Canada: “We will get the Oil Out”

Anti-Keystone activists seized on a report released this week by Goldman Sachs and immediately began pushing headlines proclaiming that Canadian oil sands would face roadblocks if Keystone XL isn’t approved.  One of the most persistent voices in the fray, Anthony Swift of the Natural Resources Defense Council (NRDC), declared that “without Keystone XL […] higher transport costs will result in the cancelation or deferment of tar sands expansion projects.”

Um, not so fast.  Let’s look at exactly how Goldman Sachs actually put it:

“While we see significant demand for Canadian heavy crude oil in the United States, in particular in the Gulf Coast region, the main question at this time is whether sufficient pipeline takeaway capacity will exist that crosses the Canada/ US border, with Keystone XL (TransCanada) and Alberta Clipper (Enbridge) the key projects to watch, in our view (Exhibits 1-4). In the event that either the Keystone XL newbuild or Alberta Clipper expansion (or both) encounter further delays, we believe risk would grow that Canadian heavy oil/oil sands supply would remain trapped in the province of Alberta.” 

Note that the report is not saying that oil sands won’t get out but they “believe risk would grow.”  Before Keystone XL opponents get too excited, have any of them thought of asking Canadian officials, who will actually be making the decisions, what they plan to do with their oil sands?  Our guess is no, so we thought we’d find out for them.

Gary Doer, Canada’s Ambassador to the United States: Ambassador Doer told Platts Energy Week that even if current pipeline projects are blocked, “oil will get to market.” “We’ve got a delay in British Columbia, and controversy in D.C.,” said Doer. “[But] it’s not a question of whether this oil comes into the United States. It’s a matter of how.” View the entire interview HERE.

Grady Semmens, TransCanada spokesman: “We don’t necessarily view [Keystone] XL as a linchpin in oil production. The industry will look for other ways to get to market.”

Katherine Spector, executive director of commodities strategy for CIBC World Markets Corp: “The market will find a way. The market is always looking for opportunities to take advantage of significant price differentials,” she said, noting Western Canadian crude trades at a “pretty tremendous” discount over U.S. oil. “Rail has so far been part of that way,” of getting Canadian crude to market, as the State Department reviews TransCanada Corp.’s proposal to build the Keystone XL pipeline linking Alberta crude with Gulf Coast refineries. But now, “it’s a question of timeline,” Spector said. “Does it take so long that perhaps other options become viable?”

Joe Oliver, Natural Resources Minister of Canada: “Several of the project’s opponents believe it would be a decisive body blow which would keep the oil sands in the ground. That’s simply wrong,” he said in remarks at the Center for Strategic and International Studies.

Russ Girling, President and CEO, TransCanada: Girling said the 830,000-barrel-a-day Keystone XL pipeline, which would deliver Canadian and U.S. crude to refineries on the U.S. Gulf Coast, is important to TransCanada but just part of the $25-billion portfolio of projects the company has in the works.  “It will surprise the opponents who think that if I shut down the Keystone pipeline then I shut down this whole (oilsands) thing,” he said. “It’s the single biggest source of oil the private sector can invest in and you can bet the private sector is going to figure out a way to get it to market” […] All the while oilsands production continues to grow. “It’s economic and the world needs it,” Girling said. “Smart people will find a way to link those two things up.”

Geoff Hill, head of Deloitte Canada’s oil and gas practice: “There are many efforts to pursue other routes that don’t go south.  You can assume some of them will be successful.  We’re going to get the oil out.”

The Canadians aren’t the only ones who think so. Even former Secretary of Energy Steven Chu said this week, “Let me put it this way: I do think that oil in Canada [oil sands crude] will get out and be used.” Assistant Secretary of State Kerri-Ann Jones agrees: “approval or denial of any one crude oil transport project, including this proposed project, really remains unlikely to significantly impact the rate of development of the oil sands, or the continued demand for heavy crude oil in the U.S.”  And, of course, there’s the State Department report that is very clear that Canada’s oil sands will be developed and transported regardless Keystone XL’s fate, as we’ve pointed out in several posts.

It’s pretty clear that Canadian oil sands will travel, and how much better that will be with Keystone XL.  As we’ve noted before, pipelines are widely acknowledged to be the safest and most efficient way to move energy products overland for long distances. Furthermore, Keystone XL is designed to be a state-of-the-art pipeline adopting 57 extra safety measures, leading the State Department to declare that the project would “have a degree of safety over any other.”

One thing that Keystone XL opponents failed to address is that the Goldman Sachs report highlights the tremendous potential for Canadian oil sands, calling it a “bright spot” of our energy outlook:

“From resource constraint to infrastructure constraint, Canada is one of the few bright spots in the global oil supply outlook along with the United States and Iraq. In fact, the United States and Canada account for essentially all of the cumulative growth we expect in non-OPEC supply over the next five years (Exhibit 5). But, like the United States and Iraq, realization of potential supply growth is contingent on adequate infrastructure being developed in order to ensure Canadian oil supplies make it to key refining demand centers. We see significant demand for Canadian heavy oil in the United States – the key is getting there.”

Well, according to major officials in Canada, this is not the problem: the oil will get out.  The bottom line is that there is great supply in Canada and great demand in the United States – and when you have both, you have a market.

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