Canada: The Next Oil Superpower?

Forget Keystone XL—Canada has bigger dreams. But can Ottawa pull it off?

The Obama administration’s decision Friday, April 18 to delay yet again its final decision on the Keystone XL pipeline shows the project may be too hot to handle politically. The irony, however, is that it’s hardly the most important pipeline battle in North America. Six other pipelines are being planned in Canada that collectively—and in some cases individually—have much higher stakes for international energy markets and the environment.

Like the Keystone XL, Canada’s proposed projects are intended to deliver to market oil produced in Alberta's tar sands. If all six were built, they would carry roughly 3.2 million barrels per day, four times the volume of Keystone XL. Fierce public debates are ongoing in Canada about these projects, yet with little attention in the United States because many of the issues are framed differently than south of the border.

It seems improbable that all these projects will get approved, but several appear highly likely to move forward in the coming years. Even two or three could transform Canada from a mere regional actor—a supplier of crude almost exclusively to the United States—to a significant player in oil geopolitics.

Canada’s unique brand of pipeline politics is driven by its strategic need to find new customers in Europe and Asia. Fully 97 percent of Canada’s oil exports go to the United States, where crude prices have been depressed by the U.S. shale-oil boom. As a result, Canada needs to sell on global markets, where the benchmark Brent crude typically sells far higher than the U.S. benchmark, West Texas Intermediate.

“There is a very real cost to Canada being linked to the United States and not to tidewater, to the global energy markets,” said Carl Kirst, an energy industry analyst at BMO Capital Markets in Houston. “Canada has a strategic necessity to diversify away from the U.S. … There’s no other developed nation whose most valued product is linked to just one customer.”

The new pipeline projects are intended to break this logjam and push Canada onto the world stage. Whether Canada is ready for the challenge is unclear, but a fundamental shift appears to be underway.

The pipeline proposals are strongly supported by Prime Minister Stephen Harper, a conservative. But the main opposition party, the left-of-center New Democrats (NDP), has unexpectedly thrown its backing behind the largest pipeline project. The NDP opposes both the Keystone XL as well as the Northern Gateway pipeline from the tar sands to the British Columbia coast, not primarily because of environmental concerns but because of the fact that they would export raw crude instead of value-added refined products. But the NDP supports the Energy East, a 2,730-mile pipeline that would send tar sands crude to refineries in Quebec and New Brunswick. The new supply would substitute for imported Middle East crude, and the refined products and some unrefined crude would be sent to both domestic and export markets.

NDP leader Thomas Mulcair has cast Energy East in nationalistic, lunch-bucket terms:

“When we talk about sustainable development of our resources in Canada, we talk first and foremost about adding the value here, including the jobs. Keystone XL represents the export of 40,000 Canadian jobs. So as a matter of principle, we’re saying, since that bitumen is moving anyway, move it in Canada, create 40,000 jobs here, get a better price for the producers, more royalties for the producing provinces—oh, and by the way, take care of Canada’s energy security.”

(...) “As a matter of principle between something like Keystone XL, which as far as we’re concerned is a big mistake, and west-east, west-east is a better alternative. We’ve got to move away from the traditional Canadian tendency to simply rip and ship and not add value here. Value-added jobs are the way to go.”

Leading the opposition to the pipelines is yet another faction that has no political equivalent south of the border—First Nations tribes. In contrast to the United States, where the last Native American claims to territorial sovereignty were officially relinquished in the Alaska Native Claims Settlement Act in 1971, many British Columbia tribes have never signed peace treaties with Ottawa recognizing Canadian sovereignty over their lands. Under a diffuse body of Canadian and international law, these First Nations thus enjoy the right to “consultation” over projects in their historic territory. Whether this gives the tribes full veto power over the pipelines is highly disputed, but the matter is likely to become a multi-year legal struggle that is finally decided by Canada’s Supreme Court.

“There’s an unbroken wall of First Nations along the B.C. border, saying, ‘we will not allow these pipelines to get built,’” said Robyn Allan, an economist in Vancouver. “They are hanging lot of their strategy on international law on aboriginal rights, which is a powerful tool for them in Canadian courts.”

Northern Gateway, which would send tar sands crude to a port at Kitimat, B.C., for shipment to China and other Asian customers, has received preliminary approval from the National Energy Board, a federal review panel, with final approval from Prime Minister Harper expected soon. But because of the First Nations opposition, Canada’s conventional wisdom is that construction won’t begin for years to come, if ever.

The depth of local opposition to Northern Gateway was shown April 12 in the port town of Kitimat, site of the pipeline’s terminus, when 60 percent voted in a nonbinding referendum to oppose the project.

In contrast to the B.C. tribes, all First Nations on routes east of Alberta have signed land treaties and thus enjoy much less legal clout, so most are simply angling for a profitable piece of the pipeline action.