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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--One year down, and 18 months to go; that's the timeline for the Canadian government to reach a decision on the proposed Northern Gateway crude-oil pipeline system, a 2,000-mile, $6.5 billion project being developed by Enbridge Incorporated (NYSE:ENB) (Calgary, Alberta, Canada).
As proposed, the project consists of two pipelines. One would transport up to 525,000 barrels per day of crude oil westward from Alberta to a planned export terminal at Kitimat, British Columbia. The second pipeline would bring imported crude oil condensates eastward, from Kitimat to the Edmonton, Alberta, area.
Click on the icon at right for a map of the proposed Northern Gateway project.
Canada has large deposits of heavy oil in Alberta. It wants to export some of that to oil-hungry Asian markets. Today, nearly all of the oil and natural gas that Canada exports goes to the U.S. Canadian Natural Resources Minister Joe Oliver has been working to cultivate new markets for Canadian hydrocarbon exports.
The Northern Gateway project has split Canada's First Nations and Aboriginal communities. Enbridge spokesman Todd Nogier told Industrial Info that 60% of the First Nations population along the pipeline's route has "executed agreements to become equity owners in Northern Gateway, and Enbridge is facilitating loans so First Nations communities can become equity owners of the project."
But Northern Gateway has been strongly opposed by some First Nations and Aboriginal groups, as well as environmental organizations, who fear potential oil spills, degradation of sacred land, and a worsening of global climate change. Recent hearings on the pipeline project in British Columbia drew a number of First Nation protestors, who vowed to continue opposing the project. The hearings process began one year ago, and the Canadian government is expected to receive a recommendation on Northern Gateway by the end of 2013. After that, Nogier said that the federal government has 180 days to reach a final decision on the project. So by mid-2014, Enbridge should know whether the pipeline can move forward.
Billions of dollars in project spending is riding on the federal government's decision. Through the end of November 2012, Industrial Info was tracking about $11.6 billion of crude-oil production project spending scheduled to kick off in Western Canada in 2012, a 41% increase over scheduled 2011 project spending for that industry in that region. In addition, an estimated $3.2 billion of hydrocarbon transmission projects were scheduled to kick off in that region in 2012, which is more than double the $1.4 billion of projects that was scheduled to kick off there in 2011.
Click on the icons at right to see scheduled spending for crude oil and transmission projects in North America.
Scheduled project spending in Western Canada is only part of what's at stake in the Northern Gateway project. Also at stake is the shrinking of large price discounts imposed on Western Canada crude oil vis-à-vis Brent, a global crude oil benchmark. Some of the price penalties reflect the Canadian crude's heavier weight and higher sulfur content, which makes it less desirable than Brent, a lighter, sweeter crude. But most of the penalty is because Canadian producers face severe pipeline bottlenecks to getting their crude to market. During 2012, Western Canada Select (WCS) has been priced about $30 per barrel less than Brent crude, costing Canadian producers, and the Canadian government, billions in revenue and tax receipts.
Joe Oliver, Canada's Natural Resources Minister, recently addressed Canada's Energy Summit. In reporting on the minister's remarks, some Canadian news organizations said he seemed to be backing away from his earlier support for Northern Gateway. No such distancing was evident in the minister's prepared remarks, so it appears these media reports drew on Oliver's comments during question-and-answer period after the speech.
Canada's Financial Post reported Oliver as saying the national government had to balance the need to develop new markets for its hydrocarbons with public opinion and a company's social license to operate.
"If we don't get people on (our) side, we don't get the social license," Oliver reportedly said. "We could well get a positive regulatory conclusion from the joint panel that is looking at the Northern Gateway, but if the population is not on (our) side, there is a big problem. We understand there are huge challenges there."
"Social license to operate" is a term heard with increasing frequency and volume these days, as industries like mines and oil exploration firms confront shifting cultural and legal norms about their obligations to local residents who could be affected by industrial projects. For more on this issue, see September 14, 2012, article - Mining Profitability and Viability Shaped by 'Social License to Operate,' say Conference Attendees, and February 24, 2011, article - Shale Gas PR Problems Place Billions of Dollars of Project Spending at Risk.
In an interview, Enbridge's Nogier strongly disputed the characterization that Oliver or the national government was starting to back away from Northern Gateway: "We don't see the government as backing away. We have not heard, and do not anticipate, the federal government backing away" from Northern Gateway.
Nogier continued: "The federal government wants to ensure that this project meets very strict environmental regulations and safety standards. So do we. We think we have a strong application that goes above and beyond the requirements of the regulatory process. That said, we continue to conduct outreach to all interested parties on the project's safety and environmental protection measures."
It is "very important" that Northern Gateway win support from the communities it affects, Nogier told Industrial Info. "We want First Nations and Aboriginal participation in this project. We continue to work very hard to win support for this project from all Canadians."
