Category Archives: Tar Sands

Enbridge’s Line 9: Shipping Tar Sands Crude East

November 22, 2012Canada, Energy and Resources, Oil&Gas, Politics, Tar Sands, Western CanadaAlberta Tar Sands, Enbridge, Oil and gas, Politics, Thomas MulcairDamien Gillis

This article is republished with permission from Watershed Sentinel.

In a move that could cost him significant political support, federal NDP leader Thomas Mulcair has endorsed controversial west-to-east pipeline proposals that would move tar sands crude from Alberta through Ontario and Quebec to Atlantic Canada and points beyond.

During a Sept. 28, 2012 speech to the Canadian Club of Toronto, Mulcair said, “Let me be clear, New Democrats support recent proposals to increase West-East pipeline capacity. This is an initiative, led by industry, that will pay economic dividends for every region of our country: new markets for [tar sands] producers in the West, high-paying value-added jobs and lower energy prices in the East.”

Mulcair called this a “pro-business common sense solution.”

With a bottleneck of crude at the storage hub in Cushing, Oklahoma, pricing discounts for diluted bitumen (dilbit) at US Midwest refineries, and strong opposition to tar sands export pipelines in both BC and the US, the industry has seized upon “eastern access” to Atlantic tidewater as a solution. Canada’s top two pipeline/utilities companies – Enbridge and TransCanada Corp. – are each developing plans to pipe crude east, while environmental groups across Ontario, Quebec and New England have been gearing up for a major fight on the issue.

The “Wrong Product”

Ironically, only hours before Mulcair’s speech, Alberta Federation of Labour president Gil McGowan issued a press release (Sept. 27) stating: “The bottom line is Alberta is selling the wrong product [dilbit]. The glut of bitumen on the market is a result of bitumen looking for appropriate refineries. If the product was SCO [synthetic crude oil], we could be selling the product to any refinery in North America.” As well, many pipeline safety issues could be avoided (see March-April 2012 Watershed Sentinel).

Tar sands producers generally produce either “synthetic crude,” which has passed through an on-site upgrader, or dilbit, which is raw bitumen thinned with lighter petroleum products and proprietary chemicals. With increased production over the last few years, tar sands producers (which are mostly foreign-owned) are now piping out more dilbit in order to cut their costs. According to Alberta Energy, there are only five operating upgraders in Alberta, and in 2011, “about 57% of oil sands production was sent for upgrading to synthetic crude oil within Alberta,” a percentage that will rapidly decline as production vastly increases. Over the next decade, tar sands producers reportedly plan to triple the amount of dilbit they pipe.

On July 23, 2012, the US National Academy of Sciences began hearing expert briefings on whether dilbit increases the risk of pipeline spills, as environmentalists claim. Gil McGowan’s point is a crucial one: not all refineries in North America can handle dilbit, nor can all refineries in eastern Canada. That fact is significant to understanding who would benefit from “eastern access” pipelines plans.

Line 9 Reversal

Enbridge is now moving quickly on a plan to pipe tar sands crude through Ontario, Quebec, and New England to Atlantic tidewater in Portland, Maine. From there it would be shipped by tankers to refineries in the US and elsewhere.

In May 2012, Enbridge announced a $3.2 billion expansion of its North American pipeline system, including expansion of its Lakehead system which pipes dilbit from Alberta to US Midwest refiners. Some of that dilbit also reaches refineries in Sarnia, Ont., via Enbridge’s Line 5 (which brings dilbit from Superior, Wisconsin, across northern Michigan to Sarnia), and Line 6B (which pipes dilbit from Chicago across Michigan to Sarnia). Both Line 5 and Line 6B extend from the tar sands across Alberta, Saskatchewan and Manitoba before entering the US at Superior, Wisc. According to rabble.ca (Sept. 11, 2012), in Sarnia “tar sands are already being refined [by Imperial Oil and Suncor] at an estimated rate of 225,000 barrels per day.”

It was Enbridge’s Line 6B that ruptured in Michigan in 2010, spilling 20,000 barrels of dilbit into the Kalamazoo River. During repairs, Enbridge has quietly been increasing the capacity of that pipeline to 500,000 barrels per day (bpd).

Enbridge also intends to reverse Line 9, which currently carries 240,000 barrels per day of imported conventional oil from Montreal to Sarnia. On July 27, Canada’s National Energy Board granted approval for the reversal of a portion (9A) of Line 9 between Sarnia and Westover, Ont. (where an oil hub is located that diverts crude to Imperial Oil’s refinery in Nanticoke, Ont. and to Pennsylvania refineries).

Enbridge intends to file for the reversal of the remaining portion (9B) between Westover and Montreal this autumn. On Oct. 23, Enbridge filed a document with the NEB showing it plans to increase the capacity of Line 9 to 300,000 bpd and switch it to carrying “heavy crude,” which includes tar sands oil.

In order for tar sands crude to reach the Atlantic, another pipeline – the Portland/Montreal Pipe Line (PMPL – which brings imported conventional oil from Portland, Maine to Montreal) – would also have to be reversed. The PMPL passes through Quebec, Vermont, New Hampshire, and Maine.

