Keystone: What’s in it for us?

Manufacturing stands to benefit from this and other energy projects.


TransCanada may have to drop the “XL” from its proposed $7.6 billion Keystone pipeline project.

After the proposed line that would carry more than 500,000 barrels of Canadian crude from Hardisty, Alta. to the US Gulf Coast was rejected by the Obama administration, the Calgary-based pipeline company has returned to the drawing board.

Now, it’s splitting up the nearly-3,500 kilometre super pipeline into two separate projects and going forward with permit applications to build a 902 kilometre line from Cushing, Okla. to the US Gulf Coast to relieve shortages of crude oil supply at refineries.  The shorter pipeline is expected to carry a price tag of $2.3 billion.

“We are working with the US Army Core of Engineers to acquire the require permits to build that section of pipe,” says TransCanada spokesman Terry Cunha. “We will be pulling out a section of pipe from Cushing to the US Gulf Coast and are proceeding with the shorter pipeline as a separate project.”

The company expects Keystone’s little brother to be operational by 2013.

Because of ongoing issues with the US government over the proposed route through Nebraska’s environmentally sensitive Sandhills region, the company has pushed the expected service date of the big pipeline to the back-end of 2015.

The project has also ensnared US President Barack Obama into a bit of a catch-22. He promised to alleviate US dependence on foreign oil while placing a massive emphasis on creating jobs, the latter of which would be accomplished should Keystone become reality. But now that his administration has rejected it, he is on the defensive as Republicans vehemently support the pipeline.

TransCanada, however, is so optimistic it will win Keystone approval that Cunha confirmed the company will re-apply with a new route to ensure the other part of the $7.6 billion project gets built.

This means crude exports from the Alberta oil sands to the Gulf Coast refineries are still at least three years away. The pipeline will not only move half a million barrels of Canadian crude a day across the 49th parallel, it will also relieve US dependence on oil from Mexico, Venezuela and the Middle East.

Indeed, the pipeline project could turn into a white knight for another sector, struggling in both the US and Canada: manufacturing.

Getting it built

The Canadian economy is driven by its resources, especially the massive oil and gas and energy investment in Alberta’s oil sands. A new report by Canadian Manufacturers & Exporters (CME) estimates energy and resources companies invested more than $85 billion in major capital projects in 2011. And there’s billions more on the way.

One potential spin-off of those investments would be to give Canada’s floundering manufacturing sector a much needed boost thanks to a potentially massive demand for fabricated products.

“The US understands that manufacturing should be the cornerstone of its economic development strategy to create high paying, high quality jobs,” says Jean-Michel Laurin, CME’s vice-president of global business policy. “Canada’s sector needs to realize the opportunities the oil sands present. Manufacturers looking to expand need to have the energy sector at the top of their lists because of these massive investments.”

TransCanada says about 90% of the goods it needs to build the pipeline will be made by North American companies. It has already purchased finished pipe worth more than $800 million from US and Canadian manufacturers, estimating it will use 660,000 tons of steel for the 2,100 kilometre US portion of the pipeline.

The company says about 25% of the finished pipe will come from Canadian suppliers; about 156,000 tons.

The Regina-division of Russia-based Evraz, one of the world’s largest vertically integrated steel and mining producers, has acquired contracts for the Canadian-made finished pipe.

But there’s still the 35,000 tons of unsourced steel that would make up other pipeline components  such as valves, fittings, sheet steel for storage tanks, pumps and motors, all of which present major opportunities for struggling Canadian manufacturers.

Those opportunities translate into jobs, directly or indirectly. Numbers in the tens of thousands have been tossed around in all the Keystone hoopla, but TransCanada expects about 4,000 will be necessary to build the shorter pipeline.

Cunha says some of those jobs will come from TransCanada – positions such as project managers and engineers – but the majority will be hired on through local contractors and labourers. Not all of them will come from the US, though.

“Without a doubt, we want to ensure we’re building this project safely and effectively, so we’ll bring the most qualified people in to do the job, no matter where they’re from,” he says.

TransCanada doesn’t foresee any major regulatory resistance hampering the smaller project. The shorter line, Cunha adds, will help fill a shortage of crude supply to refineries already running under capacity because of constraints at the Cushing storage facility.

“We’re not an oil company, we’re a pipeline company and now we’re trying to do what our customers have asked us to do,” he says. “We’re building a pipeline to bring crude that doesn’t have a market to go to and bring it to the Gulf.”

Who wants it?

Meanwhile, Canada is sorting out regulatory issues related to Enbridge’s Northern Gateway pipeline. Very much like Keystone, the project has been fiercely denounced by environmental and social groups who foresee damaging effects of the nearly-1,200 kilometre twin pipelines from Bruderheim, Alta. to Kitimat, BC.

One pipeline would bring 525,000 barrels of Alberta crude daily to tankers on the Pacific shore for export to China, the other would carry natural gas condensate in the opposite direction as a diluent in oil refining to reduce the viscosity oil sands heavy crude coming.

While not directly competitive, both Northern Gateway and Keystone XL offer export and economic rewards for Canada, but to objectors, they represent environmental and economic ruin.

Some argue the pipeline projects will boost oil prices to a point where they reduce purchasing power, while the undervalued loonie continues to impede manufacturing sales.

Alberta’s finance minister, Ron Liepert, says the Northern Gateway project will reveal who truly wants Canadian oil, and those customers exist across the Pacific Ocean.

“Quite frankly, we need to start paying closer attention to who else wants it,” he told The Canadian Press. “No market is more important these days than Asia. Diversifying our markets to Asia is fundamental to our country’s national interest.”

But to whose benefit? A report by the Canadian Energy Research Institute (CERI) estimates Ontario will be the biggest winner outside Alberta, but that will amount to just 3.8% of additional economic activity and 10% of the direct and indirect jobs. The US states would capture four times the benefit of non-Alberta provinces.

Liepert has gone on record to suggest that 23% of all oil sands related jobs will exist outside Alberta, representing massive opportunities for companies across the country.

“[Canadians] need to be thankful that we have all this investment going into resource development, because its great news when it comes to rebuilding the Canadian manufacturing sector,” says Laurin. “We have an opportunity to capitalize and to create high paying, sustainable jobs and also to work with the education system to develop young people’s interest in manufacturing and the energy sector, where there’s currently a huge skills gap.”

Ontario premier Dalton McGuinty recently laid some of the blame for his province’s diminished manufacturing sector on a high-value loonie fuelled by the west’s booming energy sector. He said he would rather have a lower loonie than a growing oil and gas industry in the west.

McGuinty has since been reminded by Alberta premier Alison Redford that of all the other provinces, Ontario is benefiting the most from oil sands development. There are currently 350 companies plugged into the Alberta’s resource sector.

The Keystone projects and the Northern Gateway offer additional opportunities. The message for manufacturers looking to diversify and grow their businesses is clear. Go west.

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This article appears in the March/April 2012 edition of PLANT West.

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