Presidential Column

Lately there has been a lot of BAD press regarding various pipelines, their routes and their leaks. Among the pipeline companies, Enbridge Inc has been the target of much of the chagrin after suffering two big leaks on its U.S. network in the last two years, prompting senior American officials to harshly criticize its operations.

According to one source, “At current prices, oil exported to Asia through the proposed Northern Gateway Pipeline would bring in annual revenues of some $15-billion to producers and governments. And it would add billions more by removing the captive market discount on oil exports to the United States.” With these economic underpinnings, it’s hard to see how any country would give up such a key economic driver, so long as risks are acceptable.

However, it isn’t all about shipping oil and gas and making money. The recently proposed pipelines (Northern Gateway and Keystone) will age just like every other pipeline and have the potential to spill enormous amounts of crude oil into extremely sensitive areas. The existing pipelines are clearly not being maintained up to the general public’s expectations. New pipelines are suffering from the bad press of the leaky old ones in addition to the economic and environmental concerns of constructing thousands of kilometres of new pipeline. Furthermore, tanker mishaps are always a concern in the tricky areas of our coastlines.

Critics opposed to Enbridge’s C$6 billion Northern Gateway pipeline say accidents in the US only confirm their conviction that the project is too risky, especially as it would be built in an environmentally sensitive region.

On the issue of environmental risk, the facts should favour Gateway, already designed to be one of the world’s safest pipelines. Enbridge recently pledged an additional $500 million to beef up pipe thicknesses and add more automatic leak detection shutdowns.

The industry’s recent outreach efforts were given a devastating blow after an American regulator compared Enbridge last month to the “Keystone Kops” due to the company’s bungled handling of a massive 2010 bitumen crude spill in Michigan.

Adding to the woes was a U.S. regulator’s decision to set tough terms to ensure safety following a late-July Enbridge pipeline rupture that resulted in about 1,200 barrels of crude leaked onto a rural Wisconsin field.

Brenda Kenny, president of the Canadian Energy Pipeline Association, said her members must do more to assure Canadians that the industry has a very safe record and is trying to eliminate totally what she said is an already small number of serious spills.

“I think every company recognizes that there are some very important questions being asked and we need to be a lot more transparent,” she told a news conference in Ottawa.

“I would fully acknowledge that as a sector, we’re coming to this late in terms of going public with the programs we have under way… we should have been more communicative earlier.”

One thing is for sure, Canadians need to build the transportation infrastructure to allow Canada’s resource exports to reach global economic centers.

As these battles rage over the Northern Gateway and Keystone XL pipelines, governments and energy companies are eyeing other options for transporting oilsands crude to foreign markets, including by rail, a pipeline through the Northwest Territories and shipping more oil to Eastern Canada instead.

The political, economic and environmental stakes are enormous. Billions of dollars of investment are on the line but, as the Northern Gateway saga has shown, there are also plenty of potential pitfalls for governments and project proponents.

British Columbia’s demands in exchange for supporting the Enbridge Northern Gateway and Kinder Morgan Trans Mountain pipeline proposals — including receiving its “fair share” of the economic benefits from Alberta and Ottawa — are sparking uncertainty over the future of the projects, which would ship oilsands crude from northern Alberta to the West Coast.

In the U.S., the Keystone XL pipeline, which would carry oilsands crude from northern Alberta to the U.S. Gulf Coast, has also turned into a political football.

President Barack Obama rejected TransCanada’s original Keystone XL permit application in January due to concerns about what pipeline construction and potential for spills could do to ecologically sensitive areas in Nebraska. The company has since reapplied for a presidential permit to reroute the controversial pipeline around some of the environmentally sensitive areas in Nebraska, with a decision expected by early 2013.

The prolonged pipeline disputes in B.C. and south of the border have governments and petroleum producers considering other options for getting oilsands crude to foreign markets like Asia, including alternative pipeline routes, moving more oil east (and then onto the U.S.) and shipping bitumen on the rails.

Ken Chapman, executive director of the Oil Sands Developers Group, an industry lobby organization, said the ongoing battles over the Northern Gateway and planned expansion to the Trans Mountain pipeline mean every option must be looked at from an economic, environmental and First Nations perspective.

“None of these are easy but all of them are worth investigation,” Chapman says. “Oilsands developers are always looking at options. Rail is becoming more and more of an attractive option.”

However, producers can’t move nearly as much product by train, he said, which means rail probably must be considered a supplement — not a complete alternative — to shipping oilsands crude by pipelines.

In 2011, CN moved approximately 5,000 cars of crude oil (there are between 550 and 680 barrels of oil per rail car, depending on type of product and car) and the company expects to transport more than 30,000 carloads of crude oil in 2012 to various North American markets, said company spokesman Mark Hallman.

Canadian Pacific Railway’s crude oil volumes are also rapidly increasing.

The company expected to grow its crudeby- rail market from 13,000 carloads in 2011 to 70,000 carloads by 2014 but, based on growing demand, now expects to reach that level a year earlier in 2013, including shipments to northeastern U.S. and the Gulf Coast.

Meanwhile, there is wide support among British Columbians for pipelines to carry natural gas to Kitimat for shipment to Asia on liquefied natural-gas tankers. Two key reasons for the support are that natural gas brings no risk of spills, and that field-development investments and royalty revenue will flow to B.C. Clearly Albertans would welcome a new option for breathing life back into the gas markets and it may make more sense to focus on the gas pipeline first and the oil pipeline afterwards.