The Portland/Montreal pipe is majority-owned by Imperial Oil and Suncor. Officials with PMPL have reportedly been in talks for over a year to reverse that line.

Enbridge also intends to export tar sands crude from Portland, Maine. According to the Globe and Mail (June 1, 2012), “In a recent conversation with Streetwise, Stephen Wuori, Enbridge’s president of liquids pipelines, said his company believes it can export crude from the US without consequence. Asked if it would be possible to send oil to international markets from Maine, he said the answer is yes.”

More recently, the Globe and Mail reported (Sept. 6, 2012) that Enbridge “has met with officials from refineries in Quebec City and Saint John to discuss their appetite for Western Canadian crude. Companies could barge oil from Montreal to Quebec City, and then perhaps ship it by rail to Saint John.”

TransCanada’s Mainline to the East Coast

TransCanada Corp.’s natural gas Mainline runs 14,000 kilometres from the Alberta/Saskatchewan border to where Quebec meets Vermont. The Mainline, which pipes natural gas to Ontario, has been operating at only half-capacity in recent months because of competition from US shale gas. Canadian Natural Resources Ltd. and others have been urging the company to switch to carrying crude in its gas Mainline. TransCanada Corp. is also one of the owners of Ontario nuclear power-generator Bruce Power, which has been pushing the nuclear option for tar sands/energy production in Alberta and Saskatchewan.

TransCanada Corp. has not disclosed much about its west-to-east pipeline project, but recently Globe & Mail reporters Nathan Vanderklippe and Shawn McCarthy provided (Sept. 6, 2012) some details on “a massive $5.6 billion new pipeline system that would carry large volumes of western crude to refineries in Ontario, Quebec, and beyond.”

Their news report states:

The East Coast project described to [us] by industry sources would involve converting roughly 3,000 kilometres of underused natural gas pipe – the Mainline is made up of a series of parallel pipes – into oil service. It would also involve building at least 375 kilometres of new pipe from Hardisty, the Alberta oil hub, to the Mainline at Burstall, Sask., and from near Cornwall [Ont.], at the other end, to Montreal. Another 220 kilometres would be required to reach Quebec City. Oil could be loaded onto ocean-going vessels either on the St. Lawrence River, or destined for American refiners via Portland, Maine, through a pipeline [PMPL] to Montreal whose flow could be reversed…The TransCanada proposal would send 625,000 barrels a day across the country to Montreal, Quebec City and potentially Saint John, NB, where Irving Oil Ltd. runs a large refinery. Tanker exports could then also take the crude to Europe or Asia.

In late July 2012, RBC Capital Markets urged that TransCanada Corp. stop focusing on the controversial Keystone XL pipeline to Texas and instead convert its Mainline to carry 900,000 barrels per day of tar sands crude to Sarnia, and then use Enbridge’s Line 9 to move it to Montreal.

So potentially, more than 1.4 million barrels per day of tar sands crude could be piped through southern Ontario and Quebec – the most populated area of Canada – to points east. The industry considers “eastern access” pipelines to be in addition to projects like Northern Gateway.

Upstream/Downstream

Refining is currently considered a financially viable business in North America mainly for companies that both produce (“upstream”) and refine (“downstream”), largely because they can buy dilbit and other feedstock cheaply and then sell the refined petroleum products for a high price internationally.

In the tar sands, companies with both upstream/downstream facilities in North America include Imperial Oil, Suncor, Shell, Husky, Valero, Marathon, ConocoPhillips, Cenovus, BP, and Flint Hills Resources/Koch Industries. Many of these companies have already invested billions to convert their refineries in the US Midwest and Gulf Coast for processing tar sands crude.

In 2010, Royal Dutch Shell closed its Montreal refinery and converted it into a fuel storage terminal. Imperial Oil put its Dartmouth, NS refinery up for sale on May 17, 2012, but is also considering converting it into a storage terminal. By the terms of its sale to Korea National Oil Corp., the North American Refinery in Newfoundland only refines the province’s offshore oil, with most of its refined petroleum products exported to the US. As of March 2012, Shell is considering upgrading bitumen at its Ontario refinery and Suncor is considering the same thing for its Montreal refinery. The resulting “synthetic crude oil” would still have to go to another refinery to be made into products like gasoline, diesel, and jet fuel.

Peter Boag, president of the Canadian Petroleum Producers Institute – which represents the refining and marketing sector – told the Globe and Mail (Sept. 6, 2012), “Significant changes to the crude diet to really ramp up the volumes of western-based heavier crudes in Eastern Canada is going to require some significant investment in refinery reconfiguration.” As Gil McGowan put it, Alberta is selling “the wrong product.”

The Irving Empire

According to the University of Calgary’s Jack Mintz (Financial Post, Dec. 16, 2011), the only refinery on the Atlantic that can currently process “heavy sour diluted bitumen [dilbit]” is “the Irving Refinery” in New Brunswick. Otherwise, he said, “this type of crude cannot be processed in eastern North America.”

Enbridge has been planning its “eastern access” pipeline since at least 2008. On March 11, 2008, Reuters reported that “Enbridge Inc. is looking at moving oil sands crude to the US Northeast and Eastern Canada,” and quoted Enbridge CEO Patrick Daniel: “If we move to reverse Line 9 [in Ontario], that could come before [Northern] Gateway [in BC]. If it is a large volume, 400,000 barrels a day, [Northern] Gateway would come first.”

