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Northern Gateway Kept Alive as a Threat
| Dogwood Initiative | Eric Swanson | February 08, 2010
Read the full article on the originating site
Enbridge’s oil pipeline and tanker proposal to BC’s coast seems to be more political threat than economic reality.
After six years of trying, Enbridge still does not have the necessary economic commitments it needs to build its Northern Gateway project. For other pipelines, this would mean a quick and unceremonious burial of the idea back to the hard drives and cabinets from whence it came; but Gateway has been resurrected with a necromantic blend of regulatory money provided by confidential oil patch interests and abundant political puff-puff.
The evolving result is a massive waste of public and private time and money as Gateway triggers the establishment of review panels, sucks up the time of stretched local officials and First Nations, misdirects the economic hopes of underemployed people and communities, and forces whole regions of British Columbia to replay an emotional battle against oil tankers that many had hoped was won back in the 70’s.
No Supply Commitments = No Real Pipeline
Oil pipelines don’t get built until there’s oil to put in them. This sounds self-evident, but it’s a crucial point.
Normally, in the pipeline business nothing happens on the ground until “shippers” –companies like Exxon or Shell that produce oil – sign contracts committing them to putting a certain volume of oil into the proposed pipeline, or paying tolls as though they were. These are called supply contracts. They are the lifeblood of a pipeline project.
Without them, it’s too risky for companies like Enbridge to spend the money required to do regulatory studies, hold community meetings, conduct public relations, and fund First Nations agreements that buy support for the review process. That’s why Enbridge shelved their ‘Trailbreaker’ pipeline proposal through Ontario and Quebec back in January 2009, because they couldn’t get supply contracts.
Oil Patch Doesn’t Need Northern Gateway
The global economic crisis has slowed the growth of the tar sands, with the industry saying there won’t be enough new oil to justify building new big pipelines like Northern Gateway until sometime in the 2020’s. (1)
‘That’s true’, says Enbridge CEO Patrick Daniel, “but let me ask that you think about Gateway as a pricing play.” (2)
What Daniel means is that he thinks there’s a pricing advantage for tar sands companies in sometimes selling to Asian markets when US prices are low compared to the rest of the world; and that this advantage could be larger than the loss shippers would be forced to absorb when they couldn’t actually produce enough oil to meet all of their supply commitments.
But if shippers saw real value in an in-the-ground pipeline to BC’s coast by Enbridge’s advertised completion date of 2015, they would be signing supply contracts. And they’re not.
Instead shippers are bringing action against Enbridge for building too much pipeline capacity too fast, and committing their oil to the Keystone pipeline being built to the US Gulf Coast by TransCanada, Enbridge’s archrival. (3) This is consistent with prevailing oil patch sentiment that the US is the tar sands’ “natural market”, the place that for various reasons tar sands companies would prefer to go.
In the absence of committed shippers Northern Gateway should be a dead idea, like Trailbreaker, but a confidential cash infusion is being mixed with political puff puff to keep the project artificially alive.
The Necromancers
Northern Gateway doesn’t have supply contracts, like most other pipelines would at this stage of public process and debate, so it maintains its existence on the $100 million given to Enbridge in 2008 by a confidential consortium of “Alberta producers and Asian refiners”. Confidential means that we don’t know whose project this is; but the geopolitical interests behind the $100 million are fairly clear.
Any Asian states kicking into the $100 million kitty are likely interested in an actual pipeline, which would link the tar sands to their energy-hungry economies, where secure supplies of oil are in demand. The problem is that although Asian companies have been buying up assets in Alberta recently, their actual production of oil remains miniscule, not nearly enough to vitalize Gateway on their own. This is especially true given that China, representing the largest Asian presence in Alberta, has given the project the cold shoulder.
