Despite Pipeline Cancellation, Canadian Oil Still Flows

Part 3 of 3

In North America’s history of building pipelines to transport oil, natural gas and petroleum products, somewhere along the way, the process became political.

By pulling the presidential permit on the Keystone XL pipeline, President Joe Biden sent a powerful message: Even if a pipeline benefits citizens and trade relations with important allies, and even if it has met or exceeded design and regulatory requirements and secured community support, its fate can ultimately be determined by a whim.

Biden’s action on Jan. 20 – effectively canceling construction of the 1,200-mile artery connecting oil-rich Alberta and the United States – follows a recent trend of pipeline opposition in both countries that has drawn in everyday citizens, celebrities, indigenous groups, and now politicians and presidents.

“With the stroke of Joe Biden’s pen, Canada lost billions of dollars that our economy needs now more than ever. The U.S. and other world markets lost access to some of the most responsibly produced oil in the world,” said Chris Bloomer, president and CEO of the Canadian Energy Pipeline Association, in a February 2021 op-ed piece in the Calgary Herald.

He added that the decision was “backward-looking political symbolism.”

The new administration’s move is leaving some in the oil and gas industry questioning the future of not only pipelines, but of the industry itself.

Politics, As Usual?

Major changes in the past several years to Canada’s consultation and regulations approval processes have significantly lengthened the timeline for major projects, creating economic dilemmas, Bloomer said.

The Energy East pipeline – which would have been the country’s first pipeline from Alberta’s oil sands to its largest refinery on the east coast – was abandoned by then-TransCanada in 2017 citing a cumbersome regulatory process and costly implications.

A year earlier, the Canadian government’s cabinet rejected the fully approved Enbridge Northern Gateway pipeline, which would have taken diluted bitumen from Alberta to the Canadian west coast. Its stated justification was related to environmental issues and the concerns of indigenous groups.

In addition to Biden’s rejection of the Keystone XL, which would have opened bottlenecks in Alberta and provided much-needed heavy oil and bitumen to American refineries, the United States is grappling with its own pipeline problems.

Image Caption

A view of the Mackinac Bridge and the Straits of Mackinac as seen from Mackinaw City, Mich. Photo by Michael Barera. Enbridge's Line 5 carries light oil and natural gas liquids from Superior, Wis. to southern Ontario by way of the Straits of Mackinac

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In North America’s history of building pipelines to transport oil, natural gas and petroleum products, somewhere along the way, the process became political.

By pulling the presidential permit on the Keystone XL pipeline, President Joe Biden sent a powerful message: Even if a pipeline benefits citizens and trade relations with important allies, and even if it has met or exceeded design and regulatory requirements and secured community support, its fate can ultimately be determined by a whim.

Biden’s action on Jan. 20 – effectively canceling construction of the 1,200-mile artery connecting oil-rich Alberta and the United States – follows a recent trend of pipeline opposition in both countries that has drawn in everyday citizens, celebrities, indigenous groups, and now politicians and presidents.

“With the stroke of Joe Biden’s pen, Canada lost billions of dollars that our economy needs now more than ever. The U.S. and other world markets lost access to some of the most responsibly produced oil in the world,” said Chris Bloomer, president and CEO of the Canadian Energy Pipeline Association, in a February 2021 op-ed piece in the Calgary Herald.

He added that the decision was “backward-looking political symbolism.”

The new administration’s move is leaving some in the oil and gas industry questioning the future of not only pipelines, but of the industry itself.

Politics, As Usual?

Major changes in the past several years to Canada’s consultation and regulations approval processes have significantly lengthened the timeline for major projects, creating economic dilemmas, Bloomer said.

The Energy East pipeline – which would have been the country’s first pipeline from Alberta’s oil sands to its largest refinery on the east coast – was abandoned by then-TransCanada in 2017 citing a cumbersome regulatory process and costly implications.

A year earlier, the Canadian government’s cabinet rejected the fully approved Enbridge Northern Gateway pipeline, which would have taken diluted bitumen from Alberta to the Canadian west coast. Its stated justification was related to environmental issues and the concerns of indigenous groups.