In 2011, Enbridge appointed to its board a director of Irving Oil, which now owns 50 per cent of an oil terminal in Portland, Maine.

The Globe and Mail reported (Aug. 23, 2012) that Irving Oil “unveiled a proposal three years ago to build [another] 300,000 barrels-a-day [refinery] facility to serve the northeast United States,” and later partnered with BP on the idea – which is currently shelved. According to the same newspaper (Sept. 6, 2012), the Irving Refinery in Saint John buys about $10 billion per year of imported conventional oil, refines it, and then sends “eighty per cent of the plant’s production” south of the border.

Obviously, tar sands producers like Canadian Natural Resources Ltd. – which owns no downstream refineries – are eyeing that annual $10 billion in hopes that it will be used to buy crude piped east. Canadian Natural Resources Ltd. plans to greatly increase its tar sands production to one million barrels per day over the next decade. Frank McKenna – the former premier of New Brunswick and a current director of Canadian Natural Resources Ltd. – has been one of the most vocal proponents of west-to-east pipelines from Alberta, and has called for a new oil pipeline from Montreal to Saint John.

In mid-July, Canada’s Parliamentary Standing Senate Committee on Energy, the Environment and Natural Resources (with 7 Conservative and 5 Liberal members) endorsed west-to-east tar sands pipelines as a “nation-building” project.

Besides Frank McKenna and the Senate Committee, other outspoken proponents include Derek Burney (a director of TransCanada Pipelines Ltd.), Eddie Goldenberg (a lawyer with Calgary law firm Bennett Jones), the “ethical oil” people, and now the NDP’s Thomas Mulcair. Some commentators consider the west-to-east pipeline plans to be the centre of Alberta Premier Alison Redford’s “national energy strategy.”
But the plans by Enbridge and TransCanada Corp. seem largely to be a strategy for Big Oil to get a higher price for dilbit by export via the Atlantic – most likely to the US Gulf Coast, where their downstream profits would be highest.

Environmental organizations across Quebec, Ontario, and New England, along with some First Nations and landowner organizations residing along Line 9, have been rallying in opposition to these west-to-east pipeline plans.

All this is happening mainly because the Alberta government is too timid and subservient to require that all tar sands production be upgraded or refined on-site. Instead, it keeps allowing Big Oil to pipe out more and more of “the wrong product.” As a result, tar sands pipelines will continue to be fought across North America.

***

Joyce Nelson is an award-winning freelance writer/researcher and the author of five books.

One Step Forward with Fish Farms, Two Steps Back with Proposed Fossil Fuel Exports

November 17, 2012Canada, Energy and Resources, Oceans, Oil&Gas, Pipelines and Supertankers, Politics, Salmon Farming and Aquaculture, Tar Sands, Western CanadaAdrian Dix, Alberta Tar Sands, Aquaculture, BC Oil Pipelines and Supertankers, LNG, Oil and gas, Politics, SalmonRafe Mair

A couple of thoughts today.

A promising article on fish farms appears in today’s Vancouver Sun. At face value it looks like great news – the story of fish farming on land with no contact with the ocean.

As I say, it looks great but I want to hear what Alexandra Morton has to say.

The objection industry has always made is that it’s too expensive for them to compete that way. The answer to that, according to the Sun article, is that excrement can be recycled for profit and that expenses such as fish lost to predators, or to kill sea lice are avoided.

There is only one fair way to compare the two approaches: charge fish farms an appropriate rent for their leases to include ALL the environmental losses. This levels the playing field and is only fair.

The market for farmed fish is there as we deplete wild stocks around the world. The trouble is that our wild stocks are not depleted by over-fishing anymore but by allowing poisoned farmed fish to mingle with the wild.

Bringing the farms on land will only happen if ocean farms are taxed their appropriate due.

On another note, no sooner had the news been out that the US was looking to be self-sufficient in energy than the bottom feeders rose as one to tell us this means we must update our mining of the tar sands and the piping of it though BC to the coast then shipping by tanker to Asia. The US will no longer need our filthy bitumen so we must redouble our efforts to bugger up the environment in BC to ship even more of the stuff down our fjords.

What ever happened to weaning ourselves off fossil fuels?

If the rapacious industry must continue to mine bitumen, send it to a refinery in Alberta. Irrespective of US capabilities, there will always be a world market for oil.

Moreover, there is an economic reality being ignored. The price of fossil fuels will reduce considerably over what we figure makes a profit. It’s an open ended market. China takes our bitumen if that’s the cheaper way to get energy, it abandons us if it’s not.

I invoke Mair’s Axiom I: “You make a serious mistake assuming that people in charge know what the hell they’re doing!”

Here we are in BC doing everything we can to press forward with LNG plants to convert natural gas to liquid to ship it to new markets while the gas prices plummet. With “fracking”, supply around the world has dramatically increased. Do we really believe that the third largest country geographically in the world, China, doesn’t have fracking capability either at home or closer than Canada? In fact, they are just getting started.

China has it both ways – it can import from us when supply is short (don’t hold your breath for that to happen) or produce it cheaper closer to home.

