Canadian Official Lays Groundwork for Oil Pipeline

The Wall Street Journal | June 9, 2014 | Column by Paul Vieira and Chester Dawson

Finance Minister Joe Oliver Cites Need for New Markets; Trade Group Lowers Oil-Sands Forecast

Canadian Finance Minister Joe Oliver said failure to find new markets for the country's energy products would have stark economic consequences, signaling that the government is moving toward approving a contested pipeline to transport Alberta crude to the Pacific Coast.

Without new markets, long-term growth in oil-sands production will likely slow, Mr. Oliver said, something an energy trade group foreshadowed in an annual forecast issued Monday.

It is a critical time for Canada's oil producers, who have invested tens of billions of dollars in recent years to expand production as distribution bottlenecks have forced them to accept steep discounts for crude oil. A decision on Enbridge Inc. ENB.T +0.44% 's Northern Gateway project from Alberta will be the first test of industry plans to ease that bottleneck by building pipelines to reach high-growth areas of Asia. The U.S. is the biggest customer for Canadian crude but its need for foreign oil is declining.

Canadian Prime Minister Stephen Harper is expected rule on Northern Gateway by June 17. His Conservative government in the past month has attempted to address concerns of pipeline opponents by introducing measures to increase tanker and pipeline safety and pledging to ensure that aboriginal communities in western Canada have more input.

Supporters of the 525,000-barrel-a-day Northern Gateway want access to tidewater to support growth in Alberta's oil patch.

Opponents say an oil spill could pollute the northern Rockies or British Columbia's coast. Environmentalists and Native American tribes have vowed to take their battle to court if the federal government approves the project.

"Market diversification has become an obvious and crucial strategic objective," Mr. Oliver said at an economic conference in Montreal. "Simply put, we need new customers." Canada is emerging as an obvious supplier of energy to Europe as well as to Asia, he said.

Growing U.S. supply and a lack of pipeline infrastructure meant Canadian producers sold their crude at a discount to benchmark oil prices last year, leading to lost revenue of nearly 30 billion Canadian dollars, he said. The estimate translates to about US$28 billion.

Canada also has been stymied by difficulty in gaining approval from Washington forTransCanada Corp.'s TRP.T +0.30% Keystone XL project, which would carry Alberta crude to the Gulf of Mexico coast. Without sufficient pipelines, Canadian oil producers have turned to railroads to ship crude.

"So the choice is stark," Mr. Oliver said. "Head down the path of economic decline, higher unemployment, limited funds for social programs like health care, continuing deficits and growing debt, or achieve prosperity and security now." He declined to comment on Northern Gateway.

"I think they will give Gateway a green light but I hope it comes with a plan" to win public approval and ensure construction, said former Finance Minister John Manley, who runs the Canadian Council of Chief Executives. "Nobody needs to see this get an approval and then fail to get built. That accomplishes nothing and hurts Canada's image as a place to do business." Pipeline developer Enbridge is a member of the council.

The Canadian Association of Petroleum Producers separately dimmed its projection for oil-sands development in northern Alberta, citing higher costs and project delays. The trade group lowered its long-term forecast for oil-sands production 7.7%, or 400,000 barrels a day, to 4.8 million barrels daily by 2030. The revision reflects uncertainty about pipeline capacity and access to global markets beyond the U.S. Oil-sands output currently stands at 3.2 million barrels a day.

"We really do need to see some of these [pipeline] projects get put in place over the next few years in order to enable this growth to happen," said Greg Stringham, the association's vice president of oil sands and markets.

Write to Paul Vieira at [email protected] and Chester Dawson at[email protected]

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PAUSE, People of Albany United for Safe Energy
PAUSE is a grassroots group of individuals who have come together to promote safe, sustainable energy and fight for environmental justice. We engage the greater public to stop the fossil fuel industry’s assault on the people of Albany and our environment.