Daily oil-by-rail shipments are set to climb tenfold within 25 years if no new major pipelines are built to help move Western Canadian oil to domestic refineries and international markets, the National Energy Board told a Senate standing committee studying the transport of crude.
The oil industry is heading into its third year of low commodity prices and the corresponding cancellation of new Canadian oil-sands projects. Still, the country’s oil production as a whole is set to grow to 6.1 million barrels a day by 2040, said the NEB, from current production levels of about 3.8 million barrels a day.
But at least 1.2 million barrels of that daily 2040 production will need to travel by rail – more than ten times what was transported by rail per day in the first three months of this year, according to the national energy regulator’s “constrained-case” model.
From the expansion of Kinder Morgan Inc.’s Trans Mountain pipeline to Enbridge Inc.’s controversial Northern Gateway project, both the work of the NEB and Canadian pipeline building has increasingly come under scrutiny in recent years. Earlier this month, the board’s regulatory process for TransCanada Corp.’s $15.7-billion Energy East pipeline project was temporarily halted when the board members hearing the application stepped down amid project opponents’ allegations of pro-industry bias.
With the construction of major new pipeline projects in doubt, the NEB said Wednesday that the extra costs associated with rail transport will, in turn, dampen investment in the oil and gas sector, according to the NEB.
“Rail is more costly. And so from a producer perspective, the netbacks are lower,” Shelley Milutinovic, chief economist for the NEB, told the travelling Transport and Communications Senate committee in Calgary.
She added that with no new major pipelines, production in 2040 will be 500,000 barrels a day lower than it would have been otherwise.
For the energy sector and many politicians, new pipelines will bring economic and job benefits – derived from an expansion of the country’s oil and gas industry – along with access to global oil hubs where Canadian crude could fetch higher prices than producers now get in the U.S. markets they are beholden to.
But First Nations and municipalities have expressed concerns about water contamination in the event of a pipeline or tanker spill. Environmentalists have used the issue of new pipelines as a proxy in their battle against increased oil and gas production they say will push Canada’s greenhouse-gas emissions beyond government-mandated caps.
“You have to have pretty significant increases in production beyond 2020 for there to be [pipeline] constraints,” said Dale Marshall, national program manager for Toronto-based Environmental Defence.
NEB chairman and chief executive Peter Watson told the Senate committee that the board does not take a position as to what means of transport is the best to move crude. He also couldn’t provide any certainty about the timeline for when Energy East hearings will resume, as the new panel members must be appointed by the federal cabinet.
“We will move expeditiously once that new panel is struck.”Report Typo/Error