January 2014, Vol. 241 No. 1


Canadas U.S. Ambassador On Pipelines, Climate Change And Why Canada (And Its Exports) Cant Be Stopped

Erin Nelsen Parekh, Associate Editor

With the continued lack of resolution to the Keystone XL approval question, the swift change in U.S. fossil energy production rates, and the boom in unconventional sources of energy, the last few years have changed long-standing patterns of energy trade between the United States and Canada. The issues are momentous in their own right, but the U.S.-Canadian relationship is more than special: it forms the world’s largest bilateral energy market. U.S. Energy Information Administration figures account for 3 million barrels of oil and petroleum products and 11 Tcf/d of natural gas crossing the border in 2011. The U.S. Embassy in Ottawa estimates that it is a $100 billion annual partnership.

Canada’s ambassador to the United States, Gary Doer, a former premier of Manitoba, can offer ample insight from the northern half of the equation. Good-humored and easygoing, Doer nonetheless has a swift and comprehensive command of the facts of the current energy situation, and little patience for disingenuous posturing, however it plays out in the public conversation. Though he is a noted environmentalist and was named to BusinessWeek’s list of 20 world leaders fighting climate change in 2005, he deplored an “environmental industry” that “raises a lot of money opposing things.” He approached the recent debt ceiling debacle in Washington D.C. as deserving of ridicule. In town in early November to speak at a World Affairs Council of Houston luncheon and fresh from a meeting with local energy executives, Ambassador Doer spared a few minutes to discuss the energy trade with Pipeline & Gas Journal.

P&GJ: At an energy conference last year, Enbridge CEO Al Monaco said that with the vast majority of Canadian oil and gas going to just one market – the United States – producers needed more options. What’s your take on that?
What has happened with the Keystone XL has made it pretty clear that the old assumptions of NAFTA, where the biggest demand the United States had in Canada-U.S. trade was a guaranteed access to Canadian oil, [no longer apply]. Keystone XL has put a real light on the fact that politics will overshadow energy security, politics might overshadow economic opportunity, and it means that Canada is very definitely still looking at our biggest customer, the United States, but not solely at the United States.

We had a challenge with softwood lumber because of some protectionist domestic politics in the United States. We’ve started to sell our lumber to Asia and we diversified. And now 41% of our lumber goes to Asia and over 50% still goes to the United States. But you have more bargaining power when you have more than one customer.
So there are two proposals in Canada to the west for pipelines, two proposals in Canada to the east, and two to the south, with the Keystone and the Enbridge proposal.

P&GJ: Do you think LNG exports are going to play a role in that diversification?
Ten years ago there were a dozen LNG plants in North America all pointing inward, mostly. I’m going to leave it up to the U.S. to decide its own policies beyond project-by-project approval, we’ve got some being approved in the United States but it’s on an episodic basis.

In Canada the policy is that natural gas can be exported in LNG plants if the National Energy Board is satisfied that there is no domestic need for it that would be usurped by export. So we have a criteria, you don’t have one in the States yet.

P&GJ: Regarding the Keystone XL difficulties, it’s unprecedented that any pipeline should have this much trouble getting over the border. What do you think the reasons are for that?
Partly it was the routing disagreement in Nebraska. We couldn’t get an agreement between the state of Nebraska and the State Department and in 2011 that reached a head when the State Department recommended proceeding with the Keystone XL, including a route through Nebraska, and the governor of Nebraska said he was calling a special session back in the Nebraska Senate to block the pipeline route. That’s caused a real delay, it’s two years now. We’re trying to get it approved now and we’re waiting for the next and fifth report from the State Department on the amended route through Nebraska.

P&GJ: Do you think this is the new normal for cross-border approvals?
I think all pipeline proposals are not created equally. Routes that change course from existing rights-of-way will have more environmental opposition. If you look at existing ROWs that are being expanded, they’re not getting the same kind of community pressure as we saw in Nebraska on an existing route. In fact, I heard from Nebraska, “Why don’t you just use the same Keystone route as you had last time?”

P&GJ: Is the public opposition that’s come up on a popular level something that’s going to stick around?
The public supports the pipeline. Despite all the claims that this was the end of the world, the public opinions have been consistently two-to-one, three-to-one in favor of the pipeline. Whether it’s the Washington Post doing the poll or somebody else, it’s consistently supported by the public. You can never get a situation where the Chamber of Commerce in the United States, the war veterans in the United States and the building trade unions all support the same proposal. There’s a difference between noise and public opinion. Despite all the noise, the public is still clearly committed to the proposal.

P&GJ: In light of the tragedy at Lac-Megantic, has the evaluation changed?
Before that horrible situation, when you look back at the delay on Keystone because of Nebraska and then the president delaying it, what has happened? Well, since then oil on trains has gone up 46% in 2012, and it’s tracking up over the same amount again in 2013. So the unintended consequence of delaying the pipeline has been massive increases in oil on rail and significant increases of oil on tanker trucks, 500 a day in North Dakota. That’s a lot of trucks on Highway 2. That’s very significant. The unintended consequences have been, as the State Department stated in March, rail has 8% higher greenhouse gas emissions (GHGs). It has, according to the U.S. Department of Transportation, a much greater risk of safety incidents. The delay has meant higher costs, higher GHGs and greater risk.

