Canada’s pipeline a pipe dream?

Plans to tap new markets by carrying oil from energy-rich region of Alberta through pipelines face host of hurdles.

At first glance, the small Canadian town of Kitimat may not have a lot to offer. The town, on the coast of British Columbia, has seen a population decline in recent years and many of the local factories have shut down, with the exception of the aluminum smelter that was the centre of Kitimat’s birth in the 1950s.

But one thing Kitimat does have is an excellent deepwater harbour. And thats what makes this unlikely spot the fulcrum for Canada’s effort to lever itself into a leading player in the worldwide energy market.

With the third-largest oil reserves in the world – or, by some estimates, the second-largest – Canada has become the top energy supplier to the United States and hopes to become the top supplier for other nations as well. Approximately 1.5 million barrels a day are produced now, and that number is expected to double or triple in the next decade.

“We see Canada growing to close to 5 million barrels a day by 2025, 2026,” Greg Stingham told Al Jazeera. Stingham is the vice-president for Oil Sands and Markets at the Canadian Association of Petroleum Producers. “We’re looking to place 2 million barrels a day from Canada into new markets. So that’s why we’re so interested in expanding.”

The main goal in Canada’s pipeline dreams is Asia, especially China. And the interest flows both ways.

Right now, Canada finds itself in a bit of a bind. With its black gold really only headed to its southern neighbour and production in the oil sands increasing rapidly, that creates a glut for producers in Alberta with limited pipeline options.

Producers and the Canadian government hoped to rectify that through TransCanada’s Keystone KL pipeline, which would carry crude from Canada to the Gulf of Mexico, but Washington has yet to approve it due to environmental concerns in the American midwest and is unlikely to move on it until after the November presidential election.

“There is a limited market,” says Werner Antweiler, a professor of Economics at the University of British Columbia in Vancouver. “Right now the price difference can be as high as $30 a barrel, so every day the oil companies are losing a significant amount of money. They’re not getting paid the world price, they’re getting paid a lower price.”

A bridge to Asia

The solution? New markets and diversification. This is where Kitimat enters the picture. The port of Kitimat would be the endpoint of the proposed Northern Gateway pipeline carrying oil from Canada’s energy-rich province of Alberta to be shipped by large tankers to Asia. The $5.5bn project, proposed by pipeline construction firm Enbridge, would transport 525,000 barrels of oil a day from Kitimat if approved. The door to the Pacific does not lie in Kitimat alone. Northern Gateway is just one of a number of new pipeline projects aimed at transporting Canadian crude out of Alberta to new markets. Another firm, Kinder Morgan, has proposed a pipeline from Alberta to Vancouver, running alongside an existing but smaller pipeline.

Other projects are looking to different parts of Canada. Right now, eastern Canada imports most of its oil from other countries, such as Nigeria, Iraq and more recently Brazil. But the main goal in Canada’s pipeline dreams is Asia, especially China. And the interest flows both ways.

“In the past three or four years, there’s been significant Asian interest – China, Japan, Korea and even Thailand,” says Stingham. “It’s not concentrated in one area, but the biggest market is the Chinese market.”

Canadian Prime Minister Stephen Harper is fully aware of this. After Washington’s delay of Keystone XL, Canada’s Conservative government’s sights are firmly on China. Speaking to a banquet of business leaders in Guangzhou during a trade mission this past February, Harper made it clear that pipelines to the Pacific would become a reality. “It is increasingly clear that Canada’s commercial interests are best served through diversification of our energy markets. To this end, our government is committed to ensuring that Canada has the infrastructure necessary to move our energy resources to those diversified markets.”

But it won’t be a simple supply-and-demand equation. Northern Gateway in particular has run into a number of challenges in its bid for approval. Environmental groups and many of Canada’s indigenous communities have come out strongly against the proposal over fears of a pipeline breach and the possibility of an oil spill in delicate marine ecosystems. Unions have shown similar sentiment, but also criticised the strong possibility that the oil from both the Kitimat pipeline and the larger Vancouver pipeline would be refined in Asia, not Canada, which would mean far fewer jobs for Canadians.

‘Oil sands fever’

But there are larger concerns by some in Canada, not just about Northern Gateway, but about the general expansion of the country’s oil industry. A recent report released by the Pembina Institute, a think thank working on sustainable energy, raises concerns that as the industry rapidly expands, Canada’s currency is becoming tied to the value of oil. As the Canadian dollar goes up, so does the cost of manufacturing, making Canadian exports more expensive and less competitive. Manufacturing hubs in central Canada, particularly Ontario, have seen sharp declines in jobs in the past few years as the country’s currency has risen.

It’s going to have to be rich countries like Canada starting to rein in their own development of fossil fuels, and then they are in a moral position to be pressuring and urging other countries to do the same.

– Mark Jaccard

“While Canada is exploiting its comparative advantage with respect to natural resource extraction, the rate of change is causing significant challenges in central Canada – making it difficult for this region to adjust to incredibly rapid structural changes in the economy,” according to Pembina.

The report goes on to note that “the result appears to be a uniquely Canadian strain of the Dutch disease that could be called ‘oil sands fever’ – a strain that is beginning to create clear winners and losers in Canada’s economy and could pose a significant risk to Canada’s competitiveness in the emerging clean energy economy.”

It’s a sentiment that has been shared vigorously and vocally by Canada’s federal opposition party leader. That position has put Thomas Mulcair, leader of the New Democratic Party, firmly at odds with the country’s Minister of Natural Resources, Joe Oliver. Speaking to reporters ahead of Mulcair’s trip to Alberta last week to tour the oil sands, Oliver said that “it is clear that they [the NDP] want to shut down an industry that employs hundreds of thousands of Canadians and provides billions in revenues to governments across Canada to pay for social programs such as education and health care.”

Expansion and emissions

Beyond politics, Canada’s expansion of its oil industry could also pose a challenge in realising promises made at the 2009 Copenhagen summit on climate change. The government’s Commissioner of the Environment and Sustainability estimates that by 2020, the country’s emissions will actually be 7.4 per cent higher than 2005 levels as opposed to 17 per cent lower, as the government originally promised. In the Commissioner’s spring report this year, it also notes that “emissions from oil sands production and upgrading are expected to increase by 62 million tones by 2020.”

Mark Jaccard, an environmental economics professor at Simon Fraser University, says that new pipelines from the oil sands will only reinforce that projection. He says the the industry does not need to shut down. Simply that they continue running current facilities but don’t expand, if the government wants to meet their emissions targets.

“This is the Faustian challenge that every human has,” says Jaccard. “There’s this candy out there – all the money you can make from developing fossil fuels. Yet somewhere you understand – and your politicians have promised – we’ve got to get our emissions down. That means you don’t burn fossil fuels anymore. Shouldn’t Canada be part of the global effort to make that happen? It’s going to have to be rich countries like Canada starting to rein in their own development of fossil fuels, and then they are in a moral position to be pressuring and urging other countries to do the same.”

Source: Al Jazeera