We are idiots.

This neatly segues into the question of the next BC budget.

Going into the May election the Liberals will want a balanced budget. One of the main factors will be, of course, income and no prize for guessing where that will come from.

You got it – natural gas. The government hasn’t a clue what that figure will be but you can bet the ranch that they will generously err on the high side.

We must all remember that in 2009 they were more than $2 BILLION short of the real numbers and they got away with it.

Desperate people do desperate things and the false card the Liberals play is that they are better stewards of the economy than are the NDP – even though the evidence is quite to the contrary.

The NDP, in the meantime, have completely lost their minds. They are, you see, going to help the Liberals prepare the next budget! This all from Adrian Dix‘s desire to make the legislature more cooperative.

(I wrote a two-part series in The Tyee, recently on how that can be accomplished and this is not the way).

Randolph Churchill (father of Winston) once said, “it’s the duty of the Opposition to oppose”, and he’s right. My series suggests how that can be done safely.

The greatest fear of any legislator is the “unforeseen consequence” of his policy. Now the NDP are going to join the process so that we will not get the value of “the other side” and the NDP will deprive themselves of any ability to question the budget in the next election because, it will be said, it was the NDP’s budget too.

I, for one, am becoming quickly disillusioned with Dix and Co. Not only are they onside with the government’s energy policy – or prepared to go easy is areas like LNG – they seem to be laid back polishing up the crown they’re sure to get next May.

This isn’t helpful for the public but also puts the NDP into a sort of “drift”. The Liberals can see that and you can bet they will be in better political shape next May than they now are, helped along by the total collapse of the Conservatives.

Mr. Dix, in politics 6 weeks is an eternity and in this old pol’s view you are looking to inherit that which you must earn.

‘Canada’s Carbon Corridor’: Multi-Media Dialogue in North Vancouver Nov. 14

November 12, 2012Energy and Resources, Hydropower, Mining, Oil&Gas, Pipelines and Supertankers, Tar SandsAlberta Tar Sands, BC Oil Pipelines and Supertankers, carbon corridor, Enbridge, Mining, Oil and gas, Site C DamDamien Gillis

This Wednesday evening, the Vancouver International Mountain Film Festival is hosting a multi-media discussion of “Canada’s Carbon Corridor” at Centennial Theatre in North Vancouver. The event is part of the festival’s Fall Series – a week of films and presentations on outdoor adventure and environmental themes.

The title for Wednesday’s event comes from a term developed by the team producing the forthcoming documentary film Fractured Land – of which I am co-director. We came up with the concept to articulate a big-picture view of the interconnected web of major oil, gas, coal, mining and hydroelectric projects proposed and in development across northern BC and Alberta, and the Harper and Clark governments’ grand plan to export these resources to new markets in Asia. I view the Carbon Corridor as the biggest transformation to Western Canada’s socioeconomic, cultural and environmental fabric since the colonial, “nation building” days of the railroads of the last century. And I don’t think that’s an understatement.

I will be sharing the stage with six other “inspiring Canadians who are working to protect our coast, our environment and indigenous community’s rights and cultures”, according to VIMFF’s web page for the event. That list includes event organizer Megan Martin, young First Nations singer/songwriter Ta’Kaiya Blaney, Ben West of the Wilderness Committee, photographer Zack Embree, Great Bear Rainforest eco-tour guide and activist Norm Hann, and Kim Slater, who ran 1,177 km run across BC in search of alternatives to Enbridge’s Northern Gateway Pipeline.

My 25 min presentation, titled “Traveling Canada’s Carbon Corridor Through Film: The Making of Fractured Land“, will feature a series of short clips from our forthcoming film, which explores the industrialization of northern BC and Alberta through the eyes of a young First Nations law student, Caleb Behn. I’ll be retracing a recent two and a half week filming journey with Caleb across the Carbon Corridor – through the conversations we had with people in the various communities affected by these projects and visuals of both industrial activity and the spectacular, untouched wilderness threatened by this plan.

In addition to the series of presentations on stage Wednesday evening, a number of environmental organizations will be on hand with additional information about these important issues.

The evening promises to be a dynamic, compelling discussion on the challenges and solutions facing the future of Canada’s economy, society and environment.

Tickets for the “Canada’s Carbon Corridor” event can be purchased here for $15.00 or $17.00 at the door. The show takes place on Wednesday, November 14 at Centennial Theatre in North Vancouver (2300 Lonsdale Avenue). Doors open 6:30 pm, show starts 7:30.

URGENT FIPA UPDATE: Public Comment Period Still Open for Canada-China Trade Deal

November 3, 2012Canada, Energy and Resources, Oil&Gas, Pipelines and Supertankers, Politics, Tar SandsAlberta Tar Sands, BC Oil Pipelines and Supertankers, FIPA, Oil and gas, Politics, Stephen HarperKevin Logan

UPDATE: Step-by step ininstructions on how to submit your comments to the FIPA EA process by November 11 – act now!

The Common Sense Canadian posted a detailed breakdown of the Environmental Assessment process for the Foreign Investment Promotion and Protection Agreement (FIPA) between Canada and China earlier this week.

In that piece we noted the fact that the final Environmental Assessment seemed absent in the soon-to-be-ratified FIPA.

