Oilsands 'victory' in Europe - but how will they get it there?

The Canadian government and the oil industry can clearly claim a victory after Tuesday's announcement by the European Commission that it will not go ahead with a proposal that would have labelled oilsands oil as emitting more greenhouse gases than conventional oil production.

But the reality is that very little Alberta oil gets sold to European countries right now, and getting oilsands oil there should still be more of a challenge especiallyat a competitive price.

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Although the European decision will be disappointing for many environmental groups, it "provides a signal that Europe is open for business," says Nathan Lemphers, an independent oilsands policy analyst.

But he notes "that's not guaranteed for the future," since the EU is likely to take more action on climate change.

The plans the EC unveiledin 2009 to reduce greenhouse gas emissions in the transport sector by promoting cleaner fuels are supposed to achieve a six per cent reduction from 2010 levels in the following 10 years.

One way to help achieve that goal was to classify fuels according to their greenhouse gas intensity. That meant fuel from oilsands, whether from Alberta or elsewhere, would be designated as approximately 25 per cent more carbon intensive.

Transportation will soon become the number one source of greenhouse gas emissions in Europe, and it's now the only sector in which carbon dioxide output is increasing.

The environmentalists lost this round, with the announcement Tuesday that fuels derived from oilsands won't be assigned a higher carbon intensity value than ones from conventional crude oil.

Carbon intensity still matters

However, the EU Climate Action CommissionerConnie Hedegaardsays that the EC will still "try and ensure that in the future, there will be a methodology and thus an incentive to choose less polluting fuels over more polluting ones like, for example, oilsands."

The commission explained that their current proposal does establish a method for calculating the carbon intensity for different fuel types and reiterated their goal to "gradually decarbonise the transport sector."

Nusa Urbancic, the program manager on fuels for the Brussels-based environmental group Transport and Environment, explains that's despite its shortcomings, the directive provides a tracking system and "75 per cent of the market will have the obligation to report their sources for crude oil."

That will make it possible to determine what amount comes from oilsands. Although the rules won't apply to products after they're refined, Urbancic notes that the U.S. is "quite transparent" about their refinery inputs.

Back in Canada, Terry Abel, the oilsands director at the Canadian Association of Petroleum Producers (CAPP), told CBC Calgary that the new draft is still"good news," adding that the EC used information from the Canadian industry about greenhouse gas emissions"to arrive at accurate and reasonable conclusions."

Joseph Doucette, the dean of the University of Alberta's school of business, told CBC Radio, "the worst thing that industry and government in Canada could do is take this as a victory and say we can now turn the page."

To facilitate selling oilsands oil to Europe, Doucette says the industry and government "need to be more proactive, and less so on messaging and marketing and more so on improvement of their processes and reductions to the impact they have in areas that they operate."

Europe buys little Canadian crude

Doucette says that Europe is not an important market for Canada's oil industry right now, but "it could be an important market for Canadian crude as production ramps up and as pipelines get built."

In CAPP's latest crude oil forecast, Europe rates barely a mention, described as merely a "potential opportunity" for selling even conventional crude.

The report does say, however, that this spring, Europe received its "first shipment of oilsands crude oil" from Canada.

That 570,000-barrel shipment was part of a pilot project to see whether Repsol, a Spanish energy company, can process oilsands oil at its refinery in Bilbao.

Protesters greeted the shipment's arrival.

Urbancic told CBC News that refining is a "failing industry" in Europe, due to being very old and uncompetitivecompared to newer, "much better" refineries in the Middle East and Asia.

With Europe reducing oil consumption, she said the refineries see the oilsands and other heavier crudes as a way to stay in business.

That's why the Bilbao refinery was upgraded with coker units that can process the heavier crudes, and she noted that a refinery in Antwerp, Belgium recently announced a one-billion euro investment.

The 'improbable' pipeline

For oilsands oil to get refined in Europe, shipments by rail may work for pilot projects but planned and proposed pipelines need to be approved and built.

That of course includes the troubled Keystone XL. But now their best hope might be one for which TransCanada Pipelines has yet to file an application: the Energy East pipeline.

It will run 4,600 km from Alberta to the Irving terminal in St. John, N.B., through six provinces. From there, the oilsands oil could be shipped to refineries in other parts of the world, including Europe.

Lemphers says refineries in Montreal, as well as the Irving refinery in St. John, could also process oilsands shipped to them via the Energy East pipeline.

In a major article on the pipeline proposal published Wednesday, Bloomberg News says the Energy East idea began after the U.S. government put Keystone XL on hold in 2011.

As discussions began, Bloomberg says the idea was "testing imaginations" of Alberta oil producers that something that "improbable" could actually happen. Now TransCanada talks about Energy East as "virtually a done deal," according to Bloomberg.

Former Alberta premier Alison Redford told the business site that Energy East is "the key to Alberta being able to unlock a competitive price for its oil." Bloomberg says that because the U.S. is virtually the only buyer of oilsands production, producers are subject to price discounts of as much as $43 a barrel.

The 1.1-million-barrel-a-day pipeline could win approval by 2016 and be completed by 2018, if things go according to plan.

Lemphers says that rarely happens with pipelines nowadays completing them is"still proving quite difficult."

However, he also notes that three Alberta oilsandsprojects, by Shell, Total andStatOil, have recently been mothballed, citing a lack of market access.

What's happening in Brussels isn't critical for theoilsands, says Lemphers.

"The critical debate," he says, "is in North America, and over pipelines."