QA Session with David Collyer and Gordon Hoeckstra BC Energy Projects: Enbridge's controversial $6.5-billion Northern Gateway and Kinder Morgan's $5.4-billion Trans Mountain pipeline expansion

Energy has become, increasingly, a major focus of the British Columbia economy with billions of dollars of proposed projects. Those include Enbridge's controversial $6.5-billion Northern Gateway and Kinder Morgan's $5.4-billion Trans Mountain pipeline expansion. There are also billions in liquefied natural gas projects being considered by global energy heavyweights such as Exxon Mobil, Shell and the BG Group. The Vancouver Sun talked with Canadian Association of Petroleum Producers president David Collyer for a year-end take on these major projects.

Q Northern Gateway has recently received approval from the federal review panel with 209 conditions (which are tough but "doable," says the company). However, there is staunch First Nations opposition in B.C., supported by environmental groups, who are saying they will launch legal action. Will this pipeline get built?

A I don't think one should conclude by any means that all First Nations are opposed to that particular project or opposed to oil pipelines. But there is no question there are some tough issues to be resolved. I think the (Doug) Eyford report (Prime Minister Stephen Harper's special envoy on First Nations) that was issued a couple of weeks ago is a fairly balanced and pragmatic road map to try to resolve those issues. There's a trust relationship building piece of this, and there's a need obviously to find some way to reconcile issues around claims - although not necessarily solving them in the context of a project. And then you need to try to figure out a way to figure the economic-benefits dimension of it. It's not easy.

Q First Nations claims and consultation concerns around industrial projects seems to be fought out in the assessment process. Are environmental reviews the best place to be dealing with these issues?

A The short answer is no, with some qualifiers. I think we are burdening the regulatory process with more than it can actually deal with. And we are doing it in a process that is almost, by definition, adversarial and doesn't provide much room for finding common ground. I think we're increasingly living in a world where the broader social licence dimensions of energy and the environment need to be dealt with outside the specifics of a project or the specifics of a regulatory process.

Q Is there any work underway to try to address that?

A Again, I think the Doug Eyford report was quite a thoughtful examination of this, and he certainly provided strong encouragement for governments to take the lead in creating that table, but also was pretty clear that First Nations and industry needed to be constructive participants in it. (Eyford recommended creating a Crown-First Nations corporate "tripartite energy working group" as a forum for open dialogue on energy projects).

Q If a panel says yes, and the federal government says yes, but at least among a significant portion of the public, they are saying no to a project, how does it gain social licence?

A We've got a challenge in this country - whether it's an oil and gas project or a wind farm, or natural gas-fired power plant - as most people want the benefits of industrial development, including energy development. But very few people want to be directly impacted by it. And, one of the challenges that governments in Canada have - it's not unique to this counter - is this question of how do you balance the broader public interest with the local interest. I think all that can be done in that context is to try to make sure all reasonable steps are taken to deal with the issues and concerns people have raised from a technical, environmental or safety standpoint.

Q The B.C. government has said that, except for partly meeting the first condition on passing the review, Northern Gateway doesn't pass the other four conditions. (Those are world leading sea and spill response systems, aboriginal benefits and economic benefit for B.C.) And B.C. Environment Minister Mary Polak said she can't see how they can be achieved in the 180-day time frame Ottawa has to make a decision or even within one year.
Can this project be built without B.C. government support? A I guess in theory it can. From a practical or pragmatic stand point, I think, we as industry, and the pipeline proponents, and the Alberta government, have all recognized the need to address the five conditions. We think they're quite reasonable in terms of the types of things they expect. Obviously, the devil is in the details.

Q It's been suggested the fifth condition could be met through a fee or tax on oil that goes through B.C. Is that an idea industry is willing to consider, or is it a non-starter?

A I think it's premature to be specific about what we would consider and what we wouldn't.

Q Another major proposed project just filed its formal application: Kinder Morgan's $5.4-billion Trans Mountain expansion. There is also significant opposition to this project - but it does follow nearly three-quarters of existing route. Will this project be easier to build?

A The First Nations' opposition to the Trans Mountain Kinder Morgan pipeline is not as strong as it is in northern B.C. Conversely, it's the Lower Mainland, and there will be a different set of issues that arise from increased tanker traffic from the Port of Vancouver. I don't think any of these projects are going to be easy, or simple or straightforward.

Q How important is west coast access for bitumen, given there are proposals to get oil to the east coast of Canada, and Canadian oil can get to the U.S. gulf coast where it can be exported as refined products?

A Our view is we need west coast oil market access. Given our view of the production growth potential (in Canada), we think it's really important to be attached to the market that has the greatest potential demand growth - and that's Asia.

Q There is much interest in LNG in B.C. from oil and gas heavyweights: As many as a dozen facility proposals, and maybe half a dozen pipelines. But there is much competition from existing exporters such as Australia, and emerging participants such as the U.S. and East Africa. Will any company make a final investment decision in 2014?