Since publishing the story we have learned that indeed the final EA report has not been completed AND there is still time for input from Canadians.

We urge our readers to share their concerns about the process and inform the Government of Canada about the significant environmental impacts of FIPA.

Learn more about the FIPA EA at this government website.

And submit your comments by emailing: EAconsultationsEE@international.gc.ca

We will soon be posting more details about FIPA impacts that people can include their submissions.

Tar Sands Pipeline to New England Being Plotted Behind Closed Doors, Envrionmental Groups Allege

October 16, 2012Energy and Resources, Oil&Gas, Tar SandsAlberta Tar Sands, Oil and gasCommon Sense Canadian

Read this story from commondreams.org on the concerns of a group of US environmental groups that Exxon Mobil, Suncor and Enbridge are plotting behind closed doors to reverse the flow of a pipeline to allow Tar Sands bitumen to be pumped from Alberta to a deep water port in Maine. (Oct. 10, 2012)

A new analysis released today by national and regional environmental groups shows that US oil giant Exxon Mobile and Canada’s Suncor hold a majority stake in a pipeline system that local residents along its route fear could soon be used to transport tar sands from western Canada to the New England coast.The central concern of the report (pdf) surrounds a 2008 proposal by Canadian oil giant Enbridge to reverse the flow of existing east-to-west oil pipelines that would allow transport of tar sands oil—categorized by many as the “dirtiest oil in the world”—from Alberta to the deepwater harbor of Portland, Maine.

The local companies who manage the pipelines companies insist the idea has been shelved for economic reasons, but multiple recent actions lead the environmental groups to believe that the proposal is now being quietly revived behind closed doors. Pointedly, the groups argue that the oil giants who own these local pipeline subsidiaries should not be trusted.

“Unbeknownst to most of the public,” said the groups in a statement, “a major portion of the proposed tar sands pipeline that would cut across the Great Lakes, Ontario, Quebec and New England to Portland, Maine, is actually owned by oil giants Exxon-Mobil, Imperial Oil, and Suncor Energy – all of whom have a deep stake in tar sands extraction.”

As the report explains:

The line has two direct corporate owners: Montreal Pipe Line Limited (MPLL), which owns the stretch in Canada, from Montreal to the U.S. border; and the Portland Pipe Line Corporation, which owns the U.S. section and is a wholly-owned subsidiary of MPLL. In turn, Montreal Pipe Line Limited’s ultimate parent is ExxonMobil: Exxon subsidiary Imperial Oil Limited holds a majority interest in the pipeline. A smaller portion is owned by the Canadian giant Suncor Energy. Imperial and Suncor are among the biggest developers of Alberta’s tar sands and stand to benefit greatly from this project to transport tar sands oil across the region for export.

With regionally-anchored names like “Montreal Pipe Line Limited” and “Portland Pipe Line Corporation,” the ten environmental groups involved with the report—which represent members in Maine, New Hampshire, and Vermont—claim that the international oil giants who own these subsidiary companies would rather hide the fact that some of the world’s most notorious polluters are operating in their backyards.

Harper Govt. Delays Chinese Nexen Takeover Decision by a Month

October 11, 2012Canada, Energy and Resources, Oil&Gas, Pipelines and Supertankers, Politics, Tar Sands, Western CanadaAlberta Tar Sands, BC Oil Pipelines and Supertankers, Oil and gas, PoliticsCommon Sense Canadian

Read this story from CBC.ca on the federal government’s announcement today that it is postponing its decision under the Investment Canada Act as to whether to permit the purchase of Canadian oil and gas company Nexen by Chinese state-owned CNOOC. (Oct. 11, 2012)

Industry Minister Christian Paradis has extended the federal government’s review of China National Offshore Oil Corp.’s proposed takeover of Nexen Inc. under the Investment Canada Act by 30 days.

CNOOC, one of three Chinese oil companies controlled by the Chinese government, is trying to buy Calgary-based Nexen in a $15-billion takeover.

Shareholders have already signed off on the deal, but any deal worth more than $331 million to take over a Canadian company requires regulatory approval from the Canadian government.

“Extensions to the review period are not unusual,” Paradis said. “In general terms, the Act provides an initial 45 days for the review, which can be extended for an additional 30 days.”

“The review period may be extended again, with the consent of the investor. A decision can be made at any time within this period,” he said.

Under the terms of the act, the transaction must be assessed on six factors, including whether or not it is of “net benefit” to Canada. That clause was most recently invoked with BHP Billiton’s $40 billion offer to buy PotashCorp. in 2010, which Ottawa nixed.

The proposed Nexen takeover has sparked concern across Canada, with Prime Minister Stephen Harper having said it “raises a range of difficult policy questions.”

The NDP is opposed to the deal, citing national security and environmental concerns in urging Ottawa block the transaction.

Canada’s Resource Sector Prepares for Slowdown as Global Market Uncertainty Grows

October 11, 2012Energy and Resources, Mining, Oil&Gas, Tar SandsAlberta Tar Sands, Mining, Oil and gasCommon Sense Canadian

Read this story from the Globe and Mail on the anticipated slowdown of Canada’s resource-based economy as global commodity prices show signs of serious decline. (Oct. 9, 2012)

Canada’s resource-fueled economy faces the threat of a swooning commodities market at a crucial point in the economic recovery.

