Key Pipeline Could Unleash Alberta’s Oil Sands

Canadian energy regulators handed a win to Alberta's oil sands producers last week, recommending approval for a major oil pipeline expansion to the Pacific Coast.

Canada's National Energy Board determined that the expansion of the Trans Mountain pipeline is in the public interest, handing the project's developer, Kinder Morgan, a key victory. Kinder Morgan already operates an existing pipeline that runs from Alberta to British Columbia, moving 300,000 barrels of oil per day to the coast. But the company is trying to expand the pipeline by running a twin line that would nearly triple capacity to 890,000 barrels per day. Kinder Morgan's share price jumped by more than 3 percent on news of the NEB decision.

The pipeline is one of a handful of major projects that Alberta's oil industry is desperate to push forward. The lack of pipeline capacity is holding back Canadian oil exports, and the dearth of pipeline space forces Canadian oil to sell at a discount to major oil benchmarks. Heavy Canadian oil from Alberta recently traded more than $14 per barrel lower than WTI. More pipeline capacity will allow oil sands producers to sell oil at a higher price.

There are several other proposed pipelines that have run into a wall of opposition: the Northern Gateway, a separate project that would run from Alberta to British Columbia; Energy East, a project that would span most of the continent from Alberta to the Atlantic Coast; and of course, the defunct Keystone XL project that would run south to the U.S.

"The NEB is sending a clear message to Canada: building the infrastructure to get our resources to market is in the best interest of our country," Tim McMillan, the CEO of the Canadian Association of Petroleum Producers, said in a statement, calling the decision a "milestone."

The $6.8 billion Trans Mountain expansion is not a done deal yet. The NEB recommended approval, but the government of Prime Minister Justin Trudeau still needs to give a final up or down decision. The Trudeau government has stepped up environmental scrutiny of major energy projects, demanding that they meet stricter limits on greenhouse gas emissions. And as part of the NEB's recommendation for approval, the pipeline needs to meet 157 conditions related to the project's environmental impact and its effects on the lands of First Nations. Related: The Wildest Predictions For Oil Prices In 2016

Moreover, several major constituencies, including the city of Vancouver, still vociferously oppose the project. Vancouver Mayor Gregor Robertson said that the public benefits of the pipeline expansion cited by the NEB were "laughable," and vowed to keep up opposition to the project. "There's nothing the company could do to make this acceptable to the West Coast," Mayor Robertson said, according to the Financial Post. And the mayor of Burnaby, where the pipeline will terminate along the coast, said the NEB's "conditions are meaningless." Coastal communities are concerned about potential oil spills both on land and offshore, as well as the expected five-fold increase in tanker traffic along the coast.

Prime Minister Justin Trudeau has until the end of the year to decide on the fate of the project. His administration has a much greener hue than his predecessor's, which makes approval uncertain. But the country's economic struggles following the collapse of oil prices - as well as Alberta's calamity from wildfires, which have cut off more than 1 million barrels per day of oil production for more than two weeks - is putting pressure on the Trudeau government to throw a bone to the oil industry.

The Trans Mountain pipeline expansion offers the first big pipeline decision that the Trudeau government has to make. He has heartened greens with skeptical remarks towards the benefits of the industry's pipeline proposals, but if any project is to move forward, Trans Mountain probably tops the list because it will run parallel to an existing route. Related: Argentina Makes Good On Debts With These Energy Giants

But Trudeau has also emphasized the rights of indigenous communities with much greater enthusiasm than previous governments, and approving the project will shatter the good will that he has built up with First Nations. He has appointed a three-person panel to consult with indigenous communities along the pipeline route, and the results of the consolations will be reported to the government by November, shortly before Trudeau must make a final decision. If approved, construction could begin in 2017 with completion targeted for the end of 2019.

As a May 22 op-ed in The Toronto Star astutely points out, the Prime Minister will be forced to make a decision between the oil industry on the one hand, and the coastal and indigenous communities on the other. Ultimately, he will upset one side.

By Nick Cunningham of Oilprice.com

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