Thursday, April 24, 2014
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A year-end take on the energy sector

Canadian Association of Petroleum Producers president reflects on the year in energy

By Gordon Hoekstra, Vancouver Sun

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 were 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’t 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 BC. 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 were 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

The interview has been edited for brevity.

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