Government, oil industry reaching common ground on pipelines

Alberta energy companies and the NDP government don't always see eye to eye, but they seem to agree on one thing - the province needs more pipelines to carry its most valuable commodity to global markets.

A consistent problem facing the industry is that most of Alberta's oil around two and a half million barrels per day is sold to U.S. customers at prices well below that of global crude oil, resulting in billions of dollars in lost revenues every year, according to Natural Resources Canada.

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In September, Premier Rachel Notley told an audience at an Alberta Urban Municipalities Association convention that she wants at least one new "drama-free" pipeline built to carry Alberta's oil to world markets.

Her comments came after premiers signed a Canadian Energy Strategy in July, with the intended goal, at least in part, to help energy producers reach wider markets.

If we want to grow, then we need diversity of markets.- CarmenVelasquez, Alberta School of Business

"This ... strategy will also help ... as we address a key challenge facing the energy industry in this province, which is the need to improve our access to new world markets, which means essentially getting at least one new pipeline built to tidewater," Notley said.

The premier echoed that statement most recently this week in a meeting in Edmontonwith Prime Minister Justin Trudeau.

Carmen Velasquez, executive director of energy programs for the University of Alberta's Alberta School of Business, said there are several reasons why Canada needs more pipelines.

"The main one is because right now, the majority of our crude oil still goes to one market. If we want to grow, then we need diversity of markets an opportunity to sell to another consumer so we're not at the mercy of one consumer."

Growing global demand

Since mid-2014, the global price of crude oil has fallen about $80 US a barrel, down from more than $100 a barrel to about $30 US. In a report released last month, the National Energy Board said crude oil prices are expected to rise to more than $100 US a barrel by 2040.

Canadian oil production is also forecast to increase by more than 50 per cent, to 6.1 million barrels a day, by 2040, and natural gas production is expected to grow by 22 per cent to 17.9 billion cubic feet daily.

But the board has said those forecasts would not apply if no new pipeline projects, such as Keystone XL or Energy East, are built.

Energy East is a 4,600-kilometre pipeline proposed by TransCanada Corporation. It would carry up to 1.1 million barrels of crude oil per day, and stretch from Alberta to New Brunswick.

The $12-billion project is controversial because of the potential environmental impact.

Experts agree that without new pipeline access to carry oil and gas to coastal ports for shipment to markets in Asia and Europe, Canada's oil industry can't continue to grow.

"We just need access to every potential market," said Cenovus Energy spokesman Brett Harris. "The U.S. will always be a significant market for us. (But) we have pretty much one customer and that means we have to take fairly discounted prices for our oil.

"So, essentially, we're selling, as a country, one of our major exports at discounted prices and leaving billions of dollars on the table every year. And that's money that goes to royalties and taxes that help support roads and schools."

Infrastructure and environmental impact

Michael Moore, a professor of energy economics at the University of Calgary, said pipelines will be operating at near-full capacity for decades to come.

"We're going to need new port facilities, going to have to work something out where we protect the environment, work with the First Nations people so they are absolutely part of this equation."

According to Natural Resources Canada, pipelines remain the safest and most environmentally friendly way to transport oil over long distances.

The reality is that there is no safe way of transporting fossil fuels.- Mike Hudema, Greenpeace

But Greenpeace spokesman Mike Hudema said Canada can't live up to its commitment to limiting greenhouse gas emissions if it builds new pipelines.

"The reality is that there is no safe way of transporting fossil fuels," Hudema said. "If you look at a world that's rapidly moving away from fossil fuels and needs to rapidly move away from fossil fuels, the economic case for new pipelines is just as bad."

Wayne Cocks, a construction supervisor with Devon Canada,said technology has improved greatly when it comes to installing and maintaining oil pipelines.

"The practices that we did 45 years ago are so improved when it comes to the environment, the land, the respect for landowners," said Cocks, who has45 years of experience working in the oil and gas industry.

"There's so many safeguards in place now, and I just feel we haven't done a good enough job, either the provincial government or industry themselves, in letting the world know that.

"The only thing I would be concerned about is some of the older infrastructure. It's just like a furnace or a car or anything like that, it needs constant care."

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Building for the future

A well-maintained pipeline can transport energy products for decades, said Jim Donihee, chief operating officer of the Canadian Energy Pipeline Association.

The world needs oil, and we have the supply to provide it.- NickSchultz, Canadian Association of Petroleum Producers

Major pipeline companies such as Kinder Morgan Canada, Enbridge and TransCanada are among CEPA members. Those companies have about 115,000 kilometres of oil and natural gas pipelines in Canada. The network transports three million barrels of oil every day equivalent to 4,200 rail cars, or 15,000 tanker trucks.

About $2.4 billion has been invested in maintaining these pipelines over the last several years, Donihee said.

While the industry constantly looks for ways to improve efficiency of existing pipelines, more pipelines are the only way to keep up with a global demand for oil, said Nick Schultz, vice-president of pipeline regulation for the Canadian Association of Petroleum Producers.

"It's the key to the whole puzzle. We need more pipe, and that's unquestionable," Schultz said.

"The world needs oil, and we have the supply to provide it. If we stop supplying oil to the world, all that will happen is that other countries will supply that oil. We believe it's in Alberta's interest to meet that demand."

With files from The Canadian Press