P&GJ: Is there a place for crude by rail in the system?
The agility of rail and the ability to have investments made in refineries in Delaware with oil from Canada will continue to allow transportation of oil on rail. But it shouldn’t be that pipelines are refused and then it all goes on rail. The president doesn’t have authority over rail, so when the president says stop, he’s not stopping oil. The environmental industry has never been held accountable for its assertion that if this pipeline is not approved oil would not be harvested in Canada for the Gulf Coast refineries. They’ve been proved to be wrong.

The fact that there are fewer GHGs in the pipeline sector is something that is not well appreciated. We were trying to get that on the radar screen in the State Department and we’re pleased the last report [on Keystone XL] did that and we hope the next one maintains that. Since then it’s actually gotten more severe. We see the role of trains in energy but it’s not an either/or with pipelines. Trains can do smaller refineries, smaller areas with lots of agility. But for the larger refineries such as the ones on the Gulf Coast, a pipeline’s the best way to go.

P&GJ: Can you discuss the environmental impact, especially regarding GHGs, of the unconventional fossil fuel boom in North America? What will the effect of that be long term?
The big effect is that we’ve won the lottery in North America, and we just don’t know how to cash the ticket. Here we are at the 40th anniversary of OPEC dictating to us not only the price but the supply of oil. And here we have a situation, a couple months after American diplomats are sent out of Venezuela, where, according to Daniel Yergin, the biggest winners of Keystone XL being approved would be Canada and the United States, the biggest winners if it’s denied are Venezuela and the Middle East. So we have the opportunity to continue to develop energy efficiency, energy renewables, energy development of gas, and oil in North America.

Some of that could be determined by what Mexico does with its constitutional amendment, but those four elements represent a huge opportunity for Canada and the United States to make ourselves less dependent on Middle Eastern oil. Most days when we turn on our TV or read the news, we’re talking about the Middle East. We’re taking about Iraq, Iran, the Palestinian-Israeli issue, what Saudi Arabia’s going to do, what their feelings are.

You ask yourself why aren’t we taking advantage of an energy vision, and at the same time taking advantage of a climate change opportunity?

Most people, when they look at climate change, the TV shows belching smokestacks and industry. It’s actually the cars we drive that have the highest emissions in Canada and the United States. So with the president bringing in the new light-vehicle emissions standards, Canada did the same thing at the same hour and the same minute so we would have a coordinated approach, and that is an example of how we can deal with climate change. The only way to deal with climate change is reduce demand. The supply always gets to the demand.

P&GJ: In 2012 the government limited state-owned enterprise investment in Canadian businesses after approving two controversial deals orchestrated by Asian national oil companies [Chinese National Overseas Oil Corporation (CNOOC)’s purchase of Nexen Inc. and Malaysia’s Petronas’ purchase of Progress Energy Resources]. In my reading it seems the concern is primarily over unconventional oil and gas development in Western Canada.
We’re discussing this at the Trans-Pacific Partnership (TPP) table [where a trade agreement is being negotiated among the United States, Canada, Australia, Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, possibly Japan and potentially Korea]. One item under negotiation is what are the rules of a free market with state-owned enterprises (SOEs), and what are the rules of SOEs purchasing resources through a company? We’re trying to get a balance between what the private sector brings to energy and energy security, and SOE that is part of the government apparatus of other countries. Hopefully, dealing particularly with the Pacific region, we can have, first, reciprocity; second, rule of law and third, rules about state-owned enterprises.

You hear from companies in Houston that they like the capital that SOE bring, but they don’t like the capitalism that is subtracted from that reality, and they don’t know where that’s going to go in a free-market system. It’s the same concern in Canada. They like the capital but they don’t want the loss of capitalism.

P&GJ: Given Canada’s comparative wealth of resources, how would you like to see its energy production play out on a world scale?
We want to continue to work on a dual track of cleaner air and water with the United States in our neighborhood and energy security in North America. For us, if the United States is moved from a position of wanting all the oil we can produce to a different position, the world demand indicates the greatest demand will be in China and India. New Brunswick, where one pipeline is proposed to go, is a thousand miles closer to the west coast of India where the refineries are than the west coast of the United States and Canada. The other side of that is the Kinder Morgan [TransMountain] project is very positively accepted—it hasn’t been approved yet, but it’s moving ahead in a very positive way with more oil going on an existing pipeline to the west coast.

P&GJ: Do you think anything might stand in the way of Canadian development across the Pacific Ocean?
No. The only thing is time.

Do I think anything will stand in the way of getting energy security in our neighborhood? Yes. The only thing that will get in our way is allowing the debate to be determined by one-trick ponies, Birkenstock Bob and Oilcan Harriet. If it’s only perceived as a winner-take-all, one-trick-pony debate, it will slow down an energy security vision that has been talked about from Nixon on but can actually be realized right now.

If we decide we want to be energy-independent in North America it means more pipelines. If the United States decides, notwithstanding the lessons of OPEC, that it wants to maintain some dependence upon uncertain situations in petro-dictatorships in the Middle East … I think someday somebody will overrule that decision. That’s one good advantage of a democracy.

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