Pipeline project delays harm Canada’s crude oil sector

Jan. 7, 2013

Delays in the construction of new pipelines are detrimental to Canada’s energy sector, as transportation of crude oil is prevented by lack of infrastructure.

Delays in the construction of new pipelines are detrimental to Canada's energy sector, as transportation of crude oil is prevented by lack of infrastructure, according to the Globe and Mail.

Even though the increasing supply of crude oil can meet the national demand, the oil simply cannot reach all parts of the country because there are no reliable pipelines to carry it across Canada and new projects are being delayed. Alberta premier Alison Redford said that this is affecting the whole province economy, which has been heavily reliant on the energy sector for years. As production cannot reach other provinces where it is much needed, prices fall and markets become stalled. This in turn could lead to deficits and spending cuts for the government, she explained.

According to Redford, the construction of new pipelines to bring Alberta's crude oil to new markets is vital for the province and its economy. Over recent weeks Alberta has been offering unprecedented discounts for the crude oil it produces and this has resulted in a surge of demand. However, the lack of infrastructure is a major obstacle for an industry boost and steps need to be taken immediately, she warned.

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Russ Girling, chief executive officer of Calgary-based TransCanada Corp., whose Keystone XL project would carry Alberta oil to the Gulf Coast, said that capacity could be hiked as soon as there are options to start transporting oil. However, the pipeline project has been delayed for more than a year already, following concerns about a potential spill on a critical U.S. freshwater underground source. Similar environmental issues have caused uncertainty over the construction of Northern Gateway, a pipeline proposed by Enbridge Inc. to the British Columbia coast.

One of the biggest problems, however, is that Canadian provinces are not working together. Sandy McIntyre, chief executive officer at Sentry Investments in Toronto, commented that provinces need to stop arguing and embrace a common goal that could ensure a brighter financial future for the whole country. While it is true that one province cannot force another one to allow construction of a pipeline, they should resolve their arguments for the greater good, he claimed.

Meanwhile, yet another problem is emerging. TransCanada Corp. is making efforts to enter the eastern U.S. markets by providing a new export line. At present, the company is closing negotiations on its eastern Mainline conversion, which will use existing natural gas pipelines to carry crude oil from Alberta to the central provinces. TransCanada had plans to transport that oil to refineries in Ontario and Quebec, substituting for imported materials that the facilities use at present. However, the company is now also looking at possibilities to export.

Girling said that roughly 1 million barrels per day of crude are used by refineries on the U.S. Eastern Seaboard, with most of the oil being imported from expensive sources abroad. Another portion of the oil comes by rail from other parts of the United States. TransCanada is willing to take part in a project that would allow it to use part of its Mainline to carry oil to Saint John and then ship it to the United States, Girling explained.