Canadian government approves two crude export projects, rejects third

Canada’s federal government approved construction of two crude oil export pipelines on Nov. 29 while rejecting a third project. Kinder Morgan Canada’s Trans-Mountain Expansion Project (TMEP) from Alberta to Burnaby, BC, near Vancouver, and Enbridge Inc.’s Line 3 replacement south into US markets received green lights. Enbridge’s proposed Northern Gateway pipeline from Alberta to a British Columbia coastal site farther north did not.

“The decision we took today is the one that is in the best interests of Canada,” Prime Minister Justin Trudeau said in announcing his government’s support for the two projects.

But it also appeared likely that the approved projects will face more protests and litigation. “We are under no illusion that the decision today will [not] be bitterly disputed,” Trudeau said. The decision nevertheless suggests some political calculation since TMEP would be built alongside an existing pipeline and the Line 3 project would replace an aging system that is operating below capacity. Northern Gateway potentially would be more disruptive because of its route across virgin acreage.

His office issued a statement, noting that the prime minister spoke by telephone with British Columbia Premier Christy Clark about the decisions. “The leaders agreed on the importance to take a balanced approach to the development of natural resources to help ensure the environment is protected, while creating jobs, including jobs in British Columbia,” it said. Clark was scheduled to make her first public comment on Nov. 30.

Alberta Premier Rachel Notley was elated, noting that Trudeau showed some extraordinary political leadership. “Our province has been brutally slammed by the collapse in commodity prices. It has been a long, dark night for the people of Alberta as a result. Today we are finally seeing some morning light,” she said on Nov. 29.

“We are getting a chance to break our land-lock. We’re getting a chance to sell to China and other new markets at better prices. We’re getting a chance to reduce our dependence on one market, and therefore to be more economically independent. And we’re getting a chance to pick ourselves up and move forward again,” Notley maintained. “Of equal importance, we are building the economy within a strong new national environmental policy.”

Volumes near capacity

The approvals came as Canada’s existing crude-oil pipeline network approaches its 4 million b/d capacity after moving 3.981 million b/d in 2015, the Canadian Association of Petroleum Producers said on Nov. 29. It estimates production from Alberta’s oil sands will increase by more than 850,000 b/d by 2021, making total supplies far exceed existing capacity. TMEP’s federal approval moves the project a step closer to connecting that production to new and growing markets abroad, CAPP said.

“The government has made the right decision for Canadian prosperity; we will take responsible steps forward to make sure the project continues successfully,” CAPP Pres. Tim McMillan said. “The government’s commitment to energy infrastructure shows that they are interested in balancing Canada’s sustained leadership and prosperity. There is a balance between responsibly produced oil and meeting our climate targets. CAPP believes the two are not mutually exclusive and can be achieved as one.”

Kinder Morgan Canada Pres. Ian Anderson said the TMEP decision will trigger several next steps by the Kinder Morgan Inc. subsidiary. It will continue to seek all necessary permits, and plans to begin construction in September 2017 and go into service date for the $6.8-billion (Can.) pipeline in late 2019.

Other steps will include a final cost estimate review with shippers committed to TMEP and a final investment decision by KMI’s board, Anderson said. “This project has evolved substantially as a result of the scrutiny it has undergone and the input received from communities, Indigenous and Metis groups, and individuals,” he indicated. “No voice has gone unheard, and we thank everyone who has helped make [it] better.”

In a Nov. 29 statement, Enbridge said it was pleased that the Line 3 replacement project, which it considers essential to ensure safe and continued deliveries to US markets, received federal approval. At a cost of about $7.5 billion (Can.), it is the largest project in the Calgary oil and gas transportation company’s history and will restore the line to its original 760,000 b/d capacity, it indicated. “Replacing Line 3 is the most timely and reliable solution for transporting Western Canadian crude oil to the Chicago, US Gulf Coast, Eastern US, and Canadian refinery markets,” it said.

But the company was disappointed with the federal government’s Northern Gateway rejection. “This was an important project to ensure Canada gets its resources to international markets, where Canadian producers can receive the best returns, benefiting our provincial and national economies,” it said. “Northern Gateway also represented an unprecedented partnership with Indigenous people. The 31 Indigenous communities who had a one-third ownership in Northern Gateway stood to realize $2 billion (Can.) in benefits to their communities and would have played an important stewardship role in the project.”

Enbridge said it now will consider alternatives, which it will do in consultation with its Indigenous and other partners.

Contact Nick Snow at nicks@pennwell.com.

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