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Social licence of public approval adds new rules to energy project game

We're going to hear a lot about social licence in the next little while as the Harper government makes its ruling on Enbridge Inc.'s Northern Gateway oil pipeline through British Columbia to the Pacific Coast.

Social licence – or lack thereof – looks to be the scourge of traditional business plans in B.C. as fears grow about the ability of Enbridge and others to proceed in the face of opposition. Experience in energy and a solid forecast for returns take back seats to it.

But social licence also seems to be a major factor in spawning off-the-wall energy projects. This week, a group led by an executive with Grupo Salinas, the Mexican conglomerate, proposed an untraditional $10-billion West Coast refinery that would take in bitumen from Alberta's oil sands and export gasoline and diesel to Asia. The idea is to remove the risks of bitumen spills from tankers. The group also intends to focus on First Nations support and spend as much as $3-billion on carbon capture and renewable energy.

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The plan follows a similar one touted by B.C. newspaper publisher David Black that would ring in at more than $30-billion, including pipelines and tankers. Mr. Black said he has Chinese financing lined up for the Kitimat project, and all that remains is for Ottawa to kick in loan guarantees.

On the transport front, Vancouver's Aquilini Group is backing the proposed Eagle Spirit Energy pipeline and upgrader that would send processed synthetic light crude across the Rockies to the Pacific, with the aim of it becoming a First Nations-supported initiative. Under the plan, diluted bitumen would get shipped across little, if any, of the B.C. mainland.

Of course, none of these ideas would have been considered without Northern Gateway's tumultuous long march to decision day and the issues that have coloured it – debates about oil spill risks on land and in water, First Nations fears about loss of traditional culture and control over land, carbon released by expanding oil sands development and the oil industry's quest for new markets and higher prices.

Interestingly, in its conditional approval of the $7.9-billion project last December, the Joint Review Panel made a point of saying it did not base any of its decision on social licence. That leaves Northern Gateway's supporters and detractors to argue whether the project has it.

Having expended loads of political and diplomatic capital on transpacific energy trade, the federal government is expected to approve the project. Regardless, it will take milliseconds for opponents to say that Enbridge failed to gain social licence to proceed.

Here's the problem: The concept of social licence is imprecise at best. There is no central department of social licensing, and no accepted checklist to determine if an industrial project should be granted one (although B.C. Premier Christy Clark has a framework with her five environmental, aboriginal and economic conditions that she says oil pipelines must meet).

Out West, CEOs talk often about the need to operate in a manner that ensures social licence, that is, in a way that society on the whole approves of. Yet, it's rare to hear one admit even a few demerits to their project. Their staunchest opponents also believe that industry must behave in a way that is acceptable to everyone, yet energy projects seldom pass their opponents' standards.

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Hence the ideas for pipes and plants that seek to address the biggest hurdles for the traditional players. Enbridge, for instance, has pledged to keep trying to build relationships and seeking support from First Nations when and if it gets Ottawa's final nod. Still, some of those bands have said they are ready with legal challenges, opening up the prospect of further lengthy delays.

The untraditional refinery and upgrader proponents, though, have not presented formal plans for profitable enterprises, including little details such as lists of willing, long-term buyers for products rather than raw bitumen, expected margins, support from oil sands producers that have actually sought to diversify markets, and ideas for attracting and housing the legions of skilled construction workers they want to hire.

Old-school oil companies such as Imperial Oil Ltd., Suncor Energy Inc., Cenovus Energy Inc. and Husky Energy Inc. all operate major refineries and aim to export bitumen from the oil sands. None have come forward with a plan to build a new refinery thousands of kilometres from either the end market or production source.

It's not a lack of social licence stopping them. If they could see the business case, they'd probably try it.

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About the Author
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

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