Canada: Pipe Dream: Getting Canada's Petroleum Resources To Tidewater

Last Updated: March 1 2019
Article by Dan Collins

Pipe dream: Getting Canada's petroleum resources to tidewater

Given the events of 2018, even the most avid proponents of Canada's law legalizing recreational cannabis may struggle to envision a clear path for the construction of a pipeline that would deliver Alberta's petroleum resources toward Canada's east or west coasts.

Upstream petroleum and pipeline industries have faced significant headwinds in recent months and years, in addition to those created by depressed global oil prices. Many of the regulatory challenges facing those industries will continue to unfold in the coming months. With elections expected in Alberta and Canada this year, observers can expect the struggle for access to new markets for petroleum resources to play out before regulatory tribunals, in legislatures and, potentially, the courts.

When it returns in February, the Canadian Senate will resume its consideration of two bills that could have big implications for Canada's energy industry, generally, and the pipeline sector in particular. In mid-2018, Canada's House of Commons passed the Oil Tanker Moratorium Act, which prohibits large oil tankers from stopping or unloading crude oil at ports along British Columbia's north coast. Later in the year, the House of Commons passed the highly controversial Bill C-69, which would introduce significant changes to Canada's environmental assessment framework ( see here), and rebrand the National Energy Board (NEB) ( see here). The Oil Tanker Moratorium Act would make it practically impossible to pursue the development of an oil export pipeline through northern British Columbia, a preferred route for accessing Pacific markets. As for Bill C-69, many stakeholders, including those in the energy and pipeline industries, have publicly expressed concerns over the potential consequences of the new law if passed in its current form, and are lobbying for major changes. The impact on Canada's resource industry (and the broader Canadian economy), will not be clear until the Bill passes the Senate, and the federal Cabinet releases regulations spelling out the types of projects that will have to comply with the new impact assessment requirements.

The fate of the Trans Mountain Expansion Project (Project) – the proposed twinning of the existing crude oil system that currently runs between Edmonton and Burnaby – will also continue to be a major story in 2019 from a regulatory perspective. After the federal government was forced to step in and buy the Project from the original proponent, the Federal Court of Appeal struck down the federal Cabinet's prior approval of the Project, citing inadequate government consultation with potentially affected Aboriginal groups along the Project's right of way ( see here). At the federal government's direction, the NEB is currently reconsidering the impacts of Project-related marine shipping, while the federal government works to re-do its Phase III consultation for the Project. The NEB will report on its reconsideration by February 22, 2019, with a decision from Cabinet on whether to approve the Project based on the NEB's reconsideration, which will likely be made before the fall election. As with the initial Cabinet decision, any new decision approving the Project could (and likely would) be subject to judicial review.

In late 2017, the Energy East Project (EEP), a proposed 4,500 km pipeline that would carry 1.1 million barrels of crude oil per day from western Canada to refineries in Eastern Canada, was permanently shelved. That project faced a number of struggles in its short life, and the applicant withdrew the application after the NEB announced it would take the unprecedented step of considering upstream and downstream emissions associated with the EEP. Politicians in Alberta and New Brunswick have recently expressed support for revisiting the EEP. As it stands, Energy East does not have a proponent willing to advance that project or a similar one, and any oil pipeline passing through Québec would face stiff political opposition. Unless circumstances change dramatically, there is no reason to expect any movement on the EEP or one like it in 2019.

The inability to make progress on an oil pipeline to Canada's east or west coast has prompted some surprising actions from within Alberta in 2018. Last spring, the Alberta government responded to opposition from British Columbia politicians to the Trans Mountain Expansion Project by passing a law that would give the provincial Energy Minister the power to restrict the flow of oil and gas exports using licensing requirements ( see here). By December, faced with an unprecedented glut as a result of the lack of pipeline access, the Alberta government announced (with bi-partisan support) it would curtail production of oil by up to 325,000 barrels per day ( see here). With tensions between Alberta and British Columbia politicians subsiding, it is not clear whether Alberta might take steps to restrict exports in 2019. The Alberta Energy Regulator is administering curtailment, which could be in place through all of 2019.

Actions in legislatures and decisions of regulatory tribunals and courts have created challenges for Canada's energy industry. Those actions and decisions have also come at a significant cost to Alberta and Canada, both in terms of economics and, potentially, national unity. These issues will continue to unfold throughout 2019.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

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