CANADIAN PIPELINE PROJECTS IN LIMBO? NO WORRIES, HERE IS AN ALTERNATIVE SOLUTION!

All logically minded and technically well informed people know that the Keystone XL pipeline is:

·       Good for both US and Canada from various standpoints (economic, political, technical);

·       Not a villain, by any logical stretch of imagination, in the climate change dynamics;

·       A safer way to transport bitumen to the US refineries which have been retrofitted at hundreds of millions of dollar to process this Western Canadian Select crude.

However, the US administration is playing football with this project for more than five years – one does not even know whether any decision would at all be taken never mind the timeline.

So, the POTENTIAL alternatives folks are talking about in regard to transportation of bitumen:

-     Transport by rail cars: TransCanada is thinking about it. But this mode of transport is under cloud due to recent accidents, e.g., Lac-Megantic disaster, bsides, there are other constraints too;

-     Northern Gateway Pipeline (ENBRIDGE): This project was not exactly conceived as an alternative to Keystone XL – this project officially started in 2004 (as per the project website). At any rate, however, this project is expected to face serious challenges from the First Nations and the environmental groups resulting in inordinate delays;  

-     West to East Pipeline (TRANSCANADA): Again, this proposal too is likely to run in to rough weather and delays due to involvement of various provinces (through which the pipeline is proposed to pass through).

-     Line reversal (ENBRIDGE): This project too is facing obstructions from various groups.

Is there no other solution that can circumvent all the above issues? Well, there is provided the concerned parties - namely, the Province, Industry (TransCanada and Enbridge) - and some others who are supportive toward harnessing Canadian resources for development of Canada, its people and its economy come together.

SO WHAT’S THE PLAN?

Preamble:

We know that Saskatchewan Premier Brad Wall is very supportive of oil sands developments in a sustainable manner as is Alberta Premier Allison Redford. We also know that West Coast newspaper mogul David Black is interested in setting up a refinery in BC (but apart from money constraints the main bottleneck for this project is the pipeline transporting Alberta bitumen to BC – again, the same issues that bedevil Northern gateway Pipeline). We also know that potential buyers of bitumen in Asia are all asking one question: What is the high tide exit point from Canada? Have all issues in regard to the exit point been resolved? If not, what is the definite timeline?

OUTLINE OF THE PLAN:

Form a consortium of following parties:

Ø  Province of Alberta

Ø  Province of Saskatchewan

Ø  TransCanada

Ø  Enbridge

Ø  David Black (who would bring on board the investors he says are willing to pony up money)

Project:

Ø  Set up an Upgrader facility to process bitumen from Alberta and Saskatchewan in future (from its Bakken formation)

Location of the project:

Ø  In Saskatchewan at some optimized site closer to Alberta-Saskatchewan border such that it should facilitate transport of bitumen from Alberta via pipelines and from Saskatchewan oil sands producers in future. Why Saskatchewan? First, to share the investment; second, tight oil is going to come from this province apart from bitumen from oil sands.

Estimated cost of the project:

Ø  $10-15 Billion depending upon extent of upgrading facilities installed, length of pipelines and associated tankages.

Products from the Upgrader:

Ø  Synthetic crude oil (SCO).

Pros of this project based on the proposed consortium:

Ø  Bitumen transport pipelines’ approval will be within Alberta and Saskatchewan jurisdiction: This means much lesser hassles in terms of approvals from the various authorities;

Ø  Product would be synthetic crude oil which can then be:

-     Piped to various refineries within Canada (Central Canada or East Coast); alternatively,

-     Piped to US or to Asia through BC coast – the opposition to pipelines is for bitumen transport, it will be much less for synthetic crude oil.

Ø  Investment will get shared and hence investment on the part of each party will be within manageable limits – TransCanada and Enbridge are already prepared to invest billions (>CDN$5.0 Billion). Both the provinces could also possibly fork out 2-3 of billion dollars each, Mr. Black can bring his investors’ billions too on the table. And, may be Ottawa might chip in with some billions (much less than 8 billion dollars Mr. Black requested for from Ottawa);

Ø  The project will produce value-added products in Canada – this will silence the critics who allege that by transporting bitumen to US or Asia, Canada is throwing many jobs away down the pipeline;

Ø  The refinery can be expanded later to process more bitumen produced in Alberta and Saskatchewan;

Ø  This project would minimize potential accident hazards (of rail car) and longer pipelines carrying bitumen;

Ø  The project would avoid litigations and consequent delays that the proposed pipeline projects are facing/expected to face;

Ø  The project would assure the international investors and buyers (of SCO) about the definitiveness of the project and availability of the product, and Canada would be able to take advantage of the window of opportunity;

Ø  There would be definitiveness for the large, medium and the small oil sands producers who are wondering how they will get their product (bitumen) to some market. Because of this uncertainty many projects are on hold, consequently, work load for EPCM companies in Alberta is moving toward a cliff, soon there will be a spike in folks seeking EI in Alberta unless there is some miracle;

Ø  There would be synergy between the two pipeline companies instead of unnecessary rivalry and competition;

Ø  BC can be persuaded to chip in with some investment in future for the pipeline from the Upgrader to BC coast for shipment to Asia. If they don’t, well, TransCanada, Enbridge and Mr. Black could possibly pool together money for such a pipeline (these companies could hopefully manage and adjust their cash flows suitably) – some new investors may also come on board sensing the opportunity;

Ø  Canada would not be hostage to decision making of others.

Timeline of the project:

Ø  From concept to commissioning: Maximum 60 months, in other words, by end of 2019/beginning of 2020 if the parties agree and get going this year (2014). This pretty much comes close to the realistic timelines of the Northern Gateway and West to East Pipeline project completion dates.

Well, if Google-X team can think of out-of-box solutions, so can the folks in Canada. It’s high time the concerned parties thought out of the box and gave a serious thought to the above proposal and brought some touch of finality to projects in Alberta (and Saskatchewan).