It is not a great time to be an oil pipeline developer or operator in North America these days. Policymakers are canceling projects and threatening to close operational pipelines. Environmental groups are becoming more vocal in their opposition to any form of fossil fuel production in Canada and subsequent plans for the transportation of crude from Canada’s oil sands sites to U.S. refining hubs.
And this increased pressure on pipelines may change the course of the industry forever.
Oil pipeline developers and operators continue to defend their (remaining) projects, saying that their plans will bring a reliable supply of North American crude oil to U.S. markets that will continue to need fuels for the foreseeable future. Pipelines are a safer and cheaper mode of transportation than crude-by-rail transportation, they say.
Environmentalists and Michigan Governor Gretchen Whitmer are having none of it. And the state of Michigan is trying to have Enbridge’s Line 5 through the Straits of Mackinac shut down.
Faced with opposition to oil pipeline projects, energy infrastructure operators are now vying to offer alternative ways of transporting oil from Canada’s oil sands. They are also studying ways to build hydrogen pipelines, as well as carbon capture and transportation systems to help oil sands production—one of the world’s most carbon-intensive ways to pump oil—to reduce its carbon footprint.
Oil Pipeline Demise
The biggest victim among the Canada-U.S. oil pipeline projects this year was the Keystone XL pipeline project. The pipeline had its presidential permit revoked on the first day in office of U.S. President Joe Biden in January. Five months later, the pipeline proponent, TC Energy, definitively abandoned all efforts to fight for the resurrection of the pipeline and officially canceled the project in June, after having announced thousands of job cuts earlier this year.
Another operator, Enbridge, is currently engaged in a mediation with the state of Michigan, which wants the operational Line 5 pipeline through the Great Lakes shut down.
The state and Enbridge expect to complete the mediation by the end of August, the warring parties told a federal judge last week.
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Opposition to another critical pipeline, the Trans Mountain expansion project, was also part of the reason why Kinder Morgan sold the project to the federal government of Canada in 2018.
All in all, pipeline projects that would carry Canadian crude oil to refining and/or export hubs have seen growing opposition in recent years. This opposition has come not only from green groups, but also from local governments, as is the case with British Columbia vs Trans Mountain, or Michigan vs Line 5.
What’s The Alternative?
Even with the net-zero by 2050 pledges by Canada and the United States, Midwest and Gulf Coast refiners will continue to need Canadian heavy oil because the energy transition isn’t happening overnight.
“If we land-lock the province (Alberta) with a product that the world needs and the ability to produce it, where does that get you?” Richard Masson, an executive fellow at the University of Calgary’s School of Public Policy, told Financial Times’ Charlie Mitchell.
The most obvious alternative to oil pipeline transportation is crude-by-rail. Yet, this is not only less safe than pipelines, but also more expensive for refiners which would pass the higher costs on to consumers, brokerage Eight Capital’s analyst Phil Skolnick told FT.
Regardless of these considerations, opposition to pipelines in North America, especially those carrying or designed to carry Canadian oil to the United States, is only growing louder. Faced with growing hostility, energy infrastructure operators are proposing what they describe as safer and more environmentally friendly ways to ship Canada’s bitumen.
For example, Gibson Energy has a project to remove the diluent from bitumen at a Hardisty terminal to make it a more concentrated heavy oil specifically designed for rail transportation. Gibson Energy maintains that the thicker crude is a non-flammable and non-hazmat commodity, which increases the safety of transportation.
Indigenous-owned Wapahki Energy is blending high-quality Alberta bitumen with recycled waste plastic, creating a material that it calls Green Asphalt. It can be transported safely via rail in bulk and represents an “environmentally sustainable method of building roads to, and of, the future,” the company says.
Net-Zero Oil Sands Operations?
Canada’s oil sands—being one of the most emission-intensive crude resources in the world—couldn’t just sit idle as governments and nearly every major European oil corporation pledged to achieve net-zero emissions by 2050.
Last month, the biggest oil sands producers in Canada announced a net-zero collaboration initiative to achieve net-zero emissions from oil sands operations by 2050. The Oil Sands Pathways to Net Zero initiative includes companies that operate some 90 percent of Canada’s oil sands production: Canadian Natural Resources, Cenovus Energy, Imperial, MEG Energy, and Suncor Energy.
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The initiative is ambitious and “will require significant investment on the part of both industry and government to advance the research and development of new and emerging technologies,” the group said.
Last week, the CEOs of Suncor and Cenovus put the price tag at as much as US$60 billion (C$75 billion). The government would need to step up and likely fund up to two-thirds of that cost, Suncor CEO Mark Little and Cenovus Energy’s CEO Alex Pourbaix told Bloomberg in an interview.
Separately, Canadian pipeline operators announced in June plans to develop a massive carbon transportation and sequestration system. TC Energy has partnered with Pembina Pipeline Corporation to jointly develop a carbon transportation and sequestration system, the Alberta Carbon Grid.
These plans are just the start of an upcoming massive allocation of capital and planning in the efforts to reduce emissions, officials in Alberta say.
Anti-pipeline activism has spurred energy producers and energy infrastructure developers to look at different ways to transport the oil sands and make production as low-carbon as possible.
By Tsvetana Paraskova for Oilprice.com
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