“English Bay shouldn’t become a parking lot for supertankers”; Crude Landlocked as Canadians Join U.S. to Halt Pipelines

Crude Landlocked as Canadians Join U.S. to Halt Pipelines

British Columbia, the Canadian province whose official slogan to its own beauty is “Super, Natural,” is invoking another saying: “No more supertankers.”

That’s potentially big trouble in a nation where oil exports amount to $73 billion annually and the industry employs more than 550,000 workers. It’s also a bad omen for nations, notably China, that have invested billions in Canadian oil projects with expectations that they will one day be able to buy vast quantities of heavy Canadian crude.

To do that means not just pumping it from the vast tar sands — thought to hold as many as 170 billion barrels — lying mainly to the east in the neighboring province of Alberta. It also means building pipelines to carry that heavy oil, known as bitumen, west to the coast. From there, fleets of supertankers will be needed to ship it across the Pacific to Asian markets that desperately want cheap oil.Two such projects, representing about C$11.4 billion ($11.1 billion) in investments, are on the drawing boards. British Columbia, with its mountainous forests, national parks and salmon streams standing between the crude and the sea, wants no part of those pipelines — nor does it want its scenic bays to be turned into supertanker terminals.

In Vancouver, with a metro-area population of 2.5 million, the evergreen-rimmed, blue sprawl of English Bay laps up to the city center and is already a port for supertankers taking crude from an existing pipeline known as the Trans Mountain conduit. Sean Austin offered an opinion sounded often there — that enough is enough. “English Bay shouldn’t become a parking lot for supertankers,” Austin, a 41-year-old construction worker, said in an interview as the sun set over a seawall behind him.

Chinese Caught Out?

An end to the pipeline projects would be devastating news to a number of Chinese companies including Sinopec (386) and Cnooc Ltd. (883) Collectively, they have invested $36.3 billion in Canadian oil and gas assets over the past two years — the largest foreign investment in Canada’s petroleum industry.

“The expectation for Chinese investors from the very beginning was that Canadian oil would physically be delivered to China,” Wenran Jiang, an adviser to the Alberta government on Asian investment, said in an interview. “Chinese companies are heavily invested in the oil sands and they want to see these pipelines built.”

Austin’s view is backed up by a recent opinion poll that shows 60 percent of British Columbia voters fear continued oil and gas development will ruin their green paradise. The two projects drawing their ire are Enbridge Inc. (ENB)’s Northern Gateway pipeline and the proposed expansion of Kinder Morgan Energy Partners LP’s Trans Mountain conduit.

Across Rockies

Northern Gateway would cut a line across the middle of the province through a national park and over the Rockies and Coast Mountains, an area sparsely inhabited by aboriginal groups that say they don’t like pipelines. Kinder Morgan wants to more than double capacity on the Trans Mountain conduit, in operation for half a century, to 890,000 barrels a day to bring more oil through Vancouver to the city’s port.

Without these and other such projects, “Canada’s oil industry is facing a serious challenge to its long-term growth,” Craig Alexander, chief economist at Toronto-Dominion Bank, said in an interview.

While fights over TransCanada Corp. (TRP)’s Keystone XL pipeline, designed to transport Canadian tar-sands oil to U.S. refineries, have gotten most of the press, this long-simmering and escalating resentment of the province becoming a tar-sands conduit may in the end prove more damaging.

Environment Versus Economy

British Columbia voters on May 14 went through provincial elections in which the opposing parties fought hotly over a laundry list of social and economic issues. Yet the parties agreed vociferously on one thing: British Columbia will not sacrifice its environment for economic growth.

The national ruling Conservative Party of Prime Minister Stephen Harper favors oil and gas development and has the power to outright veto a pipeline project, following hearings by the national energy regulator. In January 2012, as pipeline regulatory hearings were about to begin, Harper’s government seemed steadfast in its support of the Northern Gateway project with Joe Oliver, Harper’s natural resources minister, accusing opponents of attempting to “hijack” the nation’s regulatory process in an effort to block energy exports.

As pipeline opposition mounted across the nation, however, Oliver in a speech last October said such projects shouldn’t proceed unless they are “safe and responsible.”

“We are committed to building a strong economy and protecting the environment,” said Todd Nogier, an Enbridge spokesman. “There is support for the project. And we are committed to increasing support.”

Even if the federal government gives the green light, British Columbia and its green groups have weapons to fight the projects beyond the court of public opinion.

Ecojustice Lawsuit

Litigation, potentially long and costly, is already a reality. Environmental groups led by Ecojustice filed suit in September to stop the pipeline projects, contending that the federal government hasn’t performed adequate environmental impact statements on the threat to imperiled species.

One British Columbia native group, the Saik’uz First Nation, has also threatened legal action should Enbridge win a green light from the federal regulator. The company has been threatened with civil disobedience and legal action that will go on “for years,” said John Ridsdale, a hereditary chief of the Wet’suwet’en nation.

“The big concern is the tanker traffic on the coast,” according to Andrew Weaver, a University of Victoria climate scientist and the first Green Party member to win a seat in the provincial legislature. “That issue won’t go away.”

Oil Price Reaction

The uncertainty over the fate of these pipelines is beginning show up in the oil price, with Canada’s biggest export being discounted as land-locked supplies build up.

The price of Canadian heavy has fallen 17 percent from last year’s high of $90.50. The discount to the U.S. price is costing the Canadian economy C$27 billion a year in lost profits and taxes and deprives markets of the world’s cheapest crude, according to the Alberta Finance Minister Doug Horner.

A majority of British Columbians don’t care. The same poll by Forum Research in December that found 60 percent of voters opposed oil and gas development also found only 37 percent of voters in favor.

Of course, Vancouver is known as “Lotus Land” in the rest of Canada. It’s also home to yoga-gear maker Lululemon Athletica Inc. (LULU), a mayor who started an organic juice company called Happy Planet and a green movement every bit as vociferous as California’s. So even as British Columbia’s economy has traditionally been reliant on forestry and mining, the times and attitudes are changing.

“People have a right to enjoy this inlet, this very small inlet, without having to look at oil tankers,” said Austin. “You have this wonderful sea walk. If the pipeline goes through and you have more tankers, what’s the use of having a sea walk?”

To contact the reporters on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net; Christopher Donville in Vancouver at cjdonville@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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