How Enbridge’s Northern Gateway pipeline lost its way

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Not far from Kitimat, B.C., on the rugged western shore of Douglas Channel, a plot of land is set to serve as the terminus of Enbridge Inc.'s $6.5-billion Northern Gateway project.

It is from this spot, if the pipeline can be built, that Alberta crude will pour on to supertankers, opening Canada's energy industry to Pacific markets and providing a key western outlet for surging output from the vast oil sands. It's an unremarkable tree-covered shoreline, but for Gateway it's critically important.

And in the fall of 2011, Enbridge nearly lost it, after the Haisla First Nation staged a bold attempt to seize control of the land in question – one of the most striking examples of the rancour that has swelled around the project.

Now Northern Gateway is mired in deep uncertainty. Local qualms have blossomed into broad opposition, raising questions about its viability.

The ill will Enbridge faces in building a project identified as vital to Canada's international trade strategy speaks to the frailty of the many multibillion-dollar new developments planned by the country's resource sector, which are key to the country's economic future. Gateway has made clear there's no certain path for resource expansion, even for projects with the full weight of government support behind them.

It was, after all, just over two years ago that Natural Resources Minister Joe Oliver boldly declared: "Gateway, in our opinion, is in the national interest."

Federal enthusiasm for Northern Gateway, however, has since appeared to cool as attention has shifted elsewhere. This week, Prime Minister Stephen Harper called TransCanada Corp.'s $12-billion west-to-east pipeline plan an "exciting" project "that will assure all of Canada will benefit from our energy industry."

Yet the success of TransCanada's Energy East plan will depend in some measure on the company's ability to solve many of the same issues that Enbridge has faced on the West Coast – skeptical First Nations, politicians and activists – and avoid the tangled socio-political mess Gateway finds itself in.

In coastal British Columbia, Enbridge's years of attempts to smooth the way for Northern Gateway have been met with a deepening sense of mistrust in local communities. In some places, the company's efforts to win support have succeeded largely in strengthening the resolve among critics that it vanish from their province.

Northern Gateway, to be sure, is far from dead. It maintains broad resource sector support, its backers still give it solid odds of succeeding, and Enbridge still has months, if not years, to make the case that turning down this pipeline would do great injury to Canada.

But in the face of broad opposition, the prospects for Northern Gateway are decidedly cloudy. Indeed, it has become a kind of modern-day template for industrial projects gone wrong.

"It couldn't be any worse for Enbridge. They have become a four-letter word," says Robert Metcs, a consultant who has spent years working with B.C. First Nations on pipeline projects. Or worse. Enbridge is "sort of like the Harry Potter thing. Like the name you do not mention."

The First Nations factor

It wasn't always this way. Northern Gateway entered B.C. with a flourish few now remember. At the outset, Kitimat and Prince Rupert, a nearby coastal town, did battle for the privilege of landing Gateway. "The community at that time was quite anxious to have the terminal locate here," recalls former Kitimat mayor Rick Wozney.

In the years since, however, Northern Gateway has become to some a textbook example of how not to pursue a major industrial development, particularly in the unsettled First Nations landscape of British Columbia, where corporations face great demands to employ sympathetic ears, not to mention hands willing to reshape plans wrought in faraway office towers.

Other companies interested in the Kitimat area "now come to us and they say they'll do the opposite of what Enbridge did to talk to First Nations," says Ellis Ross, chief councillor of the Haisla.

Enbridge executives themselves acknowledge that they have made missteps: that in its early days, the Alberta company did not fully understand British Columbia; that it leaned too heavily on outside help; that it has not listened well enough.

But the company also argues that the outsized shadow over its name is not deserved, and the record shows its Herculean effort to engage with those along the 1,177-kilometre route. Former chief executive officer Pat Daniel devoted nearly a week of his time in 2009 to personally visit a series of coastal communities, staying late in some to hear the outpouring of opinion. The company has documented some 2,000 meetings with those along the route. It has flown First Nations to multiple-day primers on how pipelines work, and brought them together to discuss ways to profit from the project.

Yet what the Haisla made clear two years ago is that for all of the company's efforts, opponents remain willing to go to remarkable lengths to undermine Gateway. In the fall of 2011, Enbridge allowed its legal interest in the land chosen for its terminal – called a map reserve – to expire. (Although the map reserve did not give Enbridge formal title to what remains a parcel of Crown land, it did effectively cordon off the area for the company to pursue Gateway.)

In the expiry, the Haisla saw an opening. If they could convince the B.C. government to earmark the land for them instead, they would have the ability to influence who used it.

"We didn't want the land for Enbridge. We actually wanted the land there for projects that were approved by Haisla," Mr. Ross says.