A I am optimistic we will. The market is there. The supply is there. The question is whether we can bring all the pieces together to hit those market windows. Frankly, part of that is making sure we are as competitive as possible and we don't miss these market windows because we're unduly focused on carving up the pie before we create the opportunity.

Q Are you, in part, talking about the B.C. government's LNG tax decision that's been pushed off to 2014?

A I think there's a package of issues that need to be dealt with on competitiveness. the upstream (drilling) dimension, how carbon or carbon tax is going to be handled, electricity generation. The LNG tax is obviously one of those.

Q The public generally appears to be warmer to LNG development than oil pipelines. That said, there are challenges tied to the broader footprint, including greenhouse gases, pollution emissions and fracking. Can these concerns be addressed?

A We need to find a way to overcome them, frankly. We need a conversation at two levels. We obviously need to work on the ground with communities to mitigate concerns that arise from increased activity (fracking and water use) and investment. And we need to find a way to have constructive conversation about some of these broader (energy mix and carbon) issues that can't be resolved, and shouldn't be expected to be resolved, in the context of individual projects.

Happy new year 2014 to you all, dear readers!
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Feliz año 2014 para todos los lectores!

OPEC Pumps Least Crude in More Than 2 Years as Saudi Cuts

OPEC reduced crude production in November to the lowest level in more than two years as output dropped below the organization’s 30 million barrel-a-day ceiling for a third month.

The Organization of Petroleum Exporting Countries pumped 29.63 million barrels last month compared with 29.83 million in October, OPEC said in its monthly oil market report today, citing data from secondary sources. That’s the lowest since May 2011. The group decided to maintain its output limit of 30 million at a meeting in Vienna last week because members were “all satisfied,” Ali al-Naimi, Saudi Arabia’s oil minister, told reporters on Dec. 4.

“In taking this decision, member countries reconfirmed their readiness to promptly respond to unforeseen developments that could have an adverse impact on an orderly and balanced oil market,” OPEC said in today’s report.

Analysts at banks including BNP Paribas SA, Citigroup Inc. and Deutsche Bank AG predict that some members of OPEC, notably Saudi Arabia, will probably need to reduce output in 2014 to prevent a global glut. The U.S. is producing the most oil in a quarter-century, while Iraq, Libya and Iran have said they plan to increase exports in the next several months.

Libyan Ports

Today’s OPEC report was published before the head of Libya’s Petroleum Facilities Guard, Brigadier Idris Bukhamada, said that three oil ports in eastern Libya will reopen on Dec. 15. The Al Magharba tribe, which held a meeting today, forced former PFG leaders to lift their blockade, Bukhamada said by phone from Ajdabiya. The ports, including Es Sider, the largest, had been closed since late July.

Output from Saudi Arabia, OPEC’s biggest producer, fell to a five-month low of 9.63 million barrels a day last month from 9.71 million in October, according to OPEC’s monthly report. Production also dropped in Libya, Nigeria, the United Arab Emirates, Algeria, and Kuwait, while supplies climbed in Iraq, Iran, and Angola.

“Downside risks to the oil price may require OPEC to cut production to defend oil prices,”Michael Lewis, head of commodities research at Deutsche Bank in London, said in an e-mailed report today. “Given our upbeat outlook for world growth we would view any attempt by OPEC to defend the oil price as likely to be successful.”

Brent crude for delivery in January fell 17 cents to $109.22 a barrel at 1:49 p.m. in London on the ICE Futures Europe exchange, after rising as much as $1.06 earlier today, before the news on Libyan ports emerged. The North Sea grade, which is the benchmark for more than half the world’s oil, has dropped 1.7 percent in 2013.

Spread Narrows

OPEC has pumped below its 30 million barrel-a-day target since September, reports for this month and last showed.

The spread between U.S. West Texas Intermediate and Brent crudes will narrow in the coming year, according to the group. “As additional pipeline capacity to the U.S. Gulf coast becomes available,” a glut will ease at WTI’s delivery point in Cushing, Oklahoma, OPEC said. The gap traded at about $10.81 a barrel today after narrowing from $19.01 on Nov. 27, the widest on a closing basis in eight months.

World oil consumption is expected to gain by 1 million barrels a day next year to 90.84 million barrels, according to the report, little changed from last month’s estimate. Demand for OPEC’s crude is forecast to drop to 29.6 million barrels a day, or a decline of 300,000 barrels from this year.

Production from nations outside of OPEC will increase 1.2 million barrels a day next year to average 55.32 million barrels a day, with gains from the U.S., Canada and Russia, OPEC said. That’s little changed from last month’s estimate.

The International Energy Agency, the Paris-based adviser to oil-consuming nations, will release its monthly report tomorrow.

OPEC’s 12 members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the U.A.E. and Venezuela.