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The good, the bad and the future of Canada’s pipelines – part 2

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World Pipelines,

In late November, the Alberta government tabled a comprehensive climate change management plan.

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The initiative called for an economy-wide carbon tax of CAN$20/t in 2017 and CAN$30/t in 2018. New oilsands production would not be curtailed, but the current overall emissions limit of around 70 million t will be raised and set to 100 million t.

After the legislation passed into law this spring, the energy industry responded positively. “We’re pleased to see the government putting its new plan into action,” said Jim Campbell, Cenovus Vice President, Government and Community Affairs. “We fully support Alberta taking a leadership role in tackling climate change. We believe one of the best ways to address this is through an economy-wide carbon levy.”

Environmental NGOs were also enthusiastic. Ed Whittingham, Executive Director of the Pembina Institute, congratulated the Alberta government for putting the province in league with some of the most progressive jurisdictions, and proposing to implement the new price on carbon emissions: “It protects consumers and keeps our province competitive globally.”

An oilsands group that includes Suncor, Nexen and CNOOC is testing an in situ technology that is designed to eliminate steam injection. Enhanced solvent extraction incorporating electromagnetic heating (ESEIEH) combines buried electromagnetic coils that heat bitumen through radio frequencies. The experiment began operations at Suncor’s Dover in situ site in late 2015, and is expected to run for two years. If successful, the technology would greatly reduce CAPEX, operating costs and GHGs, as there would be no need to burn natural gas to create steam.

First Nations groups are also responding to greater dialogue and participation with pipeline promoters. J.P. Gladu, President and Chief Executive Officer, Canadian Council For Aboriginal Business, recently went on record to note that a strong majority of First Nations are pro-development in the oil, forest and utility sectors.

While BC’s Premier, Christy Clark, has made all pipeline approvals conditional upon five major conditions, Alberta’s bargaining stance has improved due to clean energy development initiatives in the region. In early 2016, Clark’s government began negotiations with Alberta seeking oilsands customers for its CAN$8 billion Site C dam hydroelectric project currently being built in the northeast corner of the province. Alberta’s Premier, Rachel Notley, has made it clear that the oilsands operators only need electricity if they can sell their product.

There is also faint hope for the beleaguered Keystone XL project. TransCanada announced that the rejection was “arbitrary and unjustified,” and filed a challenge under the North America Free Trade Agreement (NAFTA), claiming US$15 billion in damages based upon lost investments and foregone revenues. The company noted that it had met all previous criteria established for cross-border pipelines, including the existing Keystone pipeline, which has safely delivered over 1 billion bbls of crude.

In addition, TransCanada has filed a lawsuit, claiming that the “decision to deny construction of Keystone XL exceeded his [Obama’s] power under the US Constitution.” The suit states that presidential power to deny a cross-border pipeline “does not exist.” The company is not seeking damages, but a declaration that the denial of a permit is without legal merit and isn’t essential prior to pipeline construction.

In the meantime, TransCanada purchased Columbia Pipeline Group (CPG) in a deal valued at US$13 billion. The merger positions TransCanada in the Marcellus and Utica shale plays in the US northeast, where output is expected to grow from 19 billion ft3/d in 2015 to 33 billion ft3/d by 2020. The combined companies will create a continent-wide, 91 000 km natural gas pipeline system.

The future

While the pipeline sector is not suffering financially in the way that the upstream sector is, its fortunes are ultimately tied to the health of the industry. In the short term, the prognosis is not good. CAPP stated that total capital spending in Canadian oil and gas operations will decline to CAN$31 billion in 2016, down from CAN$81 billion in 2014.

Over the next decade, however, LNG is expected to soak up significant over-supplies as trains come online and the oilsands is expected to need around 5 billion ft3/d by 2025.

Operators are also working aggressively to cut overheads. Unconventional operators are cutting costs by reducing drilling times through mud/bit/drill pipe optimisation, improving frack technologies and lowering water usage. While the total number of wells is down, the average well length and initial production have climbed significantly.

As for opposition to pipelines, industry participants are heartened by the recent NEB approval of Kinder Morgan’s Trans Mountain expansion. The project will add 980 km of new pipeline to the already existing infrastructure and allow Alberta producers to export up to 800 000 bpd from Edmonton to tidewater at Burnaby, BC. “This decision is a milestone for the future of Canada,” said CAPP President and CEO, Tim McMillan. “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.”

As noted by McMillan, the world needs a reliable supply of energy that is produced safely and responsibly.

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