Thursday, July 7, 2011

China Eyes Alberta's Oil Sands As State Department Delays Keystone XL Pipeline Decision

While interests in both the USA and Canada are awaiting a State Department decision on a proposed pipeline linking northern Alberta's oil sands with Texas, Chinese companies are proposing a pipeline of their own linking the vast reserves with the Pacific Ocean.
The oil sands of this Canadian province are so big that they will be able to serve both of the world's largest economies as production expands in the coming years. But that will mean building at least two pipelines, one south to the Texas Gulf Coast and another west toward the Pacific, and that in turn means fresh environmental battles on top of those already raging over the costly and energy-intensive method of extracting oil from sand.

Most believe that both will eventually be built. But if the U.S. doesn't approve its pipeline promptly, Canada might increasingly look to China, thinking America doesn't want a big stake share in what environmentalists call "dirty oil," which they say increases greenhouse gas emissions.

Alberta has the world's third largest oil reserves, more than 170 billion barrels. Daily production of 1.5 million barrels from the oil sands is expected to nearly triple to 3.7 million in 2025. Overall, Alberta has more oil than Russia or Iran. Only Saudi Arabia and Venezuela have more.

Alberta is one of the few places where oil companies can invest, as the majority of the world's oil reserves are controlled by national governments. Only 22 percent of the total world reserves are accessible to private sector investment, 52 percent of which is in Alberta's oil sands, according to the Canadian Association of Petroleum Producers.
At issue are environmental concerns over two proposed pipeline projects. The Northern Gateway Pipeline would pump oil from Edmonton, AB over the Rockies to a new maritime terminal in Kitimat, BC for export to China. China's state oil company, Sinopec [NYSE: SHI] reportedly has a stake in excess of US$ 5 billion in the plans drawn up by Alberta-based Enbridge [NYSE: ENB/TSX: ENB].

Map detailing already existing pipelines and proposed expansion

Meanwhile, running to the south is the Keystone XL project, much of which is already in place, but Phase 1 takes a circuitous zig-zag route through Manitoba before stretching south across the border to Steele City, NE. From there, the pipelines diverge with one heading east to Patoka, IL and the other heading south to Cushing, OK (See map above). The proposed extension (Phase 4) by pipeline owner TransCanada [NYSE: TRP/TSX: TRP] would bypass Phase 1 and take a more direct route from Alberta by cutting through eastern Montana, then western South Dakota and Nebraska. Phase three of the project would involve expanding the pipeline south from Oklahoma to the Houston area.

Natural oil sands seepage into Alberta's Athabaca River
So right off the bat, this KeystoneXL pipeline expansion would be providing Americans with jobs and an important energy source from a politically stable ally in the region. Sounds like a win-win- doesn't it?

Well- not to the usual suspects. Interesting how last year, Cap & Trade co-author Rep Henry Waxman (D- CA30) was concerned about the possible environmental impact of the Keystone XL project but now the House Democrat is worried that the eeeeeeevil Koch Brothers- the de-facto progressive boogeyman since late 2010- might financially benefit from the pipeline's construction- because apparently we cannot have abundant oil from Canada if a single Republican donor stands to benefit from it [curious how they aren't quite as dilligent on legislative or policy decisions that would affect....say...Jeffery Immelt- NANESB!].

'Green' energy advocates often (and rightly) cite our growing dependence on an energy source that primarily originates from a decreasingly stable parts of the world. Yet whether it's hydrofracking in the Marcellus Shale, offshore oil drilling in the Gulf of Mexico or ANWAR, the same 'Green' energy advocates suddenly deem those energy sources off-limits.

Since the proposed KeystoneXL pipeline expansion crosses the US/Canada border, the final say in the matter is ultimately left up to the State Department, which is expected to make its final decision after a multi-agency review later on this year [A word of caution- leaving the matter up to the State Department could be a means for the White House to avoid making an unpopular political decision ahead of 2012- NANESB!]

Here's the thing that really bothers me- should they successfully derail the KeystoneXL project, it's not as though the oil sands will continue to sit there untapped. There is still the matter of growing demand from China. From the American perspective, one of the few things we have in our favor at the moment is that there's perhaps even more local opposition to the Northern Gateway pipeline project then there is the KeystoneXL. There is also concerns about tankers navigating the 55-mile inlet known as the Douglas Channel in order to get between Kitimat and the Pacific Ocean.

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