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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--A rupture in a Canadian crude-oil pipeline this summer that spilled about 31,500 barrels of bitumen, sand and produced water near Fort McMurray in northern Alberta likely will make it harder for other proposed pipeline projects to win public and regulatory support, Canadian energy observers said. And that's particularly bad news for the proposed $9.2 billion Energy East Pipeline, which TransCanada Corporation (NYSE:TRP) (Calgary, Alberta) wants to build to bring crude oil from Alberta's oil sands region to eastern Canada.
On July 15, a pipeline carrying bitumen, produced water and sand to the Long Lake processing facility operated by Nexen Energy (Calgary), a unit of the Chinese National Offshore Oil Company Limited (CNOOC) (Beijing, China), suffered a rupture and spilled an estimated 31,500 barrels of emulsion near Fort McMurray. It was reportedly Canada's worst pipeline accident in 35 years. The pipeline was less than one year old, and the company has not said what caused the accident, which contaminated a 16,000-square-meter area.
Amrita Sen, chief oil analyst at Energy Aspects (London, England), told CNBC the Nexen spill makes it even harder for pipelines still on the drawing board to gain regulatory approval.
Another expert, Michal Moore, a University of Calgary economist and former California energy regulator, told Bloomberg news service, "Every high-profile incident and spill ... gets major play and adds to the call to stop new pipelines." There's "no question" the Nexen spill will lead to greater scrutiny of proposed pipelines, he predicted.
"An incident in the oil sands reinforces this general negativity that's playing into the challenge to get pipelines built," Steven Paget, an analyst at FirstEnergy Capital Corporation (NYSE:FE) (Akron, Ohio), told Bloomberg.
Alberta Premier Rachel Notley told Bloomberg the leak will shake public confidence and called for an investigation that "can produce clear, meaningful recommendations to ensure that it doesn't happen again."
Proposed crude-oil pipelines like Energy East and Northern Gateway, a $5 billion project being developed by Enbridge Incorporated (NYSE:ENB) (Calgary), have been strongly opposed by environmental groups and some First Nation tribes. Pipeline critics pointed to the Nexen accident as another reason to slow or stop pipeline development in Canada. Oil & gas companies, business leaders and some First Nations tribes have supported those projects.
Higher extraction and processing costs for Canada's oil sands, coupled with low prices for Western Canadian Select (WCS) crude oil, have slowed development of that country's vast oil sand resource. Several oil companies, including Husky Energy Incorporated, Suncor Energy Incorporated (NYSE:SU) (Calgary) and Canadian Natural Resources Limited (NYSE:CNQ) (Calgary) reportedly have deferred oil sands projects that were scheduled to be brought online by 2020. Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands) recently withdrew a permit application for its Pierre River Mine project. And Mother Nature isn't helping either: wildfires in and around Alberta have shut down more than 200,000 barrels per day (BBL/d) of oil sands production this summer, CNBC reported. For more on the challenges faced by Western Canadian oil sands producers, see the July 17, 2015, article - Western Canadian Oil Sands Industry Reels from Collapse of Crude-Oil Prices.
Canadian pipelines like Energy East and Northern Gateway are being developed, in part, to export Canada's oil-sands oil. Developers point to the prolonged delay in permitting the Keystone XL pipeline into the U.S. as evidence that Canada cannot passively assume their oil will get to the U.S. by pipeline. TransCanada's Energy East pipeline, which would transport up to 1.1 million BBL/d of crude eastward from Alberta, envisions constructing about 990 miles of new pipe and converting about 1,864 miles of existing gas pipeline to carry crude oil. TransCanada said the pipeline would eliminate the need for Eastern Canada to import more than 600,000 BBL/d of crude oil. For more on the Energy East pipeline, see September 11, 2013, article - Market Says 'Oui' to TransCanada's Energy East Crude-Oil Pipeline.
Click on the image at right for a proposed route map of the Energy East crude oil pipeline.