In addition to Biden’s rejection of the Keystone XL, which would have opened bottlenecks in Alberta and provided much-needed heavy oil and bitumen to American refineries, the United States is grappling with its own pipeline problems.

In 2020, Dominion Energy opted to kill the controversial Atlantic Coast pipeline because of “ongoing delays and uncertainty on costs,” reported World Oil in July 2020.

That same year, Michigan Gov. Gretchen Whitmer abruptly revoked an easement on Enbridge’s Line 5, which carries light oil and natural gas liquids from Superior, Wis. to southern Ontario, and ordered the pipeline to be shut down. Although the easement has belonged to Enbridge for 68 years, Whitmer attributed her actions to environmental concerns.

Now, the Canadian government is urging a federal judge to postpone the pipeline’s closure through the Straits of Mackinac due to ongoing treaty discussions between the United States and Canada.

And, wildly debated since it was commissioned in 2017, the Dakota Access pipeline, which runs from North Dakota to Illinois, has been the subject of several court battles. At press time, it was not decided whether or not the pipeline would be shut down.

“This has become a political decision rather than a regulatory decision based on the engineering, science and environmental assessment of the project,” said John Hogg, past AAPG president, past president of the Canadian Society of Petroleum Geologists, and president of Skybattle Resources. “No one will be willing to invest capital in a decision that’s all political.”

Having worked in the industry for more than 40 years, Hogg, who splits his residency between Canada and the United States, knows that investors are key to the exploration, development and production of fossil fuels.

“Investors won’t come if final decisions aren’t technically based,” he said, noting that exploration is already subsiding in areas of Canada mired in politics and cumbersome federal approval processes. “On the federal lands in Canada’s north, there is now no exploration. The current production is from grandfathered agreements,” he said.

As experienced by Canada and the United States, a dearth of pipelines can cause bottlenecks, drops in production and precarious supplies for refineries. Hogg said that, if not addressed, consumers will ultimately pay the price.

Ingenuity in the Industry

Some believe that even without the Keystone XL pipeline, the United States and Canada will continue to trade without economic hardship.

It has been widely reported that current expansion projects on the Trans Mountain pipeline, which spans from Alberta to the Canadian west coast, and Enbridge’s Line 3, which runs from Alberta to Superior, Wis., will create an estimated 980,000 barrels per day of additional capacity.

“Although the U.S. produces over 11 million bbl/day, its production is too light for U.S. refineries. In short, the U.S. still desperately needs Canadian heavy oil, and that won’t change despite the cancellation of the KXL (Keystone XL),” stated a January 2021 issue of Oil Sand Magazine.

Furthermore, despite the higher cost, Canada is already increasing its reliance on rail to move product to the United States. In December 2020, Canada exported 190,454 barrels per day by rail, versus 173,095 in November and 92,812 in October, according to the Canada Energy Regulator.

In fact, some say the cancelation of the Keystone XL has allowed creative minds in the free world to do what they do best: innovate and overcome.

“These setbacks have inspired other ideas to make things work,” said Brad Hayes, director of the Canadian Society for Unconventional Resources and president of Petrel Robertson Consulting. Hayes referred specifically to new projects that are making it more economical to export bitumen, possibly offsetting the higher cost of shipping by rail.

Canada-based Gibson Energy and Houston-based U.S. Development Group are currently constructing a diluent recovery unit outside of Alberta. Diluent, which can be natural gas or condensate, is used to reduce the viscosity of bitumen so that it can be more easily transported, and its production cannot keep up with that of bitumen.

When the unit is up and running in mid-2021, diluted bitumen will be piped from the oil sands to the unit, where diluent will be extracted using a distillation process, and then piped back to the oil sands for reuse. The resulting, more concentrated crude oil will be shipped by specially heated rail cars to a Gulf Coast refinery, where local supplies of diluent will be added for pipeline transport, as explained in a December 2020 report from RBN Energy, which specializes in energy market analytics.

