Skip to comments.Oilsands 'landlocked' because of environmental concerns and market bottlenecks
Posted on 07/12/2012 5:37:50 AM PDT by thackney
Canadian oil exports "are essentially landlocked" because of mounting environmental concerns about the oilsands and bottlenecks in the U.S. midwest market, say newly released briefing notes prepared for Natural Resources Minister Joe Oliver.
The records, marked "secret" but released to Postmedia News using access to information legislation, suggest the U.S. pipeline network is partly to blame for the problem, along with the need for stronger regulations to control the environmental footprint of oilsands activity on the climate, air, land, water and wildlife.
"How Canada addresses the environmental issues surrounding the current and projected growth of the industry is of fundamental importance to Canadian trade and national and international energy security," said the briefing notes.
"Strong growth in Canadian oil exports to the U.S. has led to an over supply in the U.S. midwest market and Canadian oil exports are essentially landlocked. This effect is compounded by the current inability of the midwest pipeline distribution network's (capacity) to transport crude oil out of the midwest region to other U.S. markets."
The bottlenecks have resulted in oilsands producers facing an "unprecedented" $15-per-barrel negative price differential on their product in the North American marketplace, said the briefing notes, which were prepared for Oliver after he was elected and appointed as natural resources minister in May 2011.
The "landlocked" warning echoes concerns previously raised by former Alberta energy minister Ron Liepert, who said he was afraid his province would end up being landlocked in bitumen, the heavy tar-like oil that is derived from oilsands deposits. The resource is extracted through various surface mining or on-site deep-drilling processes that require large amounts of water and energy.
The documents suggested the debate in the United States about approving new pipeline projects such as the Keystone XL route from Alberta to refineries on the gulf coast of Texas, was strongly influenced by the environmental performance of Canadian oil producers.
"Rapid growth in oilsands production has led to increased attention being focused on this sector, such that this issue has become a threat to Canada's international brand," said the briefing notes. "Various groups, both pro- and anti-oilsands, are pressing for the adoption of domestic and international-based policies, rules, and regulations that could have a significant impact on the sector."
U.S. President Barack Obama turned down the original Keystone XL proposal, from Alberta-based TransCanada, in 2011 based on concerns about the risks of a spill damaging sensitive ecosystems along its route. His government has indicated it will still consider the project if the energy company submits a new plan.
The briefing notes said there was still "sufficient" pipeline capacity to export oil out of Western Canada before it faces the bottlenecks in the U.S. pipeline network that threaten further industry expansion. The notes also highlighted new potential markets in China, Japan, South Korea and Thailand that all have refineries capable of processing oilsands crude that could be exported through pipeline projects to British Columbia proposed by Alberta-based Enbridge and Texas-based Kinder Morgan.
The briefing notes also said the Canadian government was continuing "outreach" efforts to promote the oilsands, as part of a plan that should also include stronger regulations, monitoring and "more vigorous enforcement of environmental rules." While the federal and provincial governments have announced plans to improve monitoring, the federal government, in its last budget, introduced legislation that would weaken some federal environmental oversight on natural resources projects, species at risk and water.
While the Alberta government has introduced some new regulatory policies aimed at curbing industry's greenhouse gas pollution, federal Environment Minister Peter Kent has said his own government has only just started consultations on climate change regulations. In the meantime, discussions on how best to co-ordinate the federal and provincial policies are ongoing, the briefing notes said.
"This has resulted in continued uncertainty for industry, concerning the federal and provincial regulatory expectations, as well as monitoring and enforcement," said the briefing notes.
Oliver was also told in the briefing notes the oilsands industry represents about two per cent of the Canadian economy, is responsible for 144,000 direct and indirect jobs in Canada, and is expected to contribute about $1.7 trillion to the economy over the next 25 years. But the briefing notes also said that the industry's greenhouse gas emissions were "set to be the fastest growing source" of heat-trapping gases in Canada over the next decade, and that there were concerns about oilsands development increasing the risk of water contamination and other negative impacts on land, forests and wildlife.
The briefing notes estimated that oilsands crude generates about five to 15 per cent more greenhouse gas emissions than the average of conventional oil when considering all emissions produced in its lifespan from extraction to consumption by the public. But the documents suggested some international climate change policies proposed in jurisdictions such as Europe and California would single out the oilsands without targeting other fuels with large environmental footprints.
The government was told in the briefing notes that Natural Resources Canada had a lab in Devon, Alberta that had researched new environmental technologies to help the industry reduce water consumption, greenhouse gas pollution and clean up tailings ponds.
The department declined to release some portions of the briefing notes citing sections of the Access to Information Act that allow it to withhold details on matters that it considers could harm Canada's international relations, or that could be considered advice to government or issues under consultation.