For Northern Gateway to come truly alive Alberta’s oil producers need to commit to filling it with oil; but they’re not. Instead, a confidential collection of them are throwing into the $100 million pot – chump change for big oil companies – and some are making empty public statements in support of the idea. (4)
However, no one has publicly hinted at the North American geopolitical interest behind this necromantic ‘puff puff’ more clearly than BMO chief economist Sherry Cooper: “We must export oil to China…because it gives us more leverage with the U.S… it makes it more difficult for the U.S. to threaten us with comments about dirty oil.” (5)
In the absence of supply contracts, this suggests that the real value of Northern Gateway to Alberta’s oil patch, which is heavy with American ownership, is as a threat against existing and proposed climate change measures in the US that would restrict access to the tar sands’ “natural market”. The purpose of the $100 million then seems to be to make this threat more credible by making a dead project look alive. (6)
Not so coincidentally, the threat of Northern Gateway is being used with enthusiasm by Alberta’s Premier and Energy Minister, and by oil lobbyists in Canada and the United States.
The Public Cost of an Oil Patch Threat
Until there are supply agreements there’s no real pipeline, certainly no ‘need and necessity’ for one as required by Canada’s National Energy Board. And until there’s a real pipeline to talk about, public time and monies spent on reviewing this project basically buy nothing more than credibility for the oil patch’s threat. (7,8)
That’s a problem, because:
* It sucks resources away from developing real, long term, and sustainable solutions for communities facing underemployment, environmental depletion and degradation, and other issues. * It delays meaningful action on climate change in the US, the jurisdiction that our Prime Minister has said he is modeling Canada’s climate change policy on. * It draws whole regions of British Columbia back into an emotional battle against oil tanker traffic that many had thought was won back in the 1970’s.Making a Dead Thing Stay Dead
A legislated ban on oil tanker traffic through BC’s north coast would clear the air once and for all. With a ban in place our coast would be protected, there would be no Northern Gateway threat to waste money on, and we could all focus on strengthening our communities with real, sustainable solutions.
(1) Canadian Association of Petroleum Producers – Crude Oil Forecast, Markets, and Pipeline Expansions; June 2009.
(2) Enbridge Q2 2008 Earnings Conference Call
(3) TransCanada Pipeline Ltd’s ‘Keystone XL’ pipeline, which is competing with Northern Gateway in the category of ‘New Market Access’, has commitments for fully 76% of its capacity. Northern Gateway = 0%.
(4) E.g. Husky Energy President John Lau: “[Northern Gateway] is very important from a Canadian oil producers’ point of view.” Re: chump change – The $100 million is comprised of $10 million units, sold to each of the confidential backers. For a company like Exxon, $10 million represents 0.0002% of the profit they made in 2008 alone!
(5) It’s possible that some of the confidential backers are actually interested in seeing if Enbridge can deal with the myriad environmental, social, and First Nations concerns associated with the project in a way that is satisfactory to Canada’s regulators – but in a way that requires a minimum of economic commitment from them. That way, Enbridge could ‘back-pocket’ an approval for shippers until economic conditions are right for an actual pipeline in the ground; e.g. some time in the 2020’s
(6) Click here for the source of this quote. Note that in the source article Enbridge was expecting firm commitments ‘soon’, they have since moderated that claim, saying they hope to get ‘President Agreements’, see (7).
(7) The threat goes like this: ‘If you squeeze us with climate change policy’ says Canada’s oil patch to the US, ‘we’ll just ship a bunch of oil to Asia, your economic competitor, so that you really just end up squeezing yourself by decreasing your own energy and national security.’
(8) Enbridge’s CEO Patrick Daniel has said that the company won’t file an application for Northern Gateway, thereby triggering a further massive expense of resources and time in a public review, until he signs ‘President Agreements’ with his confidential backers. Enbridge’s latest estimate is that this might be done by March 2010.But President Agreements aren’t supply contracts; in fact there’s been no indication from Mr. Daniel about exactly what he means by these agreements. They could be as simple as a ‘handshake and yes we still like the idea’. Daniel has said that he doesn’t intend to seek actual supply contracts until later in the regulatory review, well after public expense has begun to stack up.
Tagged with: enbridge, dogwood initiative, northern gateway, british columbia