From Europe to the United States and especially in China, the outlook for commodities is diminishing heading into 2013, with the impact already being felt abroad.

Evidence is mounting that Canada, where commodities drive about 20 per cent of the gross domestic product, will not be spared some hardship. Canada is a major producer of potash, coal, iron ore, nickel, copper, gold, zinc and uranium, among other base and precious metals that have been hit especially hard as a decade-old commodities market starts to lose steam.

Resource companies account for about half the weight of the Toronto Stock Exchange, and some are feeling the pinch in profits.

On Wednesday the Organization of Petroleum Exporting Countries and the U.S. Energy Information Administration both shaved their forecasts for crude-oil consumption in 2012 and 2013, citing ongoing weakness in the global economy and hitting a key economic driver for Canada.

“I think over all there is a particularly large impact if you are looking at Canadian equity markets,” said Peter Buchanan, senior economist with the Canadian Imperial Bank of Commerce. “Quite clearly, subdued prospects there do provide some downside risks for some of the metals.”

The International Monetary Fund said this week it had trimmed its forecasts for economic growth in Canada – to 1.9 per cent this year and 2 per cent next, down in each case by 0.2 percentage points from earlier projections – and warned unemployment will remain at 7.3 per cent.

That came just days after Toronto-listed Thompson Creek Metals Co. said it was cutting $100-million in spending at an Idaho mine in order to be able to finance construction of a new mine in British Columbia.

Suncor Energy Inc. said in July it was rethinking billions of dollars of planned spending because of increasing costs.

Lower capital spending by the resource sector, about one-quarter of total business capital spending, could end up having a significant impact on Canada because it is such an important driver of the economy.

“The prospects that one of the other sectors, consumption or government spending, could accelerate to offset that is virtually zero,” said George Vasic, chief economist and strategist at UBS Securities Canada Inc. Mr. Vasic said he is not yet alarmed about the potential impact on Canada, but that his outlook could change if business capital expenditures fall off in Canadian resources. “So, it is a significant potential development, which I think is only partially reflected in forecasts,” he said.

The world’s third-biggest diversified miner, Rio Tinto PLC, started the week by saying it had become more cautious about the business outlook than even a few months ago. It says it will delay new project approvals in the near term.

Why the New ‘Golden Age of Oil’ Has Been a Bust

October 11, 2012Energy and Resources, Fracking, Oil&Gas, Tar Sands, Water and HydrocarbonsAlberta Tar Sands, fracking, LNG, Oil and gasCommon Sense Canadian

Read this story from alternet.org on the various environmental and economic factors restricting the development of “extreme energy” – from fracking to shale oil and bitumen. (Oct. 4, 2012)

To reach their ambitious targets, energy firms will have to overcome severe geological and environmental barriers — and recent developments suggest that they are going to have a tough time doing so.

Last winter, fossil-fuel enthusiasts began trumpeting the dawn of a new “golden age of oil” that would kick-start the American economy, generate millions of new jobs, and free this country from its dependence on imported petroleum. Ed Morse, head commodities analyst at Citibank, was typical. In the Wall Street Journal he crowed, “The United States has become the fastest-growing oil and gas producer in the world, and is likely to remain so for the rest of this decade and into the 2020s.”

Once this surge in U.S. energy production was linked to a predicted boom in energy from Canada’s tar sands reserves, the results seemed obvious and uncontestable. “North America,” he announced, “is becoming the new Middle East.” Many other analysts have elaborated similarly on this rosy scenario, which now provides the foundation for Mitt Romney’s plan to achieve “ energy independence ” by 2020.

By employing impressive new technologies — notably deepwater drilling and hydraulic fracturing (or hydro-fracking) — energy companies were said to be on the verge of unlocking vast new stores of oil in Alaska, the Gulf of Mexico, and shale formations across the United States. “A ‘Great Revival’ in U.S. oil production is taking shape — a major break from the near 40-year trend of falling output,” James Burkhard of IHS Cambridge Energy Research Associates (CERA) told the Senate Committee on Energy and Natural Resources in January 2012.

Increased output was also predicted elsewhere in the Western Hemisphere, especially Canada and Brazil. “The outline of a new world oil map is emerging, and it is centered not on the Middle East but on the Western Hemisphere,” Daniel Yergin, chairman of CERA, wrote in the Washington Post . “The new energy axis runs from Alberta, Canada, down through North Dakota and South Texas… to huge offshore oil deposits found near Brazil.”

Extreme Oil

It turns out, however, that the future may prove far more recalcitrant than these prophets of an American energy cornucopia imagine. To reach their ambitious targets, energy firms will have to overcome severe geological and environmental barriers — and recent developments suggest that they are going to have a tough time doing so.

Consider this: while many analysts and pundits joined in the premature celebration of the new “golden age,” few emphasized that it would rest almost entirely on the exploitation of “unconventional” petroleum resources — shale oil, oil shale, Arctic oil, deep offshore oil, and tar sands (bitumen). As for conventional oil (petroleum substances that emerge from the ground in liquid form and can be extracted using familiar, standardized technology), no one doubts that it will continue its historic decline in North America.

