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More market access critical for oil sands crude

A University of Calgary report warns that the Canadian economy will lose out if oil sands crude remains landlocked because new pipeline capacity isn’t built to coastal waters.


December 16, 2011
by CANADIAN PRESS

CALGARY: A University of Calgary report warns that the Canadian economy will lose out if oil sands crude remains landlocked because new pipeline capacity isn’t built to coastal waters.

Improved access to international markets could add as much as $131 billion to Canada’s gross domestic product between 2016 and 2030, the researchers with the university’s school of public policy estimate. That could mean $27 billion more in federal, provincial and municipal tax receipts.

But environmental groups have been fighting pipeline projects as part of a wider battle against “dirty” crude from the oil sands and regulatory delays have put some proposed projects – like the Keystone XL pipeline to US Gulf Coast refineries and the Northern Gateway pipeline to the Pacific coast – in limbo.

“The rewards of additional pipelines for all of Canada are too great to ignore,’’ said report co-author Michal Moore. “Pipelines must be a national priority.’’

Heavy crude from Alberta’s oil sands takes a lot of work to process and has a long way to travel to US refineries that can handle it, said Moore. It’s that characteristic that already makes it trade at a discount to the US benchmark West Texas Intermediate.

WTI, in turn, has been lagging international crude benchmarks like North Sea Brent because there is a big supply glut at Cushing, Okla., a massive storage hub that has become a major choke point.

“In a sense, you can say that we are doubly discounted from what is available on the world market,’’ Moore said.

“In essence, you might imagine that what we’ve done is to ask Canadian producers to play tennis with one foot in a bucket.’’

TransCanada Corp. and Enbridge Inc. are looking to relieve the bottleneck at Cushing through initiatives like Keystone XL and the Seaway pipeline reversal, respectively.

The report said producers stand to gain US$10 for every barrel they produce if they can get their oil past Cushing to the Gulf Coast, where it would displace imported crude like Mexico’s Maya.

Enbridge also wants to connect oil sands crude to Asian markets through its $5.5-billion Northern Gateway proposal, which would run from Alberta to the West Coast port of Kitimat, B.C..

The oil would then be loaded on tankers and shipped overseas, where the University of Calgary researchers estimate a barrel of Canadian crude will be able to fetch up to $13.60 more in 2030.

But Northern Gateway’s fate is far from certain. Some 130 First Nations groups have expressed opposition to the project and B.C. residents are generally wary of tanker traffic along the coast. The regulatory process will take a year longer than expected because of the sheer volume of people scheduled to speak at hearings that begin in the new year.

A report from the environmental group Greenpeace released earlier this week said uncertainty around pipeline projects should make investors think twice about putting their money in oil sands companies.

“Currently accessible markets for tar sands crude oil are becoming saturated and pipeline projects that would enable penetration of new markets are facing unprecedented delay and possible failure,’’ the report said.

“It is the timely development of midstream infrastructure that could be the undoing of the industry’s lofty ambitions.’’

Moore said the university’s report underscores the need for Canada to work toward a national energy strategy _ something that has been stressed by some provincial governments and industry players.

“The government can’t make this happen. But what they can do is enable it,’’ said Moore, noting the government has a “huge bully pulpit,’’ negotiating power with the United States and control over the regulatory system.

“It seems to me that the right role of government is to make it clear that this resource is a world product and should be allowed to get access to world markets and, where possible, they can seek out the help to do that.’’

Also Thursday, TransCanada said it has enough support from its customers to go ahead with an 80-kilometre extension to its delayed Keystone XL pipeline.
The Houston Lateral extension would increase the capacity of Keystone XL – which has at least a year to go before US regulators decide whether or not to approve the pipeline – to 830,000 barrels per day.

Instead of ending in Port Arthur, Texas, the pipeline would now reach into the Houston market as well. That would more than double the U.S. Gulf Coast refining market capacity the pipeline can access if it’s approved.

The Houston Lateral is within the original scope of the regulatory process that’s currently underway, TransCanada said. The U.S. State Department was originally set to announce its final decision by year-end, but in November decided more time was needed to weigh a new route for the pipeline through Nebraska, in order to avoid environmentally sensitive areas.

The State Department – which has final say because Keystone XL would cross an international border – now expects to make its decision in early 2013. Based on that, TransCanada expects Keystone XL, including the Houston Lateral, to be in service by the end of 2014.

© 2011 The Canadian Press