Why is Prime Minister Stephen Harper Partial to Enbridge’s Northern Gateway Pipelines Project?

Anyone relying on the recent words and deeds of Prime Minister Stephen Harper, Natural Resources Minister Joe Oliver, and other federal officials might be excused for wrongly assuming that the shipment of Alberta oil sands crude to Canada’s west coast and thence to Asian markets depends entirely on the approval, construction and operation of Enbridge’s Northern Gateway Pipelines.  With noteworthy consistency, their public advocacy of Enbridge’s proposed pipeline system avoids reference to another already in existence.

Kinder Morgan, one of Enbridge’s chief competitors, owns and operates the 1150 km long Trans Mountain Pipeline system, which moves crude oil and refined products from Edmonton, Alberta to the Lower Mainland of British Columbia and, by means of its branch Puget Sound Pipeline system, to northwestern Washington State. Trans Mountain has been in operation since the early 1950s. In recent years, 10 per cent of the tankers visiting Trans Mountain’s Port of Vancouver terminal have been bound for Asia.

But the Prime Minister and his federal colleagues portray Enbridge’s Northern Gateway project as vital not only to diversifying Canada’s crude oil market but also to accommodating Alberta’s accelerating oil sands production. As they see it, substantially increasing oil sands production is essential to securing Canada’s long-term economic growth and prosperity. Enbridge’s project fits into their grand scheme by adding significantly to the North American pipeline capacity required to move higher volumes of Alberta bitumen to market, and in particular to Asia. Anyone crediting their recent words and deeds would be hard pressed to conclude anything other than that Enbridge’s project is a national imperative.

No such treatment is accorded Kinder Morgan, despite actively pursuing a proposal to expand the capacity of its Trans Mountain system. Its current capacity to carry crude oil and
other products is 300,000 barrels per day. Kinder Morgan is proposing to double or more its capacity by twinning the pipeline. The company has already twinned 315 km of its 1150 km long pipeline, the largest section beginning at Hinton, Alberta, passing through Jasper National Park, and ending near Rearguard, British Columbia. By comparison, Enbridge’s proposed system would have two 1177 km pipelines, one carrying 525,000 barrels of oil per day from Bruderheim, Alberta to Kitimat, British Columbia and the other carrying 193,000 barrels of condensate per day the opposite direction. Kinder Morgan’s proposed expansion would roughly match the capacity of Enbridge’s Northern Gateway project to move (diluted) bitumen from Alberta to the Pacific coast.

The Prime Minister and his federal colleagues have gone to considerable lengths in their promotion of Enbridge’s Northern Gateway project, including including Enbridge’s CEO in the Prime Minister’s delegation on his recent trip to China. But it is in their taking the fight to Northern Gateway’s opponents that they have gone the furthest. On 9 January 2012, the day before the federal Joint Review Panel was set to begin community hearings on Enbridge’s project, Natural Resources Minister Joe Oliver released an “open letter” with a title befitting a medieval scholastic treatise: “on Canada’s commitment to diversity our energy markets and the need to further streamline the regulatory process in order to advance Canada’s national economic interest.” Although he never referred to the company by name, the timing his letter’s release sufficed to make clear the federal government’s position that Enbridge’s Northern Gateway project represents a not-to-be-wasted opportunity to realize its commitment to diversify Canada’s energy markets away from the United States, specifically by expanding trade with “the fast growing Asian economies.”

Getting around to the threat to his government’s commitment, he wrote:

Unfortunately, there are environmental and other radical groups that would seek to block this opportunity to diversify our trade. Their goal is to stop any major project no matter what the cost to Canadian families in lost jobs and economic growth. No forestry. No mining. No oil. No gas. No more hydro-electric dams.

