Following the U.S. State Department’s decision to postpone a decision on TransCanada Corp.’s Keystone XL pipeline, Canadian pipeline boosters from oilpatch CEOs to federal Natural Resources Minister Joe Oliver responded that Canada would have to look to other markets—namely China—to buy our oil. It may seem a snappy comeback as you pick up your marbles and exit the playground, but it’s not so simple.
Nor does it follow, as has been widely speculated upon in the media, that Enbridge’s Northern Gateway pipeline proposal represents an alternative to Keystone XL. Yes, the two pipes would each move about half a million barrels a day. Yes, by carrying the oil to tidewater they would both capture the higher world price for Canadian producers. But beyond that, they are different projects with very different prospects.
Even after this setback, Keystone XL stands a better chance of being built than Gateway. Both pipelines face two forms of opposition: widely dispersed environmentalists worried about climate change, and stakeholders along the route more concerned about oil spills. There is probably no accommodation to be made between the pipeline interests and the climate-change crowd. But there is with farmers and state governments. Almost as soon as the delay was announced, Nebraska’s governor and two senators, who had opposed Keystone XL, said they would support the rerouting of the line around the sensitive Ogallala Aquifer and Sand Hills.
The stakeholders in Gateway’s case will not be so accommodating. These are no Great Plains Republicans. They include the Gitxsan and Wet’suwet’en tribal councils that pressed their land claim through the courts for 13 years, culminating in a landmark 1997 Supreme Court of Canada decision that established the existence of aboriginal title in B.C. That ruling compelled governments to consult and at times compensate First Nations with unresolved claims for new developments in their traditional territories. Along the way, they forced the B.C. government to change course, after 130 years of denying the existence of a native title, and launch new treaty discussions.
The Wet’suwet’en have already sided with the Carrier-Sekani and the Coastal First Nations coalition in opposing the pipeline. Mostly not participating in the treaty process, these First Nations instead intend to assert what they see as their rights—which go far beyond treaty settlements—on the ground and in the courts. In the event construction on Gateway were to begin without their consent, one could expect them to physically block construction crews. They would likely be joined by commercial fishermen fearful of the threat Gateway poses to pristine salmon rivers.
But it probably won’t get that far, because of a far larger stakeholder: the province of B.C. To date, the B.C. government has steered clear of the federal regulatory process on Gateway. The ruling Liberals are firmly pro-business and pro-job creation. In a speech last September, Premier Christy Clark ventured to say her province “can do something great for Canada.” However, polls indicate around three-quarters of British Columbians oppose the idea of oil tankers frequenting their coast, and Clark will be heading into an election in May 2013, if not sooner.
Can B.C. voters be swayed? Not likely. As with aboriginal title, the constitutional framework that we operate under does not favour Gateway. There’s an asymmetry between the project’s risk and reward. The benefits of building the pipeline would largely accrue to Alberta. If producers get a higher price per barrel, its government would reap higher royalties. Yet the risk of a spill from the pipeline itself or from tankers offshore is overwhelmingly borne by B.C. Short of sharing royalty revenues with B.C.—note how both the B.C. Liberals and their NDP opponents support plans for liquefied natural gas terminals, which would boost gas revenues in B.C.—there’s no way for Alberta or an Albertan prime minister to bring B.C. onside.
But let’s suppose Gateway overcame those odds and got approved. It would work as a way to diversify Canada’s customer base, yes. But to assume that China could become a primary market for the oilsands makes no sense, economically or ecologically. As it is, the oilsands are among the most expensive and highest-polluting sources of oil on the planet. They only compute in the context of supplying the U.S., still the world’s largest oil market, where they are competing with crude that has to be shipped at considerable financial and atmospheric expense from distant sources like Nigeria and the Persian Gulf. There, Canadian bitumen can at least compete on price, on security of supply and, arguably, on carbon intensity.
In China, this is not the case. Canadian oil would have to be shipped just as far as Saudi oil, which can be produced for less than $10 a barrel. And if Canadian bitumen has a big carbon footprint now, imagine if it had to be shipped around the world.
It was news not of Gateway but of another Enbridge project that sent the price of NYMEX oil futures upward just a week after the Keystone delay. In a joint venture with Enterprise Product Partners LP, the company will acquire and reverse an old ConocoPhillips pipeline from the Gulf Coast of Texas to Cushing, Okla., to go into service as soon as next summer. This, not the Canada-U.S. border, is the site of the biggest bottleneck along the XL route, which is why TransCanada is seeking approval to build this leg too while it awaits a ruling on the rest. Should these lines and other added capacity close the price differential between West Texas Intermediate and Brent crude, the economic case for Gateway would suffer.
The Gulf Coast, destination for Keystone XL, remains the largest cluster of refining capacity in the world, much of it designed to handle heavy crude—similar to bitumen—from Mexico and Venezuela. If Canadian oil can’t make it there, it won’t make it anywhere.