As TransCanada’s Keystone XL pipeline proposal faced another dramatic setback Wednesday with the U.S. government’s rejection of its plan, spectators may be questioning the fate of Alberta’s oil sands.
On Wednesday, the Obama administration denied a presidential permit to construct the $7-billion pipeline, citing the need for a proper environmental review to be conducted while TransCanada vowed it would reapply for a permit.
The controversial pipeline would have crossed 3,100 kilometres and moved more than 700,000 barrels of oil per day from Alberta to 15 refineries through the United States and into the Gulf of Texas.
Alberta’s oil production is expected to grow to nearly 3.5 million barrels from 1.1 million barrels being exported per day, according to Jack Mintz, director of the School of Public Policy as the University of Calgary.
“Oil production is going to almost triple in the next 15 years and it’ll only happen if you get it to get the market and that’s where pipelines come in,” he said.“Keystone was to play a significant part.”
While critics may argue that relying on refineries in Canada or building new facilities would create jobs and keep U.S. officials out of planning, Mintz says upgrading current refineries would be a bad economic move.
Canada is already peppered with refineries – from Edmonton, Montreal, Sarnia, Ont., Dartmouth, N.S., and Come-by-Chance, Nfld. – but some of these facilities may not be able to convert raw bitumen into crude oil, Mintz explained.
Refineries have already closed down in Canada – including Shell’s facility in Montreal –and the United States, where there is “excessive capacity” in the Midwest.
“All of a sudden you’d have this unused capacity and it just doesn’t make sense to build new refinery plants when several have been mothballed over the past several years,” he said.
Building more domestic refineries or upgrading facilities on oil sands so bitumen can be refined wouldn’t be economically sensible for several reasons, he said.
Constructing refineries or upgrading resources to process bitumen would cost TransCanada and other oil giants billions of dollars – an investment they wouldn’t get back from selling processed bitumen.
The price difference between the bitumen and the refined product is slim. A barrel of bitumen could be at an estimated price of $55 to $60 a barrel while a barrel of crude oil would cost $80.
“What’s the economic point of doing that? There are already good bitumen prices you can get from the U.S. for raw bitumen because there is such excessive capacity,” he said.
The Gulf of Texas – where TransCanada’s oil would end up – is also a major port for ships exporting products.
Mintz noted that Atlantic Canada could be a key player in moving oil offshore, but St. John, N.B.’s Irving Oil is likely the only company on the East Coast that can handle Alberta’s volume of heavy oil.
But Eddie Goldenberg, a former adviser to Jean Chretien who is now a lawyer at Bennett Jones, said Canadian officials should consider looking East.
“What’s happened with Keystone XL is a wake up call for Canada. We can’t rely on only one market. The United States will always be a principle market but we have to figure out how to diversify our markets,” he said, pointing to Asia, where countries such as China and India have a massive demand for oil.
He said Eastern Canadian refineries use foreign oil from the Middle East, but they could process Alberta oil. From the East Coast, tankers could carry the oil through the Panama Canal to Asia, he said.
Goldenberg said other pipelines may exist, but “it’s a question of capacity.”
Mintz said he’s convinced the proposal is muddled in partisan politics as the U.S. ramps up for a November 2012 presidential election and that the pipeline will be built, however.
Natural Resources Minister Joe Oliver agreed that the industry could be shifting to Asia.
He recently visited China and Prime Minister Stephen Harper will visit the energy-hungry country in February, a visit that will likely focus on growing Canada’s share of China’s energy imports.
“They are hungry for our energy. They are growing at an extremely rapid rate. They are the biggest consumers of energy in the entire world and so they are waiting for us to get these projects built and in fact are themselves investing tens of billions of dollars in Canada in the oil sands,” said Oliver.
He told reporters that the focus on new pipelines prepares Canada to move more oil in the future.
“Most observers would agree that sometime during this decade the capacity will run out. That’s why it is important to get the infrastructure in place so we can move our resources from where they are to where they are wanted.”
© Global News. A division of Shaw Media Inc., 2012.