As to how these “radical groups” were planning to block “this opportunity to diversify our trade,” including first of all stopping Enbridge’s project, the Minister, expanding on a theme the Prime Minister had broached a few days earlier, said:

These groups threaten to hijack our regulatory system to achieve their radical ideological agenda. They seek to exploit any loophole they can find, stacking public hearings with bodies to ensure that delays kill good projects. They use funding from foreign special interest groups to undermine Canada’s national economic interest. They attract jet-setting celebrities with some of the largest personal carbon footprints in the world to lecture Canadians not to develop our natural resources. Finally, if all other avenues have failed, they take a quintessential American approach: sue everyone and anyone to delay the project even further. They do this because they know it can work. It works because it helps them to achieve their ultimate objective: delay a project to the point it becomes economically unviable.

The Minister mentioned only extreme environmental and other radical groups who seek delay, within the regulatory system and, if need be, through litigation, in order to “kill good projects.” Using “funding from foreign special interest groups”, these groups work, he warned, “to undermine Canada’s national economic interests.” Although he purported to single out for attack only those groups at the extreme, his underlying logic - connecting delay to killing good projects and finally to undermining Canada’s national economic interests - applied equally to more moderate groups, including First Nations, who may, without subscribing to a “radical ideological agenda”, legally and legitimately seek delay, whether within regulatory processes or through litigation in hopes of killing projects deemed “good” by others yet harmful to themselves and in violation of their own rights. Given his conviction that Enbridge’s is one of the “good projects”, the Minister’s underlying logic made inescapable the conclusion that any First Nations who have determined that the threat posed to them by Enbridge’s project is unacceptable and who then try to use whatever delay the system affords in hopes of stopping it are among those working to undermine Canada’s national economic interests.

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When otherwise relatively staid politicians speak and act so, they naturally invite the question, What is really going on here? Why the partiality to Enbridge’s project?

Answering this question requires identifying and sifting through the sorts of reasons that would motivate such conduct. Rather than answer it directly, I shall work my way there circuitously. A roundabout approach has in this case the advantage of rendering the answer more intelligible and credible.

Let me begin with something obvious. Currently, Kinder Morgan owns and operates the only pipeline system shipping crude oil from Alberta’s oil sands to British Columbia’s coast. As one of Kinder Morgan’s key competitors, Enbridge wants (what it sees as) its share of what it is sure will be an expanding and lucrative business. This is a basic reason motivating Enbridge’s proposal to build the Northern Gateway Pipelines.

For their part, Alberta’s oil sands producers and shippers don’t just want enough pipeline capacity to deliver to their oil to market, they want excess capacity. Further, they want this capacity distributed across multiple pipelines, including even multiple pipelines serving the same market. They want excess and distributed pipeline capacity – what pipeline companies refer to as “flexibility” - for the simple reason that they want to their oil to continue to flow to market despite the inevitable pipeline outages, whether due to maintenance or spills. The longest delays are associated with oil spills where resumption of a pipeline’s operation is contingent on a regulator’s green light. An alternative line with the capacity to take all or at least some of the other line’s volume can eliminate or at least reduce the seriousness of the financial effects of the outage.

The media and politicians have generally fastened on the long-term reason for constructing excess capacity in the overall oil pipeline system emanating from Alberta (i.e. to accommodate increasing production) but have overlooked the near-term reason mentioned above. Overlooking this, they have been unsurprisingly incurious about the distribution of the excess capacity across multiple lines.

For example, recent American as well as Canadian media and political discussions of Keystone XL have only rarely noted that TransCanada already has a pipeline system, its Base Keystone system, carrying crude oil from Hardisty, Alberta (through southern Saskatchewan to mid southern Manitoba, then directly south through eastern North and South Dakota, to Steele City, Nebraska, where it forks east to Patoka, Illinois and south) to Cushing, Oklahoma. The main portion of Keystone XL would add the Hardisty-Steele City hypotenuse to the Keystone system, tracing a diagonal across southwestern Saskatchewan, eastern Montana, South Dakota and Nebraska. As its finishing piece, the Keystone XL would also add a pipeline running from Cushing, Oklahoma to the Gulf Coast

