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Major Pipeline Projects Inject Some Much Needed Hope in the Oilpatch – MNP LLP


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Major pipeline project announcements in Canada and the U.S. have injected some much-needed relief into the oil and gas industry. Three major projects; the Enbridge Line 3, Keystone XL and Trans Mountain expansion, could open more markets for Canadian crude and construction opportunities.

Pipeline-Map-mnp

“There’s a general cautious optimism,” says Rob Beamish, executive director of the Canadian Energy Pipeline Association Foundation, whose members include 11 major pipeline companies and more than 100 other supply chain operators.

But cautious is the optimal word, he says.

“[Our members] also know that it’s a long process and that is only one step in the longer chain of things that need to be done,” Beamish says. “These are people who know the pipeline process, who know that approval is a necessary step in the chain but there are many more hurdles to get over before shovels hit the ground.”

In Canada, regulatory reviews average more than five years per pipeline project, creating uncertainty for producers and proponents alike. Commodity prices, climate change, carbon pricing and geopolitical strife also have combined in a perfect storm that’s cast a shadow over the oil and gas industry.

Each project has issues that must be dealt with, Beamish says. And it could be some time yet before the effects of construction are felt throughout the supply chain. If the three projects mentioned above were approved in a timely fashion, they would help find markets for the one million barrels of additional new crude production expected to start flowing over the next three years. If not, the continued growth would overtake an already constrained pipeline network, pulling down prices at the same time.

“It’s very cautious optimism,” he says. “It still is, for many companies, business as usual but they’re hopeful that these things will proceed and that work will move on down to them.”

An April 18, 2017 report by IHS Markit (INFO) notes capacity constraints in the past have contributed to price volatility, a rise of crude-by-rail shipments and a loss of economic value for Western Canadian producers. During one such period of constraint — a five-month period starting November 2012 through March 2013 — Western Canadian Select crude realized approximately $30 per barrel less than Mexican Maya, a crude of similar quality. The difference in price equaled approximately $6 billion in lost revenue over that period.

The political climate in Alberta and Ottawa are not helping, says Adam Jones, managing partner of business development at NTL Pipelines Inc. Yet he doesn’t believe that it’s too late to revive the Canadian oil and gas industry.

“I still believe that there is an opportunity to make money here and make Alberta a great place to live. We need the right people on the bus all deciding to go the right way,” Jones says.

While focus has been on major projects, integrity work and smaller projects have kept the work flowing in the oilfield. The companies that are still standing have opportunities ahead.

“We tend to focus a lot on the big ones, that’s our human nature,” Beamish adds. “There is still a lot of smaller work going on in Alberta and across North America.”

But he says foundation members, from suppliers to engineering, have noticed a shift in business in recent months.

“Bookings for materials are stretching into the future. So it’s not just people feeling good,” he says. “They’re actually starting to see some changes in some areas.”

However, pipeline projects continue to face challenges in getting built.

Last summer a Federal Court of Appeal overturned the 2014 federal approval for Enbridge’s $8-billion Northern Gateway pipeline to Prince Rupert, saying the federal government had not met its obligation for meaningful consultations with First Nations.

The decision – eight years after Enbridge had resurrected the project and began the long process of approvals – was a huge blow to that project and to the process in general. Last fall, both Enbridge and the federal government announced they would not appeal the decision, leaving the option of Ottawa launching full consultations.

Then in January, the National Energy Board announced that it will restart the hearing process for TransCanada’s Energy East project, after the previous hearing panel stepped down over allegations of conflict of interest. The decision reset the clock on a process that began nearly two years earlier.

Construction on Energy East was originally slated to begin this year.

“We’re on a knife’s edge. Which way we go, there are a lot of factors – ultimately factors out of our control – and a lot of things that are going to determine the fate of Alberta and Canada as a whole,” says Jones.

“If we don’t start making some big, fundamental changes, it’s going to be pretty hard for Canada to dig out of.”

Regulatory and government approvals are not final decisions any longer, Jones points out. In the case of Northern Gateway and now, Trans Mountain, the courts have become the final arbiter of Canadian energy policy.

Environmental groups and First Nations opponents often have appeals at the ready as soon as the regulator and governments issue decisions on energy-related projects. There are years – and hundreds of thousands of dollars – worth of judicial reviews and appeals ahead.

To Jones, the process is unpredictable and out of control, despite Canada having one of the best regulatory systems and oversight roles in the world.

In this climate, the hurdle is the same for Keystone, Trans Mountain, Energy East, Line 3 and others, Jones says: “Them actually happening.”

Approvals now are “a win in terms of good sentiment. A win, as far as creating jobs and getting our products to another area, that’s yet to be seen.” Ultimately, Canadian oil and gas needs to reach new markets and pipelines are key to making that happen, Jones says.

“We need oil going out,” he says. “These projects need to happen.”

But as with what befell Northern Gateway, government approval is only one of the hurdles to getting a project from a plan to a pipeline.

“As far as optimism is concerned, it’s better than not approving it but no one is clicking their heels yet,” he says.

The industry may not return to the state it was before prices crashed, he says.

“Those were heady days,” Beamish says. “There have been some structural shifts in all sorts of areas. So along with some of those great times came great prices, or very high prices. What I’d like to see is predictable, steady growth projects.

“I’d also like to see good, rational discussions being had.”

Contact MNP’s Oilfield Services Team​

​​ ​​Jason ​

MNP understands the oilfield services industry – its drivers, challenges and opportunities. 

For more information on MNP’s OFS services, Jason Kingshott, CPA, CA, at ​​403.263.3385 or jason.kingshott@mnp.ca

http://www.mnp.ca/en/oilfield-services



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