Coincidentally, two weeks after the Nexen spill, the Ontario Energy Board (OEB) (Toronto, Ontario) concluded the proposed Energy East pipeline carried more risks than rewards. In late 2013, Ontario's minister of energy asked the OEB to review the proposed pipeline to ensure views of Ontarians were heard on this project. The OEB does not have the authority to approve or reject the project. That power lies in the hands of Canada's National Energy Board (NEB) and its federal government. But the OEB's analysis, "Giving a Voice to Ontarians on Energy East," is expected to be introduced when the Ontario provincial government intervenes in the NEB hearings on Energy East.
"There is an imbalance between the economic and environmental risks of the (Energy East) project and the expected benefits for Ontarians," said OEB vice-president Peter Fraser as he released the results of the OEB's 15-month study. "The top concern expressed was the risk of an oil spill as the pipeline runs new or across many waterways. Our advice is that for the existing pipeline, when it is too close to environmentally sensitive areas, it should be rerouted unless it can be justified by TransCanada as necessary."
Responding to the OEB report, TransCanada said the pipeline "is in the early stages of the design and regulatory process overseen by the NEB. As such, certain aspects of the project will continue to be refined based on technical studies planned or under way, as well as the results of extensive ongoing public consultations."
Tim Duboyce, a TransCanada spokesperson, told Industrial Info that TransCanada plans to file an amendment to the project application by yearend 2015 to reflect whatever decision is made regarding the construction of a marine terminal in Quebec: "We removed the proposed terminal at Cacouna, Quebec, last April after consulting with various stakeholders and our environmental experts, following the reclassification of the beluga whale population in the St. Lawrence River as an endangered species. We have been examining potential alternate sites, based on environmental concerns and economic realities."
TransCanada also noted it accelerated the development and rollout of emergency response plans for Energy East in response to community and stakeholder feedback it had received. The company said it has hosted 40 open houses in Ontario communities attended by more than 3,000 local residents and participated in nearly 800 meetings with First Nation communities across Ontario. It added the proposed pipeline has received "significant support" from Ontarians, including 34 positive municipal resolutions and support from groups as diverse as the Ontario Chamber of Commerce, Building Trades unions and the Asthma Society of Canada.
Duboyce estimated the NEB review process would continue to 2017. He said the company plans to begin operating Energy East in 2020. "Independent studies confirm that pipelines are by far the safest mode of transporting large volumes of energy over long distances," including a research report from the Fraser Institute released in mid-August, he added.
Earlier this year, energy conglomerate Enbridge delayed the construction kickoff date for the Northern Gateway Pipeline, a 731-mile, $5 billion crude oil pipeline and export terminal project that will bring oil sands oil westward, for export from a deep-water port in British Columbia. That project was approved by the Canadian government last year, subject to satisfying 209 specific conditions, which it is in the process of doing. Northern Gateway was slated to begin construction this October, but the company pushed back the start of construction to early 2017. For more on the proposed Northern Gateway pipeline project, see July 22, 2014, article -- Canada's Northern Gateway Project Wins Approval, Faces More Hurdles.
Click on the image at right for a map of the proposed Northern Gateway route.
The Nexen pipeline spill and the negative OEB report on Energy East come as Canada is gearing up for national elections, where energy, economic and environmental issues are expected to be on the minds of many voters. Four parties are vying to lead the national government. A candidate from the New Democratic Party (NDP) captured news headlines in mid-August with her statement that a good bit of Canada's oil sands oil must remain in the ground if that nation wants to makes progress on its commitment to reduce greenhouse gas emissions.
Linda McQuaig, the NDP candidate for a district that includes Toronto, told a panel "a lot of the oil sands oil may have to stay in the ground." Her comments triggered a sharp backlash from Conservative and Liberal party leaders. Whichever party wins the national elections October 19 is expected to have a large say in the future of the Energy East Project, as well as oil sands development. In an early-August poll conducted by Leger (Montreal, Quebec), the New Democratic Party was slightly ahead of the Liberals and Conservatives, with the Green Party polling in fourth place. The poll said support for the NDP has surged since May, from around 20% to about 35% in early August.
