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Rail cars arrive in Milton, N.D., loaded with pipe for the first Keystone Pipeline project, which now carries crude oil across Saskatchewan and Manitoba, and through several U.S. states. (Eric Hylden/The Associated Press)
Rail cars arrive in Milton, N.D., loaded with pipe for the first Keystone Pipeline project, which now carries crude oil across Saskatchewan and Manitoba, and through several U.S. states. (Eric Hylden/The Associated Press)

Oil producers urged to solve pipeline constraints Add to ...

Canadian oil producers are facing a pipeline crunch that could limit the industry’s vast development plans as early as 2015, but face a long and increasingly bitter battle to expand their capacity to ship crude to market.

The Canadian Association of Petroleum Producers (CAPP) issued a forecast Tuesday that oil sands production will double, to three million barrels a day, by 2020 and grow to five million by 2030 – which would make Canada one of the world’s top crude suppliers with a total of 6.2 million barrels a day.

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But to enhance the “security of demand” needed by Canadian oil companies, the federal government is being urged to adopt a far-reaching strategy to diversify markets to Asia, including the possibility of a publicly owned “energy transportation corridor” through British Columbia to the coast.

In a report to be released Wednesday, the Asia-Pacific Foundation said governments in Ottawa and the producing provinces – along with industry – need to do a better job persuading other Canadians, including first nations, that they stand to benefit from expanding energy sales to Asia.

“Right now, there is only a project-by-project approach,” said Kevin Lynch, vice-chair of Bank of Montreal and a co-author of the report.

“If the pivot to Asia is as big and as long term as I think it is – where almost all energy growth is going to come from the non-OECD countries – then we have to think of how in the world do we increasingly access, and have relationships to, those markets.”

Western Canadian producers are already facing pipeline constraints, as booming light-oil production in the U.S. is added to lines that have traditionally be used only by Canadian producers.

That should ease if and when pipeline companies get approval and proceed with projects such as TransCanada Corp.’s Keystone XL and Enbridge Inc.’s proposed reversal of the Line 9 pipeline in Ontario to extend the market for domestic crude. Companies are also making greater use of rail cars to ship their crude.

But CAPP vice-president Greg Stringham said access to the West Coast is critical for producers to supply growing Asian markets. Enbridge is currently in regulatory hearings for the fiercely contested Northern Gateway pipeline that would have a terminus at Kitimat, B.C., while Kinder Morgan Inc. is planning to expand its TransMountain route to Vancouver, increasing it to 750,000 barrels a day from 300,000.

But all the new pipeline proposals would only add two million barrels a day of capacity, so additional projects would be needed to handle oil sands production. Mr. Lynch said Canada will have to look to Asia, rather than to the United States, where demand for imported crude is expected to fall.

Canada needs a national strategy that ensures benefits are spread across the country, environmental concerns are addressed, first nations are consulted as full partners and renewable energy industries are included in the push for Asian access, according to the report, which Mr. Lynch co-authored with CAPP chair Kathy Sendall, a former Petro-Canada executive.

It envisages the kind of effort being pursued by Alberta Premier Alison Redford, who is pushing for a vaguely defined Canadian energy strategy.

“We need more of an effort by governments, the private sector and others to have that kind of broad-based conversation, including the upsides, the challenges and how you balance them off,” Mr. Lynch said.

 
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