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Doubts cast on feasibility of West Coast pipelines Add to ...

Some of Canada's top oil-industry players are casting doubt on the possibility that substantial volumes of Alberta crude will one day flow to the Canadian West Coast for delivery to Asian markets.

Opposition from First Nations groups - as well as regulatory issues that are increasingly hurting Canadian industrial projects - have already dealt a near-fatal blow to the Mackenzie Valley gas project, and may block development of a Pacific export market for some time, former TransCanada Corp. chief executive officer Hal Kvisle said Friday.

Both Enbridge with its $5.5-billion Northern Gateway project, and Kinder Morgan with plans to expand an existing West Coast pipeline called Trans Mountain, are working to give oil sands companies access to refineries in China and Asia. Enbridge has calculated that Asian exports could be more profitable than exports to the U.S., and has spent $250-million, including $100-million sourced in part from Asian refineries, to develop a project it says can be built safely and with substantial local benefits.

But Mr. Kvisle has personally driven between Alberta and Prince Rupert "maybe a dozen times" - including once to inspect a possible route by motorcycle. During his time as an executive, however, he was dissuaded from the project by the daunting prospect of gaining approval for it.

"TransCanada has done detailed examination and looked at all of the different options for moving crude oil in that direction," he said. "The biggest single impediment is the regulatory process."

Murray Edwards, the billionaire vice-chairman of Canadian Natural Resources Ltd., said that with oil sands production expected to expand from 1.5 million barrels a day to as much as 4 million barrels in the next 25 years, Alberta oil is much more likely to flow into the U.S. - even if overall U.S. crude demand continues to stagnate.

Canadian oil can win out over some current U.S. imports from Venezuela and the Middle East on the grounds that Canada is a more secure supply, and it could take a very long time for a West Coast pipeline to gain enough acceptance to be built, he said.

"For barrels to go off the West Coast to China, I think that is a very, very difficult file," he said, pointing to the environmental, land use and First Nations issues that Enbridge is currently confronting.

"If it's taken us decades to come to any consensus on a Mackenzie pipeline, the West Coast pipeline will be just as challenging."

Both men spoke at the Bennett Jones Lake Louise World Cup Business Forum 2010 in Lake Louise, Alta., where the theme "Canada Rising" quickly turned into a conversation about this country's continued need to tighten business ties with China.

But the Canadian West Coast may not be the only option for Asian exports. TransCanada, for example, has studied sending a pipeline through Oregon to Washington, where crude could be exported from the U.S. It has looked at building a pipeline from Fort McMurray, Alta., to Churchill, Man., for exports through Hudson Bay, although Mr. Kvisle said "that turned out to be a pretty difficult undertaking because of the kind of rock you go through."

The company has also examined whether it could find more markets for Alberta crude inside Canada, by converting one of its cross-country gas pipelines into an oil pipeline that could deliver product to Quebec, Mr. Kvisle.

However, even projects with broad public support have been hurt by regulatory processes, he said, pointing to the Mackenzie Valley natural gas pipeline as evidence of how Canada's oil and gas industry faces obstacles far beyond delivering oil to China.

"We've certainly done everything we could as a society to kill that project," he said.

"One of the problems we have is that we manage to conduct regulatory processes that drag projects out until the project simply dies of old age, before it goes ahead. We've seen that in the case of Mackenzie."

Follow on Twitter: @nvanderklippe

 

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