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Canada approves pipeline that would compete with Keystone XL

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Courtesy Bloomberg.Com

The Canadian government approved Enbridge Inc. (ENB)’s Northern Gateway pipeline, eliminating the final major regulatory obstacle for the conduit that would move Alberta oil to the Pacific coast for shipment to Asia.

The approval of the C$6.5 billion ($6 billion) project by Prime Minister Stephen Harper’s cabinet is subject to Enbridge satisfying the 209 conditions placed on the proposal by a regulatory review panel in December, Natural Resources Minister Greg Rickford said in a statement today from Ottawa.

“The proponent clearly has more work to do in order to fulfill the public commitment it has made to engage with Aboriginal groups and local communities along the route,” Rickford said in the statement.

Canada’s petroleum producers are seeking ways to get land-locked and price-depressed Alberta crude to world markets, especially after delays to TransCanada Corp.’s proposed Keystone XL pipeline. Harper’s government has made building energy infrastructure a national priority, part of C$650 billion of investment in more than 600 existing or planned projects over the next decade to develop the country’s natural resources, including the world’s third-largest pool of recoverable crude reserves.

Crude producers such as Canadian Natural Resources Ltd. and Cenovus Energy (CVE) Inc., facing a five-year average discount of almost $20 a barrel for their oil relative to U.S. benchmarks, are seeking new markets. Canadian oil-sands output is set to more than double to 4.1 million barrels a day by 2025 from 2013, according to the Canadian Association of Petroleum Producers, an industry group.

Opposition Remains

While the federal government’s endorsement is the last major federal regulatory hurdle for a project first proposed a decade ago, the pipeline still faces opposition from environmental and aboriginal groups who have promised to delay its construction. The province of British Columbia, which controls local permits, has also set five conditions that include financial benefits and environmental protection before signing off on the pipeline.

The 1,177-kilometer (731-mile) conduit would start in the eastern Alberta plains at Bruderheim, about 35 miles northeast of Edmonton, and cross the Rocky and Coast mountain ranges to the Pacific port of Kitimat, British Columbia, carrying as much as 525,000 barrels a day of diluted bitumen. From there, the fuel would be loaded onto tankers and shipped through the Douglas Channel, a passage that narrows to less than a kilometer.

Opposition lawmakers in Ottawa condemned the decision. Tom Mulcair, leader of the main opposition New Democratic Party, vowed to rescind the approval if his party wins elections scheduled for next year.

Severe Threat

“You can no longer force projects like this from the top down,” Mulcair told reporters in Ottawa. “We are talking about a severe threat to social order, social peace.”

Liberal leader Justin Trudeau also said he’d overturn the decision if he wins the next election. “This government has from the very beginning been a cheerleader for this pipeline when what we need is a referee.”

Earlier today, Harper defended the process that led to the decision, telling lawmakers in Ottawa the government makes decisions “based on the facts.”

“This government has approved some projects, not approved others, conditionally approved some based on the findings of panels, based on the findings of fact,” Harper said.

Alberta Premier Dave Hancock called today’s decision “a step forward in accessing new markets for Canada’s energy resources.”

Much Work

“We recognize there is still much work to be done with the Northern Gateway project and we look forward to the opportunities it presents for all Canadians,” Hancock said in an e-mailed statement.

Along with recommending approval of Northern Gateway in December, a regulatory panel imposed 209 conditions, which Chief Executive Officer Al Monaco said required Enbridge to recalculate the cost of the project. The Calgary-based company hasn’t provided a timeline for when the new estimates will be made public.

Under the regulator’s conditions, Enbridge must have liability coverage of C$950 million and lead research efforts on heavy-oil spills in marine and freshwater environments. Other conditions include building extra oil storage facilities at Kitimat and establishing an emergency-response plan with the ability to handle a spill of about 230,000 barrels, more than three times the legal requirement.

Legal Action

Aboriginal groups, including the Yinka Dene Alliance, have threatened legal action to stop the pipeline or delay its construction. Opponents fear an oil spill would destroy their fisheries and shellfish beds. Some environmental and aboriginal groups have already filed lawsuits in federal courts seeking review of the regulator’s recommendations.

Harper’s government has introduced regulatory changes, added safety regimes for pipelines and marine-oil tankers and stepped up engagement with aboriginals in an effort to bolster public support for the development of energy infrastructure.

Only a minority of British Columbians wanted Harper’s government to approve the project. Thirty-four percent of residents said they want it blocked, while 33 percent want it delayed for further review, according to a Bloomberg-Nanos poll published on June 3. Twenty-nine percent say they wanted Northern Gateway approved, according to the poll.

Spill Fears

The poll also showed fears of an oil spill are top of mind. Thirty-six percent of respondents said the idea that the pipeline might lead to a spill best represented their view. Next was the perspective that the project will create jobs in the province, at 25 percent. Only 15 percent said the idea that the pipeline will contribute to climate change best represented their viewpoint.

Forty-seven percent of respondents said they’d be less likely to vote for Harper’s Conservative Party if the government approves the project, including 19 percent of those who said they supported Harper in the 2011 elections.

Enbridge’s C$500 million of 4.57 percent notes due March 2044 yielded 159 basis points more than Canadian government benchmarks yesterday. The premium has widened three basis points in the past week, according to Bloomberg composite prices. Over the same period average spreads on the Bank of America Merrill Lynch Canada Corporate Index narrowed 1 basis point.

British Columbia Premier Christy Clark’s five conditions for backing the project include being financially compensated for accepting the risks associated with spills. In November, British Columbia and Alberta signed a framework deal that sets the ground rules for development of pipeline projects in the nation’s westernmost province.

Secured Projects

Northern Gateway is one of C$36 billion worth of commercially secured projects that Enbridge, Canada’s largest pipeline company, is developing through 2017, including reversing an oil pipeline to carry crude to refineries in Quebec. The company expects earnings per share to grow 10 percent to 12 percent through 2017.

While crude producers say pipelines would ease transportation bottlenecks that have suppressed the price of Canadian heavy oil, efforts to build energy infrastructure have run into opposition both at home and in the U.S.

President Barack Obama said in April he was delaying a decision on the Keystone project because of a court battle in Nebraska, extending a review now in its sixth year.

To contact the reporters on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net; Andrew Mayeda in Ottawa at amayeda@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net Paul Badertscher, Chris Fournier

Read on Bloomberg.com

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