It is no less important that Canada start to realize better pricing for its hydrocarbons, he added. If Canada can export some of its crude oil via the Northern Gateway, it could knock $2 to $3 per barrel off the $30 per barrel price discount on Canadian crude vis-à-vis Brent, he estimated.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
As proposed, the project consists of two pipelines. One would transport up to 525,000 barrels per day of crude oil westward from Alberta to a planned export terminal at Kitimat, British Columbia. The second pipeline would bring imported crude oil condensates eastward, from Kitimat to the Edmonton, Alberta, area.
Click on the icon at right for a map of the proposed Northern Gateway project.Canada has large deposits of heavy oil in Alberta. It wants to export some of that to oil-hungry Asian markets. Today, nearly all of the oil and natural gas that Canada exports goes to the U.S. Canadian Natural Resources Minister Joe Oliver has been working to cultivate new markets for Canadian hydrocarbon exports.
The Northern Gateway project has split Canada's First Nations and Aboriginal communities. Enbridge spokesman Todd Nogier told Industrial Info that 60% of the First Nations population along the pipeline's route has "executed agreements to become equity owners in Northern Gateway, and Enbridge is facilitating loans so First Nations communities can become equity owners of the project."
But Northern Gateway has been strongly opposed by some First Nations and Aboriginal groups, as well as environmental organizations, who fear potential oil spills, degradation of sacred land, and a worsening of global climate change. Recent hearings on the pipeline project in British Columbia drew a number of First Nation protestors, who vowed to continue opposing the project. The hearings process began one year ago, and the Canadian government is expected to receive a recommendation on Northern Gateway by the end of 2013. After that, Nogier said that the federal government has 180 days to reach a final decision on the project. So by mid-2014, Enbridge should know whether the pipeline can move forward.
Billions of dollars in project spending is riding on the federal government's decision. Through the end of November 2012, Industrial Info was tracking about $11.6 billion of crude-oil production project spending scheduled to kick off in Western Canada in 2012, a 41% increase over scheduled 2011 project spending for that industry in that region. In addition, an estimated $3.2 billion of hydrocarbon transmission projects were scheduled to kick off in that region in 2012, which is more than double the $1.4 billion of projects that was scheduled to kick off there in 2011.
Click on the icons at right to see scheduled spending for crude oil and transmission projects in North America. Scheduled project spending in Western Canada is only part of what's at stake in the Northern Gateway project. Also at stake is the shrinking of large price discounts imposed on Western Canada crude oil vis-à-vis Brent, a global crude oil benchmark. Some of the price penalties reflect the Canadian crude's heavier weight and higher sulfur content, which makes it less desirable than Brent, a lighter, sweeter crude. But most of the penalty is because Canadian producers face severe pipeline bottlenecks to getting their crude to market. During 2012, Western Canada Select (WCS) has been priced about $30 per barrel less than Brent crude, costing Canadian producers, and the Canadian government, billions in revenue and tax receipts.
Joe Oliver, Canada's Natural Resources Minister, recently addressed Canada's Energy Summit. In reporting on the minister's remarks, some Canadian news organizations said he seemed to be backing away from his earlier support for Northern Gateway. No such distancing was evident in the minister's prepared remarks, so it appears these media reports drew on Oliver's comments during question-and-answer period after the speech.
Canada's Financial Post reported Oliver as saying the national government had to balance the need to develop new markets for its hydrocarbons with public opinion and a company's social license to operate.
"If we don't get people on (our) side, we don't get the social license," Oliver reportedly said. "We could well get a positive regulatory conclusion from the joint panel that is looking at the Northern Gateway, but if the population is not on (our) side, there is a big problem. We understand there are huge challenges there."
"Social license to operate" is a term heard with increasing frequency and volume these days, as industries like mines and oil exploration firms confront shifting cultural and legal norms about their obligations to local residents who could be affected by industrial projects. For more on this issue, see September 14, 2012, article - Mining Profitability and Viability Shaped by 'Social License to Operate,' say Conference Attendees, and February 24, 2011, article - Shale Gas PR Problems Place Billions of Dollars of Project Spending at Risk.
In an interview, Enbridge's Nogier strongly disputed the characterization that Oliver or the national government was starting to back away from Northern Gateway: "We don't see the government as backing away. We have not heard, and do not anticipate, the federal government backing away" from Northern Gateway.
Nogier continued: "The federal government wants to ensure that this project meets very strict environmental regulations and safety standards. So do we. We think we have a strong application that goes above and beyond the requirements of the regulatory process. That said, we continue to conduct outreach to all interested parties on the project's safety and environmental protection measures."
It is "very important" that Northern Gateway win support from the communities it affects, Nogier told Industrial Info. "We want First Nations and Aboriginal participation in this project. We continue to work very hard to win support for this project from all Canadians."
It is no less important that Canada start to realize better pricing for its hydrocarbons, he added. If Canada can export some of its crude oil via the Northern Gateway, it could knock $2 to $3 per barrel off the $30 per barrel price discount on Canadian crude vis-à-vis Brent, he estimated.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