The “unconventional” oil that is to liberate the U.S. and its neighbors from the unreliable producers of the Middle East involves substances too hard or viscous to be extracted using standard technology or embedded in forbidding locations that require highly specialized equipment for extraction. Think of it as “ tough oil .”

The Bakken Oilfield, the SEC and Why the Tar Sands May be on their Way Out

September 30, 2012Energy and Resources, Oil&Gas, Tar SandsAlberta Tar Sands, Oil and gasCommon Sense Canadian

Read this blog from gold trade journal Bullion Vault on the powerful financial forces and competing oilfield that threaten to squeeze out the Alberta Tar Sands. (Sept. 24, 2012)

Why Alberta’s tar sands look set to be squeezed out…

FOR DECADES, the US Securities and Exchange Commission (SEC) wouldn’t allow Canadian oil-sands promoters to call their assets “oil reserves.” Instead, the SEC required them to be classified as “mining reserves.” It was a distinction that cost them billions of Dollars, writes Porter Stansberry for the Daily Wealth.

The SEC’s policy erased the equity on these promoters’ balance sheets, taking away most of the value of their resources. This regulatory roadblock made it hard for companies trying to extract petroleum from Canada’s oil sands to access capital and secure loans.

The SEC had its reasons, of course. Extracting the extremely heavy oil trapped in the sand of places like Canada’s Athabasca region of Alberta is expensive. You have to dig the tarry sand out of the ground and super-heat it to separate the oil. Even then, it’s lower-quality than the light, sweet crude that flows from wells in Texas and the Middle East.

Total extraction costs for oil sands can exceed $50 a barrel. Extracting regular oil can cost half that (or less)… So it seemed unlikely that the “oil mud” in Alberta would ever become a profitable source of oil. SEC rules say to count as “reserves,” the oil has to be economical to produce. If the promoters of Canadian oil sands couldn’t profitably produce the oil, why allow them to count it as a proven oil reserve?

The logic held for a while. But by 2008, with oil trading for much more than $100 a barrel, these assumptions seemed obsolete. The Peak Oil theory had convinced everyone – even the SEC – that even the most marginal source of crude oil was now a crucial resource and could no longer be ignored from a financial and accounting standpoint.

After intense lobbying on behalf of the Canadian oil mud industry, the SEC began to bend. And on June 26, 2008, the promoters got their fondest wish – official recognition from the SEC.

The Securities and Exchange Commission today announced that it has proposed revised oil and gas company reporting requirements to help provide investors with a more accurate and useful picture of the oil and gas reserves that a company holds.

In anticipation of this change, shares of Suncor – the biggest and best-known publicly traded oil-sands company – hit $72 that May. The stock had appreciated 2,900% over the previous 15 years. Its vast reserves of mud… bought for pennies… were now worth billions of Dollars… if you believed the SEC.

Not surprisingly… the SEC ruling marked the high water mark in the shares of Suncor.

Within a year… a real oilfield was discovered almost next door. A real oilfield, with real, liquid crude oil that didn’t require bulldozers and super-heated steam for production.

They called it the Bakken. And we hope those SEC lawyers have gone out to see it, just so they’ll finally learn what a real oilfield looks like.

The Bakken is potentially the largest oilfield in North America. It covers parts of North Dakota, South Dakota, and Montana in the United States. In Canada, it reaches parts of Saskatchewan and Manitoba.

Bloomberg predicts that combined with the nearby Three Forks and Sanish formations, the great Bakken region could be the largest oil producer in North America over the next 30 years.

Production is currently skyrocketing. As of June 30, 4,141 producing oil wells were at work in the Bakken. Production has gone from around 100,000 barrels per day (bpd) in 2009 to 594,000 bpd today. We believe that production will double from here to more than 1 million bpd in the next 18 months.

This same trend is happening all across the US in the new shale oilfields. For the first time since the 1970s, the amount of oil being produced in America is significantly increasing.

Given the tremendous amount of higher-quality oil now being produced at a lower cost… what do you think the future holds for the oil mud of Canada?

Here’s a hint: We believe the SEC will soon change its mind again and rule that Alberta’s muddy prairies aren’t actually oil at all. You will not want to own those stocks when that happens, as their access to capital and much of the equity on their balance sheets will disappear.

And that’s not Canada’s only problem…

If you believe the SEC and oil-sands promoters, Alberta’s muddy fields hold more than 174 billion barrels of proven crude-oil reserves. That’s the world’s third-largest reserve total after Saudi Arabia and Venezuela. If it were really oil – the kind of liquid hydrocarbon that flows from traditional oil wells – that would be an incredible asset. But it’s not. It’s oil mud – known as “bitumen” in the industry – that’s difficult and expensive to extract and refine.

Canada produced 3 million bpd in 2011. Western Canada produced 2.7 million bpd… and 59% of that came from the oil sands. Domestic demand in 2011 for western Canadian crude oil was 878,000 bpd. Canada exports the rest – approximately 2 million bpd to the US, making it our largest supplier…

The Midwest is the traditional market for Canadian oil-sands producers due to the close proximity and pipeline infrastructure. But the price of oil is collapsing in this market because of the soaring Bakken and Eagle Ford production.

