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Northern Gateway pipeline approval boosts oil producers' Asia export hopes

The hope is that the Northern Gateway pipeline will allow producers to ship oil to Asia from the British Columbia coast.

JONATHAN HAYWARD/THE CANADIAN PRESS

A federal panel's recommendation that Enbridge Inc. proceed with its $6.5-billion Northern Gateway pipeline gives oil producers renewed hope for access to rich Asian markets, even though numerous risks remain for the contentious project.

Oil sector officials and analysts said the approval by the Joint Review Panel, which followed two years of regulatory proceedings across British Columbia and Alberta, raises the odds the industry will gain a new route to send its rapidly growing crude output to international customers, and capture stronger prices available in global markets.

"Today's decision is the first step towards improving access to new markets for Canadian producers," said Suncor Energy Inc. chief executive Steve Williams, whose company is a major supporter of the 525,000-barrel-a-day pipeline. "The decision emphasizes the need for the pipeline and the importance of pipeline and marine safety. We know the next steps are going to involve listening to stakeholders and understanding ways to address their concerns."

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The JRP concluded Thursday that the economic benefits of the pipeline to Kitimat, B.C, from Alberta would outweigh the environmental risks.

The panel's decision is a win for the energy industry, but only for the first stage of what still promises to be a difficult and drawn out process that could eventually end up in the courts if First Nations that oppose the project make good on their warnings.

The panel attached 209 conditions for the pipeline regarding wildlife monitoring, spill prevention and response, maintaining $950-million of insurance coverage and a long list of other requirements.

Enbridge CEO Al Monaco suggested none of the conditions would be a deal-breaker for the project.

"We believe the panel has conducted a very thorough review. Based on our preliminary look at the conditions of their recommendations, they're tough but they should be, given everybody's goal to make sure we deliver a safe project and we protect the environment," he said.

A spokeswoman for Cenovus Energy Inc. said the conditions appear consistent with a preliminary list that the panel had released earlier this year.

"It's a positive step in the regulatory process. It's definitely not over and we understand that there is still some work to be done with communities along the pipeline route, but we see this as a good indication," Cenovus's Jessica Wilkinson said.

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Still, the ruling elicited criticism from environmental groups and some First Nations, and the project is expected to face unrelenting opposition from those camps.

Enbridge touts Northern Gateway as a fix to the industry's problems of pipeline congestion and heavy reliance on one export market, the U.S. The issue is complicated by a years-long delay in a U.S. decision for TransCanada Corp.'s Keystone XL pipeline to Texas refineries, which would also pay up for Canadian crude.

Alberta heavy crude routinely sells for a discount to U.S. light oil of about $30 (U.S.) a barrel or more due to difficulties moving it out of Alberta, though increasing oil-by-rail shipments has relieved some of the pressure in the past year. Still, with Alberta oil sands production forecast to double in the next 10 years, the industry is exploring all options for piping crude to the nation's coasts.

A pipeline to the Pacific would expose the crude to higher international prices, generating better corporate returns and more money back to the the Alberta public purse, companies and governments have said.

Suncor, Cenovus Energy Inc., MEG Energy Corp, China's CNOOC Ltd. and others, which have all chipped in financial contributions for the regulatory process, have invested billions of dollars in oil sands projects and expansions, and transport problems represent one of their biggest risks.

But with a startup date of 2018 it may be some time before the producers get their price relief they want, said Jackie Forrest, senior director at IHS CERA, the energy consultancy.

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"In that time frame, we're going to need a lot more than just one project in order to provide enough takeaway capacity from Western Canada, because our supply is growing more than this," Ms. Forrest said.

The project still requires final approval from Ottawa, expected in about six months.

Northern Gateway isn't only conduit proposed to move bitumen to the West Coast. On Monday, Kinder Morgan Canada Inc. applied for a $5.4-billion expansion to its Trans Mountain pipeline to the Vancouver area from Alberta that would triple capacity to 890,000 barrels a day. That project also faces opposition from environmental groups as well as the mayors of Vancouver and Burnaby, B.C., and some first nations leaders.

Greg Stringham, vice-president of the Canadian Association of Petroleum Producers, said however that the positive ruling on Northern Gateway shed a positive light on the Trans Mountain proposal.

"It's not only for this pipeline, but it really does open the door for market access off the west coast, and that is really critical," Mr. Stringham said.

Meanwhile, TransCanada Corp. is moving toward applying to Build its 1.1 million barrel a day Energy East pipeline to New Brunswick from Alberta, which would allow Canadian crude to be shipped as far as India.

With files from reporter Shawn McCarthy in Ottawa.

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About the Authors
Mergers and Acquisitions Reporter

Jeffrey Jones is a veteran journalist specializing in energy, finance and environment for The Globe and Mail’s Report on Business, based in Calgary. Before joining The Globe and Mail in 2013, he was a senior reporter for Reuters, writing news, features and analysis on energy deals, pipelines, politics and general  topics. More

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More

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