Yet more rarely have they noted that Keystone XL - in particular, the portion connecting Hardisty to Steele City – would add capacity to the overall system carrying Alberta crude to the American Midwest far in excess of what is needed and would be needed for some years to come. In its submission to Canada’s National Energy Board (N.E.B.) during hearings on the Canadian portion of the Keystone XL Pipeline in 2009, Enbridge argued that the TransCanada’s Keystone XL project “would create an unnecessary and unprecedented level of excess pipeline capacity between western Canada and U.S. markets.” (For the N.E.B.'s reasons for decision, see here.) British Petroleum, Imperial Oil, and Nexen advanced similar arguments. Although in basic agreement with them, Suncor – as portrayed by the Board - advanced a more nuanced position:

Suncor supported approval of the proposed Keystone XL Pipeline project; however, it expressed concerns that the segment from Hardisty to Steele City is not required within the timeframe proposed by Keystone. Suncor submitted that the Board should approve the proposed Keystone XL Pipeline in a timeframe that allows for the Cushing to USGC [U.S. Gulf Coast] portion to be completed by 2011 and the Hardisty to Steele City portion to be completed in a manner that does not result in an overcapacity issue for the whole industry.

Neither Enbridge nor the other three companies opposed TransCanada’s proposal to build the pipeline, the first, to carry crude oil directly south from Cushing, the largest crude trading hub in the U.S., to the Gulf Coast.

TransCanada spoke frankly to the N.E.B. about its reasons for wanting a second pipeline linking Hardisty to Steele City:

Keystone submitted that the design of the Keystone system mitigates the risk of economic loss for each of the Keystone committed shippers, the uncommitted shippers and Keystone by providing operational flexibility to deal with pipeline outages. Keystone stated that both committed and uncommitted Keystone XL shippers could be partially served by the Base Keystone system in the event of an outage on the portion of Keystone XL upstream of Steele City. Additionally, Wood River/Patoka shippers could be partially served through the Keystone XL Pipeline system, through operational tanks at Steele City, in the event of an outage on the Base Keystone system upstream of Steele City. Keystone submitted that the current design and the associated flexibility helps ensure that overall shipping commitments, to the extent possible, are maintained on both systems in the event of operational upsets.

On the further issue of whether Keystone XL would promote competition and thus serve the public interest, the Board summarized a key part of TransCanada’s position as follows:

Keystone stated that the denial or delay of the Keystone XL application would also create the opportunity for any competitor, but particularly Enbridge, to obtain an overwhelming competitive advantage in its ongoing efforts to serve the USGC market. Keystone argued that the longer the delay, the more Enbridge’s competitive position would be enhanced.

On 11 March 2010, the N.E.B. gave its approval to the Canadian portion of Keystone XL. Nearly two years later, on 18 January 2012, President Obama, accepting the recommendation of the U.S. Department of State, went the other way, denying Keystone XL the requisite presidential permit. The Department made it clear, however, that the door remained open to TransCanada to apply again in future. Little remarked either before or at the time of the President’s decision – and coincidentally unmentioned by the Prime Minister –, Enbridge had announced several months prior that it had bought Conoco’s share in the Seaway Pipeline and would, with its new partner Enterprise, reverse its flow to carry crude oil from Cushing, Oklahoma to the Gulf Coast. The reversed pipeline is slated to begin operating by the middle of this year, with an initial capacity of 150,000 barrels per day and rising to 400,000 barrels per day next year. Although beaten to the punch, TransCanada announced on 27 February 2012 its decision to proceed with the Cushing to Gulf Coast portion of the Keystone XL Pipeline, which portion does not require a presidential permit. Yet more recently, Enbridge announced its plan to twin the Seaway Pipeline, bringing its total Cushing-to-Gulf-Coast capacity to 850,000 barrels per day by the middle of 2014

To borrow TransCanada’s language, the construction of three pipelines, with two separate rights of way, to transport oil from Cushing, Oklahoma to the Gulf Coast will serve to mitigate the risk of economic loss to shippers. By twinning the Seaway Pipeline, Enbridge will also mitigate the risk of economic loss to itself.