Over the last year, West Texas Intermediate (WTI) crude, the benchmark crude oil in the United States, has sold at a discount of more than $20 compared to the international standard, North Sea Brent crude. Synthetic Crude Oil (SCO), another term for the heavy stuff from the Canadian oil sands, sells at an additional discount. Over the past year, the discount varied between $12 and $15 per barrel to WTI.

In the past six months, those spreads are widening even more. For example, Suncor issued corporate guidance on July 24 that it expects the 2012 spread to be in the $13-$18 range. Historically, the discount between SCO and WTI has peaked at $30.

You must remember… this is the discount to WTI. Think about that for a minute. If WTI oil sells at $100, SCO sells for around $80. WTI oil sells for around $96 today. That puts SCO at around $76. At $76 a barrel, that’s only about $10 above the all-in costs for the oil-sands producers. A 20%-30% price drop from here will absolutely kill any profits the Canadian oil-sand producers might make today.

The United States is the world’s biggest market for crude oil, with a total refining capacity of almost 18 million barrels per day.

As we mentioned above, the Midwest has been the oil-sands producers’ best customer. But domestic producers – like those from the Bakken – are creating competition. The oil-sands producers could ship the stuff to the Gulf Coast refineries. The only problem is… those facilities are more than 2,000 miles away.

The Canadian supply hubs are at Edmonton and Hardisty. Four major pipelines connect these hubs to transport oil out of Canada: the Enbridge Mainline, the Kinder Morgan Trans Mountain Pipeline, the Kinder Morgan Express, and the Keystone Pipeline.

These four pipelines report total capacity of 3.5 million barrels per day. The oil-sands producers’ access to that pipeline capacity is limited by demand from downstream locations. In other words… the more transportation capacity Bakken producers require, the less capacity available for the Canadian producers.

As various transport agreements expire and the Bakken continues to increase production, more and more of this capacity will be taken over by those “real” oilfields, whose crude is more valuable and vastly cheaper to produce.

How do we know? Because right now, Bakken producers are using trains to ship oil out of the fields. Rail transportation in the Bakken was used to ship out 8% of production in 2010. So far this year, that’s increased to 28% of production.

Obviously, pipelines are far more efficient. As soon as pipeline capacity can be arranged, this new, higher-quality, cheaper-to-produce Bakken crude will squeeze out the SCO oil coming from Canada. So not only is Canadian oil mud likely to be uneconomic to produce… it could also become impossible to transport to refineries because of a lack of pipeline capacity.

That would leave the oil mud industry with an uneconomic, largely obsolete product.

Foreign Companies Circle Alberta Tar Sands and BC’s Gas Assets

September 22, 2012Energy and Resources, Oil&Gas, Pipelines and Supertankers, Tar SandsAlberta Tar Sands, BC Oil Pipelines and Supertankers, Enbridge, KinderMorgan, Oil and gasCommon Sense Canadian

Read this story from the Globe and Mail on the rush by Asian and European state and publicly owned energy players to scoop up Canadian oil and gas assets in advance of anticipated tightening of regulations on foreign direct investment. (Sept. 21, 2012)

A number of foreign companies are flocking to Canada’s oil patch in search of acquisitions and investments as Ottawa weighs the $15.1-billion takeover of energy company Nexen Inc. by China’s CNOOC Ltd.

While it is not unusual for companies to circle the oil patch, interviews with a dozen industry sources and deal makers over a month have revealed a picture of an industry set for a massive influx of foreign capital while the window to foreign investment remains open.

Industry executives and advisers say offshore buyers are currently in discussions or touring the operations of a wide variety of Canadian oil sands, conventional petroleum, natural gas, oil service and refining operations.

Some of these potential acquirers include state-owned entities such as Korea National Oil Corp. (KNOC) and others from China, Malaysia and Kuwait, sources said. A handful of private-sector oil and gas giants are also on the hunt, including France-based Total SA. Joining these suitors is a new class of Asian buyers believed to include privately held Chinese companies and one of China’s largest cities, Tsingtao.

The takeover interest has been sparked by a combination of recent declines in oil and gas prices and a perception in some international circles that Canada favours foreign investment to help finance production, particularly in the oil sands, where the cost of development is expected to crest $100-billion over the next decade.

“If you think Nexen is something of a big deal, you ain’t seen anything yet,” said Wenran Jiang, a special adviser to Alberta’s Department of Energy on Asian energy markets. “The new trend is large-scale Chinese private capital that will come into the Canadian market.”

A wide variety of international acquirers are looking for investments in the oil patch. France’s Total has been searching for – and making – oil sands deals for a few years. According to people close to the Nexen negotiations, Total was a bidder for the Calgary company, but stepped out of the race after CNOOC tabled an offer with a rich premium of more than 60 per cent above the Calgary company’s stock price. Sources said Total is still seeking a Canadian acquisition. A spokesperson for the company did not return calls.

State-owned KNOC is also on the hunt for a multibillion-dollar acquisition to expand its holdings in the oil sands, according to sources. Its search comes three years after it acquired Harvest Energy Trust in 2009 for $4.1-billion. A Calgary-based official with KNOC said he was unaware of any acquisition plans.