Pipeline approvals welcomed, but questions remain
Government approval of pipeline projects, including Kinder Morgan’s expanded Trans Mountain line to Vancouver, means more Canadian oil can be exported overseas. Supplied
After more than two years of declining oil prices, production cuts and job losses, Canada’s energy sector has had good reason to feel more cheerful over the past few weeks.
U.S. President Donald Trump’s executive order advancing the Keystone XL pipeline project, the Canadian government’s approval of Kinder Morgan’s Trans Mountain Expansion Project (TMEP) and Enbridge’s Line 3 replacement are the best news Canadian energy companies have had in years. But for some projects, the light at the end of the tunnel may still be a long way off.
When it comes to Keystone XL, “the devil’s in the detail or, in President Trump’s case, the lack of detail,” says Jason Langrish, president of the Energy Roundtable, a private-sector forum launched in 2004 to help define the Canadian energy sector’s role in domestic affairs and international oil and gas markets.
The concern with President Trump’s backing of Keystone XL is in the conditions he may attach to its construction, such as all piping having to come from U.S. steel mills, he adds.
“The reality is we really don’t know what approval is going to mean. If it’s a straight-forward approval, that’s good news. But there may be strings attached that are prohibitive to the project going forward.”
“The reality is we really don’t know what approval is going to mean. If it’s a straight-forward approval, that’s good news. But there may be strings attached that are prohibitive to the project going forward. Like so many things with Donald Trump, it’s too early to tell,” says Mr. Langrish.
The Canadian Association of Petroleum Producers (CAPP) and the Canadian Energy Pipeline Association (CEPA) both welcomed the Keystone XL executive order as a positive development for the economies of both Canada and the U.S.
CAPP says it is also a step forward for North American energy security.
“When given the option between granting access for Canadian oil to international markets and continuing to meet demand with Saudi Arabian, Venezuelan, Iraqi and Nigerian oil, the choice is obvious,” according to CAPP president Tim McMillan.
CEPA president and CEO Chris Bloomer describes Keystone XL as a critical energy infrastructure project that will provide a reliable and safe source of Canadian oil to American refineries, while strengthening North America’s energy security.
Mr. Langrish says oil sands production that is scheduled to come on stream over the next five years means both Keystone XL and the TMEP will be needed.
“Purely for reasons of diversification, we need the Kinder Morgan project, because it will give us meaningful access to markets other than the U.S.,” he says.
Mr. Langrish believes the TMEP makes more sense than the now-cancelled Northern Gateway pipeline.
“If you’re going to build a pipeline anywhere in B.C., it probably should go through a larger urban centre, or close to it,” he says.
Mr. McMillan says by giving Canada’s oil producers access to the Pacific Rim, TMEP will help increase international trade, create more jobs and prosperity in Canada, and increase the country’s international reputation as a place to invest.
“The government has made the right decision for Canadian prosperity; we will take responsible steps forward to make sure the project continues successfully,” he adds.
CAPP points out that all but one per cent of Canada’s oil goes to the U.S., and while it’s important to continue serving the number one customer, Canada also needs to continue its quest for global customers to help meet global demand for energy, which is expected to increase by 30 per cent through 2040, with almost a quarter of that total energy demand expected to come from oil.
By accessing new customers in new markets, Canadian oil producers can get a better world-price for their products, according to CAPP.
Mr. Langrish says the potentially bad news on the horizon for Canada’s energy sector is the prospect of President Trump greatly relaxing environmental and regulatory constraints around the oil and gas industry, which is likely to make the U.S. more attractive to oil and gas investors than Canada.
“They may not be as interested in Canada, given what’s going on in the U.S.,” he says. “That’s a real issue for Canada. Do we stick to our guns and say: ‘We’re going to continue with our environmental policies and regulations even though we may place ourselves at a competitive disadvantage to the U.S.’ or do we say: ‘Perhaps we need to respond to the reality on the ground and have a bit of a holiday on some of these policies for a while?’”
Given the nature of the current Canadian government, Mr. Langrish believes it will stick with the status quo.
“As a consequence, it could cause them headaches in the next election, and future administrations might look to match what’s happening in the U.S.,” he adds.