They weren't expressly trying to kick Enbridge out, Mr. Ross says. But the Haisla stood to deal a potentially fatal blow to Gateway, since the project's regulatory application was predicated in part on environmental studies of that exact piece of land. The Haisla opened talks with the B.C. government, kicking off a secretive months-long process that saw the involvement of provincial ministers and, ultimately, the federal government. Enbridge eventually sent high-level executives to Victoria, to demand the land not be plucked away – and eventually, the Haisla were told Ottawa supported the Enbridge effort. Ultimately, they failed.

The Haisla did win a partial victory: Enbridge no longer has its name on the map reserve. That parcel is now listed as "neutral," giving the Haisla some ability to influence how it is eventually used. And the Haisla themselves are eager, if there is an opening, to try again to take it over.

"We made it clear to everyone that at some point," Mr. Ross says, "we're coming back after that land."

Eroding relationships

The Yekootche First Nation make their home northeast of Fort St. James, B.C., an area familiar with the energy industry thanks to its rich reserves of natural gas. When Enbridge first came to discuss Northern Gateway nearly a decade ago, the Yekootche were open to talking. First Nation representatives flew to Edmonton to tour Enbridge's operational centre. They built trust with the Enbridge team. Things were going well.

Then Enbridge went dark.

Enbridge first contemplated sending oil west in 1998; Gateway was formally announced in 2004. But when Enbridge asked for firm commitments to the project, oil shippers balked. Building a pipeline across B.C.'s difficult political and legal landscape seemed too difficult. Besides, the U.S. seemed like a better market. So in 2006, Enbridge put Gateway on hold. The Yekootche were left alone.

That changed in 2008, before the financial crisis, when the oil patch was in an expansion frenzy and eager to diversify its markets. The regulatory risk was still there, but suddenly the reward seemed worth it. Gateway was revived. The Yekootche were back in demand.

But this time, the project was run by a new set of unfamiliar faces.

It was "relationship building, a sense of abandonment, relationship-building, assurances that abandonment would not occur again, and then a new team," said a person on the Yekootche negotiating team.

The second team was led by Roger Harris, who for two years served as an Enbridge vice-president on Gateway. The list of failings he recites is long. Gateway is a "story of what they did that continued to erode their credibility over time," he says. He adds: "It's the loss of credibility that becomes the loss of your project."

He describes an unconcerned top executive: Mr. Daniel, who only met with Mr. Harris once, he says, and only to discuss a trip to the coast that Mr. Harris says he was subsequently uninvited from after providing unwanted advice. (Mr. Daniel did not respond to requests for an interview.) Early in the 2000s, a group of Treaty 8 First Nations came to Enbridge to discuss equity participation – partial ownership – in the pipeline. Enbridge declined. When the company subsequently revived the idea amid rising opposition, it sought to tie First Nations support to their ownership share, an idea Mr. Harris had warned against. It looked too much like buying love.

Worse, Mr. Harris said, was the company's reluctance to meet its opponents. In 2010, it developed a grid to determine which meetings to attend, assigning more points to larger rooms, the presence of media and the likelihood of facing audience questions. Too many points, and Enbridge stayed away. The result, Mr. Harris said, is that for the better part of a year, the company spoke largely to small clusters of friendly faces who didn't ask many questions. What the company needed to do instead was "talk to people who don't like you," he says.

When the grid appeared, "that's when I said, 'I'm out of here. You guys are nuts.'"

Others watched the company decline opportunities to warm local relationships. Nathan Cullen, the NDP MP for the Skeena-Bulkley Valley, which includes the final and most contentious stretches of the Gateway route, spent months begging Enbridge to hold community forums jointly with First Nations and environmental voices. He wanted to give the public a chance "to see the pros and cons of the project and ask questions comprehensively." He accuses the company of "ragging the puck" and eventually decided Enbridge wasn't interested.

"That was a big thing for me. We're kind of trusting people up north and if you act in good faith and do things well, you maintain it. But if you break it, it's real hard to get it back," he says. Mr. Cullen is today an ardent critic of Gateway.

On the coast, skepticism grew so ingrained that the company raised eyebrows even when it sought to put safety questions to bed. Last year, Enbridge announced $500-million in Gateway upgrades, including thicker pipe and more safety shut-off valves. Instead of feeling reassured, people immediately questioned the safety of the original proposal.

"What the hell did you have there to start with?" asks Richard Neufeld, a former long-serving B.C. minister of energy, mines and petroleum resources who is now in the Canadian Senate. He was "shocked" by the proposal. "That sent up a huge red flag to me – and I would assume sent up a huge red flag to anybody else along the route."

The general view on Enbridge, he added, "is they haven't done a good job. I've heard them say they've had thousands of consultations and whatnot. It doesn't matter how many you have. If you don't convince some people that you're having conversations with, it's not going to happen."

