By GRAHAM HICKS
Can we believe it?
Believe the Trans Mountain Pipeline twinning project is actually going ahead?
Can we believe, in three or four years, that the new pipeline will move our pent-up heavy oil production to overseas countries that need the stuff, where buyers will pay better prices than the American refineries who are our only customers at this time?
Once complete, 590,000 more barrels of dilbit (diluted bitumen) a day will start to flow down the Trans Mountain’s second pipeline, adding 20% more pipeline capacity from the oil sands. Which is huge.
Certainly, it feels like things are happening.
Driving back to Edmonton on Hwy. 16 from Valemont, the highway was near clogged by dozens of big trucks, each hauling four to five mega-diameter lengths of pipe. This stuff was too big to be used for anything but the Trans Mountain project.
Pipe is moving by rail as well. Almost all of it is coming from Regina, made from recycled steel at EVRAZ North America’s pipe-manufacturing plant.
The pipe is being delivered to depots along the pipeline’s route. The locals picking up donairs at Valemont’s Diamond H Donairs say a pipeline construction camp is being built nearby, housing up to 700 skilled labourers and welders.
Local MP and Natural Resources Minister Amarjeet Sohi announced on Tuesday that pipeline construction will start along the route by October – including the Edmonton to Edson portion. Wouldn’t you know it, just before the federal election!
Sohi suggested oil should be flowing down the new pipeline by mid-2022. Most analysts say three to four years.
The same analysts suggest the major court battles have run their course. Further anti-Trans Mountain pipeline challenges could be ruled frivolous, as all major concerns have been reviewed and amended by the courts.
Don’t get too enthusiastic. One new pipeline will not turn around the economic fortunes of Alberta, especially when most of the actual work and spending is in British Columbia.
Regional benefits along the pipeline construction route – like that camp near Valemount – will be excellent. Every local welder should be gainfully employed. But assembling a pipeline doesn’t generate anywhere near the economic activity of a new refinery or an oil sands mega-project.
It’s not about the immediate economic activity, says crude oil analyst Kevin Birn of ISH Markit in Calgary. The big pay-off, the hoped-for consequence will be in that faint but distinct rumbling up north: The oil sands producers, ever so slowly, coming back to life.
It’s all about investor confidence in the future of the oil sands, says Birn. No confidence, no investment. No investment, no money to expand production.
“The pipelines are the lightning rod,” says Birn. “Every oil sand producer has a line-up of potential expansion projects. Nothing will happen until they are assured all their oil can be shipped to the USA or overseas for decades to come. And they have to see the differential (the difference in price between diluted bitumen and conventional oil) shrink and hold steady.”
If the Trans Mountain project operates as planned at 590,000 barrels per day (bpd), if both Enbridge’s Line 3 (380,000 new bpd) and TransCanada Pipelines’ (TCP) Keystone XL pipeline (830,000 bpd) can beat legal challenges and be built in the USA, Alberta’s heavy oil exports could go from today’s 3 million bpd to 4.8 million barrels a day.
That would be an economic jolt! Especially when, on the climate change front, oil sands producers are more than doing their part, dramatically lowering GHG emissions and water use.
“Our firm predicted 2019 would be the nadir (bottoming out) of the oilsands,” says Birn. “But there’s no rocket ship on the other side. The recovery will be a long, slow climb.
“It’s that confidence. Investors won’t put money back into the oil sands if it doesn’t feel good, no matter the positive economic indicators. Plus there’s the global economy and alternative oil investments.”
So the Trans Mountain announcements bode well.
But we are best off to follow the lead of Alberta premier Jason Kenney. We’ll believe the Trans Mountain is for real … when it is carrying 590,000 barrels of heavy crude oil a day without disruption.