Companies also are working to increase bitumen exports in a semi-solid form on tankers, according to a September 2019 report from Business in Vancouver. “Should a container … ever crack open and end up in the ocean, it would float in one large block that could easily be recovered,” the report said.

Bloomer added that Canada is moving forward on a slew of new projects. He cited the Coastal GasLink pipeline; the LNG Canada facility (to be powered by renewable energy); the Heartland Petrochemical Complex, which will be able to convert locally sourced propane into 525,000 tons per year of recyclable, high-value polypropylene; and the Alberta Carbon Trunk Line – the world’s newest, integrated, large-scale carbon capture, utilization and storage system.

Indigenous Pipeline Investment

Given the heavily reported protests from indigenous groups in Canada (and in the United States), some might see these communities as a collective barrier to new pipelines and other industry-related projects. However, proactive engagement with indigenous groups by the industry has resulted in not only their support of pipeline projects but their desire to invest in them.

“Indigenous people are saying, ‘I want some of this,’” said Gregory John, president of Four Peaks Business Development, which specializes in indigenous and stakeholder relations.

John, a citizen of the Métis Nation of Alberta, with family relations at Siksika Nation in Alberta and Lhatko Dene Nation in British Columbia, has worked as a liaison between the industry and indigenous groups for 13 years.

In February, the Canadian government hosted talks with 129 indigenous groups that expressed interest in ownership of the Trans Mountain pipeline.

“They are willing to take the liability to have part of a $12 billion asset that they can leverage and reap the rewards of dividends every year,” John said.

He said their interest stems from a clearer understanding of the benefits of oil and gas infrastructure.

“When we talk about these remote communities, these types of economic opportunities have never presented themselves in this quantity,” John said.

So far, more than 1,000 indigenous people have worked on the construction of the Trans Mountain pipeline expansion, and more than $1.4 billion in indigenous contracts have been awarded, according to the Trans Mountain website.

In addition, 20 elected First Nations governments have pledged support for the 416-mile Coastal GasLink pipeline in British Columbia. According to the Coastal GasLink website, $825 million in contracts have been awarded to indigenous and local businesses, and there are $1 billion in employment and contract opportunities.

“It’s been a long evolution where it was once viewed that indigenous people were a barrier to pipelines, and now they are a necessity in building them,” John said. “If indigenous people widely rejected them, then why does every major pipeline project in Alberta have an indigenous equity component associated with it?”

Building an Energy Road Map

Fossil fuels will supply up to 70 percent of the world’s primary energy by 2040, wrote renowned Czech-Canadian scientist, policy analyst and author Vaclav Smil – basing his estimate on recent forecasts published by governments, institutions and companies.

In his paper, “Examining Energy Transitions: A Dozen Insights based on Performance,” Smil said that in 1960, fossil fuels supplied 97 percent of the world’s primary commercial energy; in 1990 their share was 90 percent, and in 2015, it was 85 percent – suggesting that if a complete transition to renewable energy occurs, it will be well into the future.

Furthermore, between 1990 and 2015, the world added 25 times as much energy supply from fossil fuels as it did in modern renewables. And, because wind and solar power depend on unreliable sources, “countries also need to maintain large fossil-fueled reserve capacities, virtually doubling their total installed power,” Smil explained.

The key is to convey such facts to younger generations, who voice a growing distaste for fossil fuels but might not fully understand their critical role in the world, Hayes said. These future leaders will ultimately make the decisions that will affect all North Americans and the world.

“The challenge to the industry is to understand how to engage in effective communication tactics that are respectful of our code of ethics and desire to be truthful while making impacts on people,” Hayes said. “There has to be better communication. My greatest fear is that we will fail at that communication and the world will be driven to some kind of crisis. We will get rid of what sustains us and what we put in its place won’t sustain us.”

Having seen tremendous ripple effects from positive interaction between industry and citizens, John offered the following: “We need to show how we are all connected to each other and the land. That is how people need to see the industry so it can move forward into the future.”