other oil companies – and some provincial governments – Enbridge frames this project as vital to the Canadian economy as a whole: “Northern Gateway really isn’t so much about what it can do for Enbridge,” says spokesman Todd Nogier. “It’s about what it can for the country.”

The problem
Gateway’s opponents have been numerous and vocal at meetings and protests across the province. While existing pipeline brings oil from Alberta to the Lower Mainland, this would run through northern B.C., including multiple First Nations territories and communities leery of living over those pipelines.

“I think it’s fair to say that we didn’t expect the intensity, the degree that we are now seeing,” said Nogier. “The perfect storm that is the pipeline industry, combined with the activities of some of the environmental groups, has produced a level of intensity that would go beyond what we had anticipated. … The playing field is somewhat different now than it was 10 years ago.”

The prognosis
Millington calls Northern Gateway “the least probable” of the three, in large part because of that vocal, mobilized opposition.

Nogier said the company’s learning from that experience: “We have to tell our story better.” In the meantime, it faces an uphill battle.

The company plans to lobby Ottawa for approval even if the Joint Review Panel rejects the project later this year. “The federal government does hold the final decision,” Nogier said.

But “even if it does receive federal government approval,” Lemphers said, “there will still be ample opportunities for First Nations to intercede.”

Trans Mountain expansion (TMX) – Kinder Morgan

The pitch
Twinning Kinder Morgan’s decades-old Trans Mountain pipeline is intended to speed the flow of oil to the West Coast and Asian markets. It would expand the old pipeline’s capacity to bring a total of 890,000 barrels a day from Strathcona County, Alberta to Burnaby, B.C. Kinder Morgan is expected to file an application with the National Energy Board later this year.

The problem
Even before it’s formally up for review, the project has run up against antipathy in B.C. A poll conducted earlier this year by Insights West found about 57 per cent of B.C. respondents opposed Trans Mountain’s expansion.

The prognosis
Kinder Morgan hasn’t yet entered the regulatory process, so it’s a ways out from a verdict on its fate. Being an addition to an existing pipeline works in its favour. There’s already oil being pumped along that route – now there would just be more.

But early opposition doesn’t bode well.

Kinder Morgan declined an interview, but spokesman Andrew Galarnyk said in an e-mailed statement the company’s “focus remains on working towards project approval. … Our goal is to ensure the proposed expansion of the TransMountain Pipeline system follows every process established by all levels of government and we remain confident that our efforts will result in this project being approved.”

The status quo scenario

No new pipe would mean more bitumen by rail, skinnier margins for oil companies and way more pressure on the Alberta government to find another way to make money.

For TransCanada, “there’s no plan B,” said spokesman Shawn Howard. “We continue to believe this is going to be approved.”

Enbridge’s Nogier is more circumspect: “If Northern Gateway fails, we have to remember that … the project represents a fairly small level of revenue for Enbridge.”

Shelved projects or continued delays necessitate an increasing reliance on trains. There are proposals to ship bitumen by rail to Alaska and Prince Rupert.

That wouldn’t necessarily be an environmental victory – a Manhattan Institute study last year found shipping bitumen by train is more likely to hurt you, kill you or cause environmental damage than using pipelines.

Either way, the wait takes a financial toll on oil companies and governments reliant on their wealth. Delays make these projects more important to their proponents and much pricier to construct.

As far as Pembina’s Lemphers is concerned, a lack of new pipe would be the best option for the province, forcing if off what many see as an unsustainable dependence on oil royalties.

“Alberta needs to plan for the day when they have all the bitumen in the world to sell, but no one to buy it,” he said.

The Alberta government knows that. It just isn’t sure how.

“We’re at very early stages,” said Finance Ministry spokeswoman Robyn Cochrane. In the long term, they’re hopeful oilsands profit margins will pick up. “In the medium term, we have a problem.”

One initiative Deising points to is the Bitumen Royalty-in-Kind program, in which the province effectively enters the refining business: It would buy bitumen on the market for a combination of cash and royalty equivalencies and feed it into a privately owned refinery that will turn out diesel it can sell at a higher price.

This would be Alberta’s first refinery in decades, and it would be years before it’s operational.

But the province is open to more. “If there are companies out there that have economically viable projects they think we can support,” Deising said, “we would be interested in looking at those.”

Apart from that, look for belt-tightening measures in Thursday’s budget. Albertans should expect austerity, Cochrane said, and a shift towards investing in a provincial savings plan. Anything else? “Stay tuned.”