"There's an old saying that anytime energy becomes a national issue, it's usually because of bad news," commented Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "There's never a good time for a pipeline spill, but the Nexen spill came at a particularly delicate moment. That spill may shape the results of Canada's national elections next month, and with it the direction of Canada's national energy policy."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, 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.
On July 15, a pipeline carrying bitumen, produced water and sand to the Long Lake processing facility operated by Nexen Energy (Calgary), a unit of the Chinese National Offshore Oil Company Limited (CNOOC) (Beijing, China), suffered a rupture and spilled an estimated 31,500 barrels of emulsion near Fort McMurray. It was reportedly Canada's worst pipeline accident in 35 years. The pipeline was less than one year old, and the company has not said what caused the accident, which contaminated a 16,000-square-meter area.
Amrita Sen, chief oil analyst at Energy Aspects (London, England), told CNBC the Nexen spill makes it even harder for pipelines still on the drawing board to gain regulatory approval.
Another expert, Michal Moore, a University of Calgary economist and former California energy regulator, told Bloomberg news service, "Every high-profile incident and spill ... gets major play and adds to the call to stop new pipelines." There's "no question" the Nexen spill will lead to greater scrutiny of proposed pipelines, he predicted.
"An incident in the oil sands reinforces this general negativity that's playing into the challenge to get pipelines built," Steven Paget, an analyst at FirstEnergy Capital Corporation (NYSE:FE) (Akron, Ohio), told Bloomberg.
Alberta Premier Rachel Notley told Bloomberg the leak will shake public confidence and called for an investigation that "can produce clear, meaningful recommendations to ensure that it doesn't happen again."
Proposed crude-oil pipelines like Energy East and Northern Gateway, a $5 billion project being developed by Enbridge Incorporated (NYSE:ENB) (Calgary), have been strongly opposed by environmental groups and some First Nation tribes. Pipeline critics pointed to the Nexen accident as another reason to slow or stop pipeline development in Canada. Oil & gas companies, business leaders and some First Nations tribes have supported those projects.
Higher extraction and processing costs for Canada's oil sands, coupled with low prices for Western Canadian Select (WCS) crude oil, have slowed development of that country's vast oil sand resource. Several oil companies, including Husky Energy Incorporated, Suncor Energy Incorporated (NYSE:SU) (Calgary) and Canadian Natural Resources Limited (NYSE:CNQ) (Calgary) reportedly have deferred oil sands projects that were scheduled to be brought online by 2020. Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands) recently withdrew a permit application for its Pierre River Mine project. And Mother Nature isn't helping either: wildfires in and around Alberta have shut down more than 200,000 barrels per day (BBL/d) of oil sands production this summer, CNBC reported. For more on the challenges faced by Western Canadian oil sands producers, see the July 17, 2015, article - Western Canadian Oil Sands Industry Reels from Collapse of Crude-Oil Prices.
Canadian pipelines like Energy East and Northern Gateway are being developed, in part, to export Canada's oil-sands oil. Developers point to the prolonged delay in permitting the Keystone XL pipeline into the U.S. as evidence that Canada cannot passively assume their oil will get to the U.S. by pipeline. TransCanada's Energy East pipeline, which would transport up to 1.1 million BBL/d of crude eastward from Alberta, envisions constructing about 990 miles of new pipe and converting about 1,864 miles of existing gas pipeline to carry crude oil. TransCanada said the pipeline would eliminate the need for Eastern Canada to import more than 600,000 BBL/d of crude oil. For more on the Energy East pipeline, see September 11, 2013, article - Market Says 'Oui' to TransCanada's Energy East Crude-Oil Pipeline.
Click on the image at right for a proposed route map of the Energy East crude oil pipeline. Coincidentally, two weeks after the Nexen spill, the Ontario Energy Board (OEB) (Toronto, Ontario) concluded the proposed Energy East pipeline carried more risks than rewards. In late 2013, Ontario's minister of energy asked the OEB to review the proposed pipeline to ensure views of Ontarians were heard on this project. The OEB does not have the authority to approve or reject the project. That power lies in the hands of Canada's National Energy Board (NEB) and its federal government. But the OEB's analysis, "Giving a Voice to Ontarians on Energy East," is expected to be introduced when the Ontario provincial government intervenes in the NEB hearings on Energy East.
