Gateway delay clouds industry’s Asia export push

The long-held dream of boosting exports of Alberta crude to Asia by the decade's end is fading, as multibillion-dollar pipelines get bogged down by local opposition and regulatory wrangling.

Enbridge Inc. signalled Thursday that its contentious Northern Gateway pipeline to the west coast is unlikely to start up by 2018 as planned. Project president John Carruthers said the timeline is "quickly evaporating" while the company works to build support among B.C. aboriginal groups staunchly opposed to the $7.9-billion project. Enbridge offered no new target date for Northern Gateway to start.

Rival Kinder Morgan Inc. has said crude could begin flowing west on its expanded Trans Mountain system between Edmonton and Vancouver by 2018, but the $5.4-billion plan to nearly triple capacity on the network faces delays amid an escalating scrap with local municipalities over routing concerns and increased tanker traffic in Burrard Inlet.

The difficulties could set back the energy industry's efforts to more than double oil sands production to 4.1 million barrels a day by 2025, leaving Canadian crude captive to a U.S. market increasingly flush with domestic oil.

TransCanada Corp.'s proposed Energy East pipeline, meanwhile, also faces hurdles. A regulatory application is expected this month for the supersized proposal to send up to 1.1 million barrels of Western crude a day to export points in Quebec and Saint John, N.B.

"The headwinds are increasing," said Judith Dwarkin, director of energy research at ITG Inc. in Calgary, citing mounting legal challenges to National Energy Board decisions and a recent Supreme Court of Canada ruling seen by some as solidifying aboriginal control over non-treaty lands.

"It's getting harder, not easier, to get things done."

Gateway, if built, would send up to 525,000 barrels of oil sands-derived crude a day from Alberta to a new supertanker port at Kitimat, B.C. A federal panel of energy and environmental regulators approved the pipeline last year, subject to 209 conditions.

Analysts have widely questioned Enbridge's ability to satisfy those conditions before 2018, and the Calgary-based company itself has maintained that it won't be driven by a hard schedule while it seeks to cut deals with affected First Nations along the 1,178-kilometre pipeline route.

But progress on that front appears to have stalled. Enbridge has so far funded ownership stakes for 26 aboriginal groups covering a 10-per-cent slice of the project's equity, a stake valued at roughly $300-million.

Mr. Carruthers said Thursday it would be difficult to boost aboriginal participation in the pipeline any more "and still have an economic project." Instead, the company is offering procurement deals worth as much as $600-million and jobs totalling 15 per cent of the construction work force.

But a planned 2018 startup for the pipeline is "quickly evaporating because we need to have this time to meet with people," Mr. Carruthers told a breakfast audience in Calgary. "So the focus will be on that, on re-engagement and not the in-service date," he said. "You can see 2018 is when we could have done if everything went perfectly. We need to take the time, so that's not going to happen."

West-coast access has been touted by the oil industry as key to boosting prices for Alberta's landlocked crude, which has been heavily discounted in recent years against U.S. benchmark West Texas Intermediate as fast-growing oil sands production clogs existing export routes. Sales at the Port of Vancouver, which provides access to global markets, fetch between $10 and $20 more a barrel than inland crude, Cenovus Energy Inc. chief executive officer Brian Ferguson said this week.

A build-out of rail capacity could boost deliveries to the B.C. coast or to Washington State, Ms. Dwarkin said. But shipments remain sporadic. Cenovus sends just 11,500 barrels a day through Trans Mountain, a fraction of its 175,000-b/d target. Only a trickle of Canadian oil currently finds its way to Asia.

Cenovus is among a clutch of producers – including Suncor Energy Inc., Total SA, Nexen Energy ULC and Inpex Canada Ltd. – that helped front Gateway's development costs and signed non-binding agreements to ship crude on the line.

Mr. Carruthers said commercial support for the project has not wavered, despite expected delays. But timing is an issue, he said. "People need to look at where it's going, when it will be built. It's a logical issue that people have to address, but we do have strong support."