Putting All The Eggs In One Basket
Written by Steve Wuori Tuesday, 20 December 2011 00:00
Some industry opponents, and even some in the news media, have been treating proposed Canadian pipelines to the United States as if they were a novel development.
In fact, Enbridge Inc. has been delivering oil to the U.S. market for six decades now and is continuing to extend the reach of Canada’s crude oil in the world’s largest and most important energy market. The Enbridge system on its own delivers about 13 per cent of the United States’ crude oil imports every day.
Crude oil is Canada’s most valuable export, worth about $50 billion in 2010 alone. But, effectively, all of Canada’s petroleum exports—about 99 per cent—go to one customer: the United States.
Both countries benefit tremendously from the energy-trading relationship: put simply, Canada has the oil and the United States needs it. But there’s a downside:
First, Canada lacks a national energy strategy for its most important strategic resource. How can the country play to its strengths if it doesn’t have a plan?
Second, as the United States remains Canada’s only customer for crude exports, the oil price is set within the North American market, that is, at the West Texas Intermediate price. Canada even has to pay a discount on top of that.
Third, growing U.S. crude oil production coming out of the Bakken region and Eagle Ford play, as well as the massive new shale gas reserves unlocked over the past few years, will compete with Canada for market share.
Consider these facts: U.S. demand for oil is flat or dropping; U.S. domestic production is rising and under law none of that production can be exported; and, under legislation, the United States is mandated to replace crude oil with ethanol and other biofuels as much as possible.
Things don’t look much brighter on the industry side: the United States has not announced any further refinery conversions to run Canadian heavy crude and it has announced the possible conversion of the U.S. heavy-truck fleet to natural gas. Then there is the growing opposition to oilsands crude in the United States.
None of these factors work in Canada’s favour. No businessperson would ever allow themself to be held hostage to one customer, no matter how good that customer is. To put it another way, when it comes to Canada’s crude oil, right now all the eggs are in the U.S. basket and that basket is not getting any bigger.
Canada needs to diversify its petroleum markets. Enbridge’s Northern Gateway project would do just that, connecting this country’s crude oil reserves to the growing markets on the Pacific Rim.
The project, estimated to cost about $5.5 billion, consists of two parallel pipelines, about 1,900 kilometres long, extending from the Edmonton area to a new marine terminal at the west-coast port of Kitimat, B.C.
The westbound pipeline will carry crude oil and have a designed capacity of 525,000 barrels per day, while the eastbound line, designed to transport 193,000 barrels per day, will carry diluent from the coast back to the Edmonton area.
There is no doubt that the project is controversial. Canada has a great deal of work to do to get the facts about Northern Gateway out to stakeholders, decision makers, media and the general public. But there can be no doubt that Northern Gateway would be a game changer for Canada as a whole.
It can diversify Canada’s energy market options by connecting this country’s crude oil resources to important, emerging markets in Asia. It can move Canada into a position as a price-maker in the global marketplace, rather than a land-locked, single-customer price-taker as it is today.
At a stroke, Northern Gateway can provide a tremendous increase in productivity that will be felt not just in western Canada, but across the entire country in nearly every sector for decades to come.
It will link two of Canada’s most important competitive strengths: its tremendous petroleum reserves and its Pacific advantage—a coast that is close geographically, culturally and through existing business relationships—to the growing markets across the international dateline.
And it will demonstrate to Canadians and to the rest of the world that Canada is ready, willing and able to participate fully in the global marketplace, play to its strengths and strategic advantages, and to take its rightful place as an energy superpower.
Stephen Wuori is president of liquids pipelines with Enbridge Inc.