"There is an imbalance between the economic and environmental risks of the (Energy East) project and the expected benefits for Ontarians," said OEB vice-president Peter Fraser as he released the results of the OEB's 15-month study. "The top concern expressed was the risk of an oil spill as the pipeline runs new or across many waterways. Our advice is that for the existing pipeline, when it is too close to environmentally sensitive areas, it should be rerouted unless it can be justified by TransCanada as necessary."
Responding to the OEB report, TransCanada said the pipeline "is in the early stages of the design and regulatory process overseen by the NEB. As such, certain aspects of the project will continue to be refined based on technical studies planned or under way, as well as the results of extensive ongoing public consultations."
Tim Duboyce, a TransCanada spokesperson, told Industrial Info that TransCanada plans to file an amendment to the project application by yearend 2015 to reflect whatever decision is made regarding the construction of a marine terminal in Quebec: "We removed the proposed terminal at Cacouna, Quebec, last April after consulting with various stakeholders and our environmental experts, following the reclassification of the beluga whale population in the St. Lawrence River as an endangered species. We have been examining potential alternate sites, based on environmental concerns and economic realities."
TransCanada also noted it accelerated the development and rollout of emergency response plans for Energy East in response to community and stakeholder feedback it had received. The company said it has hosted 40 open houses in Ontario communities attended by more than 3,000 local residents and participated in nearly 800 meetings with First Nation communities across Ontario. It added the proposed pipeline has received "significant support" from Ontarians, including 34 positive municipal resolutions and support from groups as diverse as the Ontario Chamber of Commerce, Building Trades unions and the Asthma Society of Canada.
Duboyce estimated the NEB review process would continue to 2017. He said the company plans to begin operating Energy East in 2020. "Independent studies confirm that pipelines are by far the safest mode of transporting large volumes of energy over long distances," including a research report from the Fraser Institute released in mid-August, he added.
Earlier this year, energy conglomerate Enbridge delayed the construction kickoff date for the Northern Gateway Pipeline, a 731-mile, $5 billion crude oil pipeline and export terminal project that will bring oil sands oil westward, for export from a deep-water port in British Columbia. That project was approved by the Canadian government last year, subject to satisfying 209 specific conditions, which it is in the process of doing. Northern Gateway was slated to begin construction this October, but the company pushed back the start of construction to early 2017. For more on the proposed Northern Gateway pipeline project, see July 22, 2014, article -- Canada's Northern Gateway Project Wins Approval, Faces More Hurdles.
Click on the image at right for a map of the proposed Northern Gateway route.The Nexen pipeline spill and the negative OEB report on Energy East come as Canada is gearing up for national elections, where energy, economic and environmental issues are expected to be on the minds of many voters. Four parties are vying to lead the national government. A candidate from the New Democratic Party (NDP) captured news headlines in mid-August with her statement that a good bit of Canada's oil sands oil must remain in the ground if that nation wants to makes progress on its commitment to reduce greenhouse gas emissions.
Linda McQuaig, the NDP candidate for a district that includes Toronto, told a panel "a lot of the oil sands oil may have to stay in the ground." Her comments triggered a sharp backlash from Conservative and Liberal party leaders. Whichever party wins the national elections October 19 is expected to have a large say in the future of the Energy East Project, as well as oil sands development. In an early-August poll conducted by Leger (Montreal, Quebec), the New Democratic Party was slightly ahead of the Liberals and Conservatives, with the Green Party polling in fourth place. The poll said support for the NDP has surged since May, from around 20% to about 35% in early August.
"There's an old saying that anytime energy becomes a national issue, it's usually because of bad news," commented Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "There's never a good time for a pipeline spill, but the Nexen spill came at a particularly delicate moment. That spill may shape the results of Canada's national elections next month, and with it the direction of Canada's national energy policy."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, 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.