Changing perceptions

In 1997, crews began to travel a 3,719-kilometre path from northeastern British Columbia to Illinois, laying the Alliance natural gas pipeline in the ground. The route cut a big diagonal line across the upper reaches of the continent, but not always a straight one. At the Alexis Nakota Sioux First Nation near Whitecourt, Alta., for example, the pipeline came up to reserve borders, then dodged across a highway, and passed beside the reserve, before again jumping across the highway and continuing on its way.

That wasn't the original route. But after "negotiations at that time went sour" between Alexis and the builders of Alliance – now half-owned by Enbridge Inc. – the pipeline route was amended to jog around the nation, recalls Cameron Alexis, who recently stepped down as chief of the Alexis. He now serves as Alberta regional chief for the Assembly of First Nations.

When Enbridge proposed building Gateway along a similar route to Alliance, history came flooding back. The Alexis had seen this before – and the last time, they had gotten very few benefits from a pipeline whose proximity still saddled them with risk. With Gateway, they were determined not to see another pipeline "that's not going to benefit anyone, especially our community," Mr. Alexis says.

The Alexis asked Enbridge to accommodate its concerns. Enbridge responded by shifting onto reserve lands both the route and a pump station, a large surface facility that will, if it's built, generate long-term lease revenue for Alexis. The pipeline itself will spin off taxes.

"I don't think Enbridge treated us any different than anybody else," Mr. Alexis says. But Alexis itself is different. Its people have worked in the oil patch since the 1950s. Some of its members have actually worked in pipeline construction. In addition to the Alliance experience, that familiarity smoothed a path for conversation – and led to what is now, by the standards of Gateway, a comfortable relationship.

To Enbridge, Alexis is clear proof that the company is not tin-eared, and that when First Nations take the time to talk, executives not only listen, they act.

"When people don't engage, it's very difficult to move a project like this forward. Where you can engage, I think you see success," says Janet Holder, the Enbridge executive vice-president in charge of the project.

"In any relationship, perceptions play a major role. I think in a lot of cases what's happened to us is the perception of Enbridge. And I honestly don't believe we've been deserving of the perceptions."

Enbridge may not have taken MP Mr. Cullen up on his offer to hold community forums. But it did arrange for community advisory boards, a series of groups along the pipeline route that regularly place local residents, activists and trappers into a room to discuss the project, pose questions to Enbridge and suggest change. The pipeline is now on Route V – "for victory," Ms. Holder jokes – after more than 20 major iterations that incorporate all sorts of nods to local concerns.

Ms. Holder acknowledges missteps. At first, Enbridge may not have fully grasped "the difference between British Columbians and Albertans," although Ms. Holder is herself from Prince George, B.C., and has moved back there to guide the project. What about the grid that kept Enbridge out of certain meetings? "You would need to look at all forms of communication to make an assessment of will it be effective," explains John Carruthers, the president of Northern Gateway. He acknowledges that hindsight reveals other shortcomings. "I think there had to be a greater recognition of the time required to build the relationships," he says.

But for Mr. Carruthers and Enbridge, there is another question worth asking: Would it have made any difference had the grid never existed and the company took all of the steps people had advised? Had it listened more, had it offered First Nations ownership at an earlier date, would any of it have changed things?

After all, a company cannot give in to every local demand and still build a financially feasible project. And "some people would oppose the project no matter what you did," Mr. Carruthers says.

The most controversial element of Gateway is also the most unalterable: Enbridge is proposing an oil pipeline across a part of Canada where oil stirs up very bad memories: the Exxon Valdez. Among the 15 First Nations that backed the Pacific Trail Pipelines natural gas project, for example, virtually none were prepared to support an oil project. "There was no amount of benefits on the table for oil that would outweigh the perceived cost," says Mr. Metcs, the consultant. "I think it really is to some extent as simple as that."

For Enbridge, the calculation is, in many ways, equally simple: Without Gateway, all of Canada loses. Gateway's risks have been thoroughly exposed. What is missing from many minds is proper consideration of its benefits, Ms. Holder argues. "People just do not appreciate the value that the oil industry brings into the lifestyle we have today," she says.

Amid the uncertainty, Enbridge continues on, holding meetings, promising local benefits, attempting to assuage critics' safety concerns. Even one of its sharpest detractors says the company has found its footing. "They're doing all the things someone should be doing. They really are being engaging," says Mr. Harris, the former vice-president. "The problem is they waited until 2013 to do that in a constructive way, and now no one believes them. It doesn't matter what they say."

But Enbridge is keeping the faith.

"I have a fundamental belief it can be built and operated safely. I see tremendous need for it, and I see it can be built and operated safely. And Canada can do it," Mr. Carruthers says.

"I recognize it's hard. To me, it's not a reason not to want do it."