Oil pipelines to drive Canadian economy like 1880s railroads

‘Unity’ Symbol?

Canada exported C$100 billion of oil and natural gas last year, said Monaco. That figure will grow at a faster pace than the nation’s economy as production of bitumen continues to expand, Doug Porter, chief economist for BMO Capital Markets, said in an interview in Toronto yesterday.

Pipelines may become “symbols of unity” like the cross- Canada railroad that enabled Western grain farmers to get their wheat to market, Frank McKenna, deputy chairman at Toronto- Dominion Bank, said yesterday at the summit. New oil conduits “would create a national network of energy.”

Enbridge has proposed to increase oil transportation capacity through projects including the C$6 billion Northern Gateway from Alberta to Canada’s Pacific Coast. TransCanada is lobbying for approval of the Keystone XL pipeline from the oil sands to the U.S. Gulf Coast and proposing to convert part of an existing gas line to carry oil to Canada’s Atlantic Coast.

Kinder Morgan Energy Partners LP of Houston is considering more than doubling capacity to 890,000 barrels a day on its existing Trans Mountain line from Alberta to Vancouver.

‘Value Destruction’

New pipelines will cost more and take longer to be built as operators including Enbridge put more effort into winning public support rather than focusing solely on regulatory approval, Monaco said.

The current lack of pipelines is depressing Canadian crude prices and energy stocks. Western Canadian Select was $21.50 a barrel less than the U.S. benchmark West Texas Intermediate yesterday, according to data compiled by Bloomberg.

“This is C$25 billion a year in value destruction,” McKenna said. There is also C$1 trillion in foregone gross domestic product over the next 20 years and C$300 billion in lost tax revenue during the same period.

Meanwhile, Canadian energy stocks have underperformed U.S. peers by almost 14 percentage points in the past year, data compiled by Bloomberg show. Enbridge rose 0.3% to C$48.78 at 9:59 in Toronto today, bringing its gains this year to 13%. TransCanada rose 0.3% to C$50.63 for a rise of 7.6% year-to-date.

Rail continues to play a role moving Canada’s natural resources, with crude shipments rising from the oil sands and shale formations as proposed pipelines are delayed.

The pipeline miracle also may not deliver all its promises, as production in the U.S. also increases, said Michal Moore, a professor of energy economics at the University of Calgary.

“Doubling output from the oil sands is not realistic,” Moore said in an interview. “Oil production in Alberta is likely not going to be an endlessly-expanding vista.”

In the meantime, Enbridge and others will race to meet the demand as fast as they can, in the same way railway barons a century ago chased export markets for Canadian grains and logs.

Bloomberg News


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