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Most Gateway pipeline shipments slated for U.S. Add to ...

Much of the crude flowing through a controversial new export pipeline project will go to the United States, rather than to Asian markets, regulatory documents filed by Enbridge Inc. reveal.

The $5.5-billion Northern Gateway pipeline, which would bring Alberta crude to ocean tankers at Kitimat, B.C., has long been billed as a critical link that will connect Canadian oil with Asian consumers. Enbridge has made that point repeatedly, telling industry, the public and skeptical first nations groups that providing a link to Asia is a key objective for a project meant to lessen the country's reliance on the U.S. as an export consumer.

But Enbridge's own estimates suggest that a substantial percentage - likely more than a third, and probably near half - of the oil going through Gateway will actually be destined for the U.S. That fact promises to further stoke the ire of groups opposed to carrying crude across important British Columbia salmon waters.

As it works to gain regulatory approval for Gateway, Enbridge has said that the project is in the "national interest," as it will open a new corridor to Asia for Canada's most important export: energy. Critics, however, say that argument is weakened by the strong percentage of U.S.-destined crude the line will carry.

The company's "environmental and socio-economic assessment," filed with the National Energy Board, provides estimates of where percentage tankers will head from Kitimat. They will take one of three different routes through the network of channels and islands that separate Kitimat from the open Pacific. Those taking a "northern approach" will go to Asia. Those coming through a pair of "southern approaches" will go to ports on the North American West Coast.

According to the Enbridge filing, "approximately 33 per cent of the tankers will take the Northern Approach." That means a third of Gateway's 220 annual tanker calls will go to Asia.

Enbridge, however, said that the pipeline will fill tankers of varying sizes, and the bulk of the largest tankers will go to Asia.

But a great percentage will sail south, where analysts believe they are most likely to transport the majority of their crude to U.S. refineries. In its regulatory filing, Enbridge points only to California and Washington state as non-Asian export alternatives.

"Those West Coast refineries are becoming increasingly empty because of the declining Alaskan crude," UBS Securities analyst Chad Friess said.

In a statement, Enbridge spokeswoman Gina Jordan said there are "many market variables that will ultimately determine the destination of crude sourced from Northern Gateway."

Enbridge, she added, "has always indicated that the U.S. West Coast is a potential market for Canadian crude oil." But, she said, "exports from the oil pipeline will target the Asia-Pacific because of strong demand, proximity to Kitimat and the ability of those markets to process Canadian synthetic and diluted bitumen."

Indeed, numerous comments by Enbridge executives have suggested Gateway is being built primarily for Asian markets - a fact seemingly buttressed by its confirmation that Chinese energy giant Sinopec is one of 10 project funders.

Last summer, John Carruthers, president of Gateway, pointed to the benefits of linking Canada's oil sands with China's energy thirst.

"We have a world-class resource and we're going to match that resource with the soon-to-be-largest, but also fastest-growing, market in the world," he said.

Enbridge has conducted market studies that have shown that shipping oil to Asia will create enough competition for Canadian crude that it will raise per-barrel prices by $2 to $3. Enbridge chief executive officer Pat Daniel has used that math to make the case that Gateway is needed to open another oil export market.

"We think it's hugely in Canada's national best interest to have a second outlet for our crude oil," he said in January.

Still, that argument is not undermined by having a smaller percentage of tankers heading for Asia, said Mr. Friess, the analyst. Simply creating an option to ship crude to China, Japan, South Korea and Taiwan will be enough to stoke higher prices for Canadian oil, he said.

But viewing Gateway as a U.S. export pipeline will change the dynamics among opponents who, despite the company's public assurances that it will build a safe pipeline, have already expressed distrust toward Enbridge.

"It looks like you're saying one thing and doing another," said Gerald Graham, a marine policy consultant who has combed the Enbridge documents for B.C. environmental and first nations interests. That process led to the discovery of the export percentage numbers, which he said could hurt Enbridge as it attempts to win approval for the project.

It could be tough for Enbridge to argue that Gateway is nationally important - and therefore worth the environmental drawbacks - when it will largely feed a market already well served by other pipelines, Mr. Graham said.

"If in fact you can show that it's just another American market, then you look at the environmental impacts and say, 'This is a big risk. Maybe we should not approve this project,'" he said.

 

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