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Boom in Alberta Oil Sands
Fuels Pipeline Dreams
As Routes Reach Capacity,
Race Is On to Link Fields
To West Coast and China
By TAMSIN CARLISLE
Staff Reporter of THE WALL STREET JOURNAL
May 31, 2005; Page A2
FORT MCMURRAY, Alberta -- Canada, with its vast oil-sands resource,
is gearing up to export more crude oil than ever before. But with
Canada's pipelines just about full, the burgeoning oil-sands
industry is running into a bottleneck.
That has touched off a new race: to build massive, expensive
pipelines that will carry expanding oil production from this
isolated region in northern Alberta hundreds of miles over mountains
and forests to the Pacific Coast and major oil-thirsty markets,
especially China and the U.S. West Coast.
The winner among the pipeline companies could have the best chance
to tap new markets and sign up customers. The companies could also
establish themselves as intermediaries between Canada's burgeoning
oil-sands region and Chinese energy companies, which have been
seeking reserves world-wide to meet that nation's surging energy
needs.
Last month, Enbridge Inc. of Calgary, Alberta, signed an agreement
to share the costs of building a 2.5 billion Canadian dollar, or
about US$2 billion, pipeline, called the Gateway Pipeline, with
China state oil company PetroChina Co. Terasen Inc., based in
Vancouver, British Columbia, and the only company already operating
an oil pipeline from Alberta to Canada's West Coast, has proposed a
rival C$2 billion plan to expand the existing pipeline and plans a
second, new line.
The companies also plan projects along their more traditional routes
to the U.S. market through the northern Midwest. But the westbound
projects, which would open up new markets for oil sands, promise to
be at the same time more lucrative and potentially more difficult.
The pipeline companies already are negotiating with Native American
bands for land-use rights, gearing up for the expense and technical
complexities of the big projects and facing the concerns of
environmentalists.
"We're very concerned about the pace and extent of oil-sands
development. All aspects of the environment are becoming stressed
because of cumulative impact," says Chris Severson Baker, a
spokesman for the Pembina Institute, an Alberta-based environmental
group.
Oil sands are gritty deposits of tar-like bitumen, and Canada's
deposits are now recognized as the biggest source of crude oil
outside Saudi Arabia. Extracting and processing sticky bitumen is
much more expensive than producing and refining conventional crude,
but global supply concerns have pushed crude prices to about $50 a
barrel and made bitumen projects more economically viable.
Producers have announced plans to invest some C$80 billion in
development of Alberta's oil sands, according to the Canadian
Association of Petroleum Producers in Calgary, and they expect to
double production to about two million barrels a day from oil sands
by roughly the end of this decade. Some of the world's biggest
energy companies are involved, including Exxon Mobil Corp. and Royal
Dutch/Shell Group.
Enbridge wants to build a new pipeline from northern Alberta to a
proposed deep-water tanker terminal at Prince Rupert or Kitimat, on
the northern British Columbia coast. Either port could accommodate
the massive oil tankers with capacities exceeding 250,000 metric
tons, or roughly 1.6 million barrels, to ship to China.
Under its agreement with Enbridge, PetroChina will commit to renting
pipeline capacity for 200,000 barrels of oil a day, or half of the
Gateway Pipeline's total capacity, which would effectively
underwrite half the project's costs. Enbridge has also said it is
willing to sell up to a 49% interest in Gateway to one or more
equity partners.
Enbridge Vice President Richard Sandahl said his company and
PetroChina are in talks to firm up terms of their agreement, which
might include PetroChina acquiring a minority stake in the
project. "It wasn't an easy commitment for the Chinese to make, but
diversification and security of oil supply are priority issues to
them," he said.
Enbridge President and Chief Executive Patrick D. Daniel said three
years of preliminary discussions with landowners, including Native
American groups, along the proposed pipeline's route haven't raised
any insurmountable issues. Nonetheless, evidence of the land-access
difficulties facing pipeline projects was brought starkly into focus
earlier this month when a group of major energy companies abruptly
halted preconstruction work on a northern natural-gas pipeline, due
in part to lack of progress on reaching agreements with aboriginal
groups.
Andrew George, lands and resources director of the Office of the
Wet'suwet'en, says the five northern British Columbia native clans
that his organization represents want to be involved in detailed
consultations on Enbridge's pipeline project "from the get-go, at a
strategic level, when the big decisions are made." He said the group
has held only preliminary talks with Enbridge.
Terasen's pipeline project, to expand its TransMountain Pipe Line
from Alberta to Vancouver, is set to begin next year. The expansion
would take pipeline capacity to 300,000 barrels a day by the end of
2008 from 225,000, and to as much as 850,000 barrels a day in
potential future project stages. Because the Vancouver oil terminal
can't handle very large crude tankers, most of the additional
Canadian oil shipments would initially go to California or the U.S.
Pacific Northwest on small vessels. Later the company would build a
second line to Prince Rupert or Kitimat, to accommodate oil exports
to Asia. |