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Let me return, then, to the question, Why are the Prime Minister and his colleagues partial to Enbridge’s Northern Gateway Pipelines project? Half of the answer is now clear. Taken together with Kinder Morgan’s Trans Mountain Pipeline system, Enbridge’s system would provide (at least short-term) excess pipeline capacity distributed across two pipeline systems capable of carrying bitumen from Alberta’s oil sands to British Columbia’s coast. Just as this excess and distributed capacity would mitigate the risk of economic loss due to outages, particularly ones resulting from oil spills, so too it would mitigate the associated risk of federal – not to mention Alberta - revenue loss. With billions and potentially more billions in revenue at stake in Alberta’s oil sands production and related industries, the federal government places considerable value on the mitigation of this risk.

But this is only half of the answer. For the full answer, it is necessary to address a further question. If mitigating the risk of federal revenue loss is the goal, why isn’t the Prime Minister satisfied with Kinder Morgan’s proposed expansion? Twinning the Trans Mountain Pipeline would mitigate not only the risk of economic loss to the pipeline company and its shippers from outages but also the associated risk of revenue loss to the federal government. Why, then, isn’t the Prime Minister satisfied with doubling or even tripling the Trans Mountain Pipeline?

The answer to this further question is clear. When it comes to risk of revenue loss as a consequence of a crude oil spill in British Columbia, the Prime Minister is less concerned with pipelines than he is with tankers. Were one of Kinder Morgan’s proposed twin pipelines to suffer an “operational upset” due to a crude oil spill, the other pipeline could still operate. But were a tanker, sailing from the Port of Vancouver, to spill crude oil off the southern coast of British Columbia, the entire Trans Mountain Pipeline system could be shut down. Were the tanker spill serious, resumption of Kinder Morgan’s operations could hinge as much on provincial politics as on federal regulatory say-so.

The Prime Minister’s and his federal colleagues’ enthusiasm for Enbridge’s Northern Gateway Pipelines project has less to do with gaining a second pipeline system carrying bitumen from Alberta to British Columbia’s coast than it does with establishing the presence of crude oil tankers in another – and, not incidentally, a relatively remote – portion of the province’s coastal waters. The establishment of their presence in the waters of Douglas Channel (and beyond), taken together with the prior establishment of their presence in Georgia Strait (and beyond), would significantly mitigate the risk to federal coffers posed by a crude oil spill off the province’s coast.

From industry’s side, Kinder Morgan is alive to the risk of economic loss to itself and its shippers posed by a tanker spill off British Columbia’s southern coast. The company has raised the possibility of constructing a spur line, connecting to its Trans Mountain Pipeline near Rearguard, British Columbia and, like Enbridge’s Northern Gateway, delivering Alberta bitumen to Kitimat for tanker transport to markets in Asia and elsewhere. This spur line would go far to mitigate the risk of economic loss resulting from an oil tanker spill to its shippers and itself.

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When the risk of a tanker spilling Alberta crude off B.C.’s coast, the potential (especially provincial) political fallout, and the associated risk of federal revenue loss are considered, the Prime Minister’s partiality for Enbridge’s project becomes understandable. But the sought-for mitigation of risk to federal revenue loss cannot be gained without the introduction of the correlative risks of environmental and, consequently, socio-economic harm into regions of British Columbia previously free of such risk. Accordingly, the Prime Minister’s, as well as his federal colleagues’, partiality for Enbridge’s project merits discussion not only on strict legal and economic grounds but also on broader ethical or moral grounds.

