Alberta energy industry needs new pipelines, but one route to U.S. faces extra challenges, analyst says

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Ram Vadali, senior vice-president energy for bond rating agency DBRS, in Edmonton Thursday, Oct. 19, 2017.

Gordon Kent / Postmedia

While at least two of Canada’s three major pipeline proposals are likely to go ahead, the Line 3 replacement route to Wisconsin faces greater challenges, an industry expert says.

Construction has started in Alberta and Saskatchewan on the approximately $9-billion Line 3 pipeline replacement, but it still needs approval to pass through Minnesota, where the state’s commerce department argues environmental and socio-economic risks outweigh the benefits.

Although the Trans Mountain pipeline expansion to the West Coast and the Keystone XL route to Gulf Coast refineries also need regulatory approvals, they’ll likely be built, Ram Vadali, senior vice-president of energy for credit rating agency DBRS, said Thursday in Edmonton.

“I think at least two of them will likely go forward in the next two to three years,” he said, adding Kinder Morgan Canada’s announcement that Trans Mountain’s completion could be delayed by up to nine months is within the one-year holdup built into his calculations.

“We feel that the Keystone and Trans Mountain are likely to go ahead … I think Line 3 does face some challenges right now.”

The issue is that Bakken shale producers in North Dakota, Line 3’s main customers, now have the option to use the Dakota Access pipeline that opened last summer, he said.

“The department of commerce is saying we have enough refinery capacity that’s being taken by the (Bakken shale) producers. We don’t need more Canadian oil to come in.”

At the same time, Canadian gas companies face tougher competition from American firms eating into their traditional markets, as well as selling gas in Ontario, said Vadali, part of a team in Alberta making investor presentations.

“Producers are sort of skeptical in looking at the horizon and saying ‘Do I make that capital investment?’ That makes Canada unattractive as an investment destination for energy investors,” he said.

“That is the reason why the oil majors are leaving the oilpatch and saying, ‘Even if I produce something, how do I get it to market when I don’t have a pipeline, or I don’t have export channels from the east or the west?’ ”

This moves will hurt Alberta’s resource-dependent economy, Vadali said.

“The challenges are out there, the headwinds are out there … We have to build pipelines, we have to have export channels so we can compete in the world market.”

Victor Vallance, another DBRS senior vice-president in the energy field, said new oilsands plants aren’t going to happen while oil prices stay around $50 to $55 US a barrel.

But with the U.S. only pumping about half the oil it needs despite a big increase in output, and international demand growing, prices could spike because investment in production has dropped, he said.

“The world population is growing, developing countries are growing, and they’re using more oil.”

gkent@postmedia.com

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October 20, 2017 |

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