Werner's Blog — Opinion, Analysis, Commentary
Northern Gateway approved

Today, the Enbridge Northern Gateway Project Joint Review Panel approved the Northern Gateway project subject to 209 conditions. This move was not at all unexpected. There are compelling economic benefits due to improved market access that would allow Canadian oil producers to close the gap between the heavily discounted Western Canadian Select prices and world market prices. Prices in North America were depressed due to increased production from new sources in the United States as well as capacity constraints in transportation and processing. While the price gap has shrunk from its peak in 2011, Canadian producers would benefit significantly from increased access to international markets. On the other hand, local environmental risks can be mitigated, and the Panel's recommendations point the way to best-of-class solutions. The recommendations do not appear to be technically insurmountable, although some will be costly.

The report will now be reviewed by the Minister of Natural Resources, who can approve or reject recommendations within the next 6 months. It is extremely likely that Ottawa will give a green light for the project soon. However, major hurdles remain. Opposition in British Columbia remains strong both from native communities and environmentalists. Increased oil exports are likely to contribute to more greenhouse gas emissions. Beyond the construction stage, the long-term economic gains to British Columbia remain small. Most of the economics will accrue to the producers and the producer provinces. Even with a go-ahead from Ottawa, the fate of the project rests with the BC provincial government, which has to decide wether the project meets the five conditions set out in 2012. Determined opposition from Victoria could still scuttle the project—as could market forces. If the price gap was to evaporate suddenly, the project may become economically unattractive. The Mackenzie Valley Gas Project taught an important lesson about the importance of market forces. Even though the 1,200-km pipeline was approved, it was eventually shelved as uneconomical.

Posted on Thursday, December 19, 2013 at 15:16 — #Energy
© 2024  Prof. Werner Antweiler, University of British Columbia.
[Sauder School of Business] [The University of British Columbia]