$72 billion at stake if Gateway pipeline halted

EDMONTON - Oil producers could lose $72 billion over a nine-year-period if a pipeline to carry Alberta bitumen to the West Coast isn't built, a new report for the Alberta government says as community hearings for the proposed Enbridge Northern Gateway project are about to begin this month in British Columbia.

In a 44-page report submitted before Christmas to the federal government panel reviewing the pipeline project, consultants for Alberta Energy peg potential losses for oil producers in the project at $8-billion every year between 2017 and 2025.

The forecast, drawn up by Houston-based consultant Harold York for the firm Wood Mackenzie, is largely based on the expectation that Alberta oil sells at a higher price on an international market than it does in North America.

"If we can get it offshore, there are a lot more markets available to us which are willing to pay a higher price," Alberta Energy spokesman Tim Markle said.

The outlook does not deal with the oilsands production boost anticipated as a result of pipeline construction. It also does not deal explicitly with the effects that offshore bitumen sales would have on oil royalties collected by the Alberta government.

Currently, Alberta's main oil customer is the United States, which recently held off on approving the massive Keystone XL pipeline extension to the Gulf of Mexico.

The Dec. 21 Wood Mackenzie report flags Alberta Energy as the provincial government's lead representative going into 18 months of hearings that start next week. But critics charge the report positions the province to offer just "half of the balance sheet" to the federal panel by not raising environmental issues as well.

"In order to make an informed decision, you need to consider both the benefits and the costs of the pipeline ..." said Pembina Institute oilsands analyst Nathan Lemphers. "Is it up to environmental groups and concerned individuals, First Nations, to be raising this? Or should it be our governments or proponents doing this?"

Other departments, like Alberta Environment and Water or Sustainable Resource Development, will take a back seat during the hearings, offering Alberta Energy supporting information as necessary.

A spokeswoman for Alberta Environment said the department has no plans to provide its own report on the impacts of the pipeline to the review panel.

"We're not officially participating in the hearings, but we are supporting Energy," said Jessica Potter.

Noting that Alberta already has pipeline infrastructure in place east of the B.C.-Alberta border, Potter called the Enbridge review "a B.C. hearing, not an Alberta hearing."

The provincial government's role, she said, is "to ensure Alberta's energy future. To say, 'Yes, we have the energy required to make this pipeline worthwhile to us.' But we already have our regulatory process in place, our frameworks and stuff that legislate how pipelines are put in, how energy is developed in the process. From our perspective we have that and we're confident in our frameworks."

The Pembina Institute is an Alberta-based think-tank focused on energy solutions. It is not opposed to pipeline infrastructure in general, but has weighed in against the Northern Gateway project because of environmental questions members say have not yet been answered. Lemphers said the province should be discussing the potential costs of cleaning up pipeline or tanker spills and the potential environmental liabilities of additional oilsands development.

The Wood Mackenzie report deals with the outlook for Alberta's share in the international crude oil market, which is expected to grow significantly in the years ahead and demand "additional export capacity ... by 2017."

"When you're having a pipeline of this magnitude (being) brought forward, it's critical that the panel have balanced information in front of it in order to make an informed decision," Lemphers said. "While it's absolutely important that there be information about the economic benefits of the pipeline, that also needs to be balanced with some of the potential economic liabilities, some of the environmental risks that are associated with the project."

The report also does not explore increased refinery capacity not currently planned for in Alberta, a sticking point for labour groups who want to see more jobs in Alberta for refining bitumen.

"Here in Alberta, we should have had a debate about whether our province should take the high road or the low road when it comes to oilsands development. The high road being focused on moving up the value ladder into upgrading, refining (and) creating the thousands of jobs that would come with that. The low road being the rip-it and ship-it approach to shipping bitumen in its rawest form," said Alberta Federation of Labour president Gil McGowan. "Unfortunately, we never had that debate. The government and the oil industry decided for us."

Community hearings for the Northern Gateway project, expected to carry oilsands oil from Bruderheim, Alta. to Kitimat, B.C., begin in Kitimat on Jan. 10. More than 4,000 people have applied to give oral evidence. Edmonton hearings are scheduled to take place Jan. 24-31.

If the province chooses to appear before the hearing panel, it would not be until the fall of 2012, said Markle. The Alberta Energy spokesman said an elected member of government likely would not appear.

Officially, the provincial government is not necessarily supporting the proposed pipeline, but access to new markets.

"If there was another pipeline that came through and made an application, we'd look at it, make sure it met all the standards that Alberta sets out, and if we (found) that it was in the best interests of Albertans, then we might support that one as well," Markle said.

The federal joint review panel is an independent body mandated by the federal environment ministry and the National Energy Board. Its recommendation and environmental assessment of the project will inform Ottawa's final decision on the pipeline.

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Key findings in the report, "A Netback Impact Analysis of West Coast Export Capacity," now available on the federal review panel's website:

•"Canadian producers not having sufficient access to premium heavy crude refining markets could lose about $8/bbl. for every Canadian heavy crude barrel, with a revenue impact averaging $8 billion (Cdn) per year for 2017 to 2025."

•"By 2025 Canadian heavy crude production volumes could reach nearly 3,000 kbd (thousand barrels per day), primarily dominated by unconventional grades."

•In the next 15 years, "Canada could be the third largest heavy crude oil producer after Saudi Arabia and Iraq."

•Today, Alberta's crude oil production is largely delivered to hubs in Edmonton and Hardisty feeding four major pipeline networks: Enbridge Mainline, Kinder Morgan Express, Kinder Morgan Trans-Mountain, and TransCanada Keystone.

Click here to read the Wood Mackenzie report and all documents provided to the joint review panel.

Edmonton Journal, Mon Jan 2 2012
Byline: Trish Audette

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