Added to Kinder Morgan’s Trans Mountain Pipeline system, Enbridge’s Northern Gateway Pipelines would roughly double the oil pipeline footprint in British Columbia and thus the geographic area subject to risk of environmental harm. Bisecting the province, Enbridge’s Northern Gateway Pipelines would introduce the risk of socio-economic harm into dozens of communities hitherto free of the risk associated with oil pipelines and tankers. Many of these communities are indigenous and reliant on their lands and waters for their social and economic well-being. For many of these, Enbridge’s proposal represents a serious threat; for some, even an existential one. The Gitga’at community at Hartley Bay, for example, has not-without-struggle maintained their ancestral connections to and thus dependence on their lands and, especially, their waters. Their dependence makes them particularly vulnerable to the adverse effects of crude oil spills within their core territory. Anchored in their territory through their village at the end of Douglas Channel – close by which every one of Enbridge’s requisite tankers must pass – a more than minor disruption to their fishing and seafood harvesting resulting from a crude oil spill in their waters would entail serious social, cultural, health related and economic harm to the community. A sufficiently lengthy disruption, such as would result from a major spill, would add irreversibility to the harm.

Granted that the Prime Minister’s partiality for Enbridge’s Northern Gateway project is driven by a concern to mitigate the risk of federal revenue loss stemming from an oil tanker spill off the coast of British Columbia, an inquiry into the ethics or morality of his partiality should centre around the question of whether the mitigation of the risk to federal coffers – not to mention the risk of economic loss to oil sands and related industry - should be sought at the cost of introducing the risk of environmental and thus socio-economic harm to dozens of indigenous and other communities located along the path of Enbridge’s proposed pipelines and tankers. Ranging from minor to significant to catastrophic, the totality of the certain (for example, here), likely, and potential harm to these communities that Enbridge would visit upon them should, upon reflection, one might think, suffice to jettison the idea that the addition of Enbridge’s pipeline qualifies as an ethical or moral means for mitigating the risk of federal revenue loss.

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This year’s federal Budget, Economic Action Plan 2012, confirms that the Prime Minister’s and his federal colleagues’ enthusiasm for Enbridge’s Northern Gateway Pipelines project has more to do with establishing the presence of crude oil tankers in another portion of the province’s coastal waters than it does with increasing and distributing pipeline capacity. Tabled in the House of Commons on 29 March 2012 by the Minister of Finance, the Budget expresses, among other things, the federal government’s commitment to introduce legislation to streamline the review process for major economic projects.

Directly under the subheading Supporting Responsible Energy Development, the Budget proposes to spend $35.7 million over two years “to support responsible energy development. But the subsection that follows does not deal in such generalities. It deals almost exclusively with tanker safety. Focusing solely on the British Columbia, it begins:

Safe navigation of oil tankers is very important to our Government. Oil tankers have been moving safely and regularly along Canada’s West Coast since the 1930s. For example, 82 oil tankers arrived at Port Metro Vancouver in 2011. Nearly 200 oil or chemical tankers visited the Ports of Prince Rupert and Kitimat over the past five years. They all did so safely.

After some further description of what the federal government is already doing to ensure tanker safety, the Budget goes on to propose “as further measures to support responsible energy development”:

• New regulations which will enhance the existing tanker inspection regime by strengthening vessel inspection requirements.
• Appropriate legislative and regulatory frameworks related to oil spills, and emergency preparedness and response.
• A review of handling processes for oil products by an independent international panel of tanker safety experts.
• Improved navigational products, such as updated charts for shipping routes.
• Research to improve our scientific knowledge and understanding of marine pollution risks, and to manage the impacts on marine resources, habitats and users in the event of a marine pollution incident.

All but the second of the foregoing measures are explicitly tied to tankers. The second seems intended to cover pipelines as well as tankers. Despite mentioning only one measure possibly intended to cover pipelines, the Budget concludes the subsection saying: “These measures will ensure that pipelines in Canada are carefully monitored, environmental consequences are understood and emergency response is improved” (emphasis added).

A brief subsection immediately follows that proposes to provide the N.E.B  with $13.5 million (fully cost recovered from industry) over two years to increase the number of inspections of oil and gas pipelines and double the number of annual comprehensive audits.

The federal government’s commitment to spend over two and one half times more on tanker than on pipeline safety, not to mention the greater attention its Budget devotes to tanker safety, is further evidence that in the Prime Minister’s and his federal colleagues’ estimation, oil tanker spills off the coast of British Columbia are of far greater concern than oil pipeline spills. Why they are should now be clear.