Political stumbles, savvy activists knock Canada's oil
sector to its knees
Send a link to a friend
[December 21, 2018]
By Rod Nickel and Julie Gordon
WINNIPEG, Manitoba/VANCOUVER (Reuters) - A
decade ago, Canada's oil sector was growing so fast it was predicted to
become a global energy superpower, but a series of political missteps
and formidable environmental activism has created a dysfunctional system
requiring OPEC-style government intervention to move its oil to market.
Canada produces 4.9 million barrels per day (bpd), more than any country
other than the United States, Saudi Arabia and Russia, but the world's
fourth largest producer has had to nationalize a pipeline and the
province of Alberta is exploring buying trains to handle a glut of oil
sitting in storage.
Canada's crisis coincides with big producers taking market share away
from OPEC members, mostly clustered in the Middle East. Global oil
demand is expected to surpass 100 million bpd in 2019. The United States
has driven exports to record highs on growing demand from China, India
and other developing countries.
But Ottawa has failed under two governments to effectively counter the
strategy of environmental activists to attack the oil sector's heart by
choking its arteries - pipelines. Roughly 35 million barrels, twice the
normal amount, of Western Canadian crude used to produce diesel,
gasoline and jet fuel is stuck in storage.
![](http://archives.lincolndailynews.com/2018/Dec/21/images/ads/current/Alexander_sda_HFH_2018.png)
The energy sector accounts for nearly 11 percent of Canada's gross
domestic product. However, Canadian oil trades at a fraction of global
prices, costing the economy C$80 million per day, the Alberta provincial
government said.
Alberta took the unusual step this month of temporarily curtailing
325,000 bpd starting in January - in the aftermath of a retreat from the
oil sands by global companies including ConocoPhillips and Statoil ASA.
"It's become dire now because the writing is clearly on the wall. The
issue is market access," said Jihad Traya, manager of energy advisory
service HSB Solomon.
Prime Minister Justin Trudeau's government, facing an election next
year, offered the oilpatch this week C$1.6 billion in aid. In May,
Ottawa agreed to buy the Trans Mountain pipeline in hopes of pushing
through an expansion to nearly triple capacity as other proposed lines
languished.
POLITICIANS AND ACTIVISTS
In 2006, then-Prime Minister Stephen Harper boasted Canada would soon
become an "energy superpower." Canada was producing 2.6 million bpd,
which moved smoothly to U.S. refineries through pipelines. Since then,
production has nearly doubled, but pipeline growth has stalled.
Both Conservative Harper and Liberal Trudeau squelched opportunities to
complete pipelines just as opposition to more lines multiplied. Two
projects were killed, and legal setbacks have stymied the development of
TransCanada Corp's Keystone XL and the government-owned Trans Mountain
expansion.
A year after taking office in 2015 Trudeau proposed a bargain aimed at
satisfying both environmentalists and the oil industry - a national
carbon-pricing plan to reduce Canada's emissions while approving
pipeline expansions.
The strategy has inflamed both sides.
When a court overturned Ottawa's approval of the expansion of Trans
Mountain in August, the deal was off and Alberta Premier Rachel Notley
yanked support for Trudeau's carbon plan just hours later.
Indigenous and environmental opposition to pipelines has forced Trudeau
to push for tighter regulations on future pipelines. The changes are
necessary to "depoliticize" the system, Natural Resources Minister
Amarjeet Sohi said.
"We need to fix the broken system that we have now so we are able to
build the pipeline capacity that is so necessary."
![](http://archives.lincolndailynews.com/2016/Aug/26/images/ads/current/ldn_business_directory_small2_2016.png)
[to top of second column] |
![](../images/122118pics/busine37.jpg)
Greenpeace protestors
(C) occupy an oil storage tank at Kinder Morgan Energy's pipeline
terminus in Burnaby, British Columbia, Canada, October 16, 2013.
REUTERS/Andy Clark/File Photo
![](http://archives.lincolndailynews.com/2018/Dec/21/images/ads/current/brickey_lda_061314.png)
But Trudeau has already shelved Enbridge's Northern Gateway proposal, which
would have run through northern Alberta to the Pacific coast, and the National
Energy Board in 2017 toughened its review of TransCanada's Energy East pipeline
while it was underway.
Both projects are now dead. Alberta is seeking to buy rail cars to reduce the
glut, and earlier this month, the province ordered producers to cut output after
its oil fell to a discount of $52 per barrel from U.S. oil in October.
Notley told reporters on Tuesday that people in Alberta can make profits from
oil and gas, "but they need Ottawa to take the handcuffs off. We need rail. We
need long-term support for getting that pipeline built."
ENVIRONMENTAL OPPOSITION
Alberta's oil sands, a mixture of sand, water, clay and thick, heavy oil, became
a compelling target for environmentalists as production expanded dramatically in
the early 2000s.
The mining process scrapes away trees and vegetation across huge tracts of land,
leaving a path of destruction captured in aerial images, while a different
production method using steam consumes huge amounts of natural gas.
Clayton Thomas-Muller, an indigenous activist, said environmentalists grew
frustrated trying to stop the industry's expansion through the Alberta Energy
Regulator, but found a new strategy of opposing the pipelines.
They built wider coalitions, tapping into anger of Nebraska ranchers and drawing
the attention of Hollywood celebrities such as director James Cameron.
Opponents of TransCanada's Keystone XL began protests at the White House in
2011, seeking arrest and attention. Then-U.S. President Barack Obama finally
rejected the project in 2015.
"Full credit to climate-change advocates, they kicked the snot out of Corporate
Canada," said Tim Powers, a Conservative political strategist. He said Canadian
resource companies have been too focused on the regulatory process, while
climate-change advocates "laid out a better, more compelling narrative" to win
public opinion.
FEARING CONSULTATION
U.S. President Donald Trump resurrected Keystone XL in 2017. But both KXL and
Trans Mountain remain in regulatory limbo after courts ruled in recent months
that the U.S. and Canadian governments failed to properly do their jobs.
![](http://archives.lincolndailynews.com/2018/Dec/21/images/ads/current/modern_brake_lda_christmas_2015.png)
The cases that overturned approvals for Northern Gateway and Trans Mountain led
companies to question investment in Canada. The end result is a Canadian oil
patch in retreat.
"My main fear is that other nations will continue to produce at market price and
Canada will be left behind," said Duncan Au, chief executive of CWC Energy
Services Corp. The well drilling company has cut about 70 employees, or nearly
10 percent, since the beginning of 2018.
"This is a made-in-Canada crisis," Au said.
(Reporting by Rod Nickel in Winnipeg, Manitoba and Julie Gordon in Vancouver;
editing by David Gaffen and Grant McCool)
[© 2018 Thomson Reuters. All rights
reserved.] Copyright 2018 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |