Pipeline bottleneck looms, even if major project OK’d
Oilsands producers are likely to face a pipeline shortage in coming years, even amid growing optimism that a major pipeline could soon receive federal approval and ease industry’s pipeline constraints.
Calgary-based oil companies eagerly await Ottawa’s decision on Kinder Morgan’s proposed Trans Mountain pipeline, which would ship mostly heavy crude oil from Alberta to a port near Vancouver. The National Energy Board approved the proposal with 157 conditions in May, and the federal government is expected to announce a final decision before Dec. 19.
However, the construction of the pipeline would ultimately be cancelled out by the expected growth in oilsands production, which is estimated to increase significantly over the next four years as longawaited expansion projects come online.
“If we are running out of pipe capacity by the end of 2018 or early 2019 because there is that growth, then nothing really changes — we’re still running out of available pipeline capacity to deal with that oilsands growth,” said Martin King, the director of institutional research at GMP FirstEnergy.
The contentious politics surrounding pipelines have loomed over the Canadian energy sector for years, as fierce opposition to oilsands development hobbles major projects including Enbridge Inc.’s Northern Gateway and TransCanada Corp.’s Keystone XL. Those projects have either been delayed (Gateway) or outright rejected (Keystone), and neither now shows little chance of being commissioned.
Pipeline hopes are now tied to two projects: Trans Mountain and TransCanada’s Energy East, which would ship up to 1.1 million barrels per day from oilfields in Alberta and Saskatchewan to New Brunswick.
Final approval for both projects could potentially fall on Prime Minister Justin Trudeau, who is facing pressure from local stakeholders and environmental groups to reject the proposals.
An NEB panel reviewing Energy East has been delayed, threatening the board’s aim to make a decision on the project by March 18, 2018.
As a result there has been speculation over whether Trudeau will choose one pipeline project over another — possibly as a way to appease both oil producers, who want better access to international markets, and environmental groups, who oppose oilsands expansion.
Alberta Premier Rachel Notley appeared to reinforce that speculation when, in a response to Trudeau’s recent plans to enforce a minimum carbon tax, her office said they wanted to see pipelines built “in one direction or another.” A spokesperson for the premier said the comments were only in reference to Trans Mountain, and “not in reference to a preference of one over the other.”
Industry groups and producers, for their part, have said they will need both projects in order to meet long-term supply expectations.
A recent report by Wood Mackenzie estimates oilsands production will reach 3.5 million bpd by 2020, up from around 2.5 million bpd today.