‘A whole lot of cost and very little benefit’: Analyst believes Alberta-Ontario pipeline unnecessary

Richard Masson, former CEO of the Alberta Petroleum Marketing Commission, joins Alberta Primetime's Michael Higgins to discuss a proposed pipeline.

Alberta Premier Danielle Smith and Ontario Premier Doug Ford are proposing a cross-Canada pipeline that would send crude oil from Hardisty, Alta. to southern Ontario, called Northern Shield. Richard Masson, former CEO of the Alberta Petroleum Marketing Commission joined Alberta Primetime’s Michael Higgins to discuss the proposal.

This interview has been edited for clarity and length.

MH: Let’s start on Northern Shield. Is this essentially a modified version of Energy East? What do you make of the proposal?

Richard Masson: It isn’t that because Energy East was using a natural gas pipeline for two-thirds of the route and going to deep water ports in New Brunswick for export. It was an export-oriented pipeline. This is a duplicate pipeline to the existing Enbridge system.

Currently there are four refineries in Ontario. They get their feed stock from Western Canada through Enbridge, and then some volumes go on to Montreal through Line 9. What this proposal, so far, would do is just duplicate that with a whole bunch of cost and very little benefit.

MH: The premiers appear to have been discussing this over the past year or so, but to what degree was this on the radar of the oil industry?

RM: I don’t think anybody in the industry thinks that this is going to happen and I don’t think it’s on their radar. I spent the morning at a conference listening to CEOs of some of the big producers and it didn’t come up as anything that people are talking about.

This idea is really driven by the notion that Michigan is fighting to shut down Line 5, which is one of the pieces of the Enbridge system that goes to Sarnia, and that Donald Trump potentially could restrict our shipments through the U.S. to those refineries. But if those are the risks that we’re worried about, building a pipeline ten years from now at a cost of probably $40 or $50 billion probably isn’t the best answer.

I would argue that it’s much better to build some rail and loading facilities at those terminals so that you could bring rail crude from Alberta, which we already have lots of rail loading facilities here, and move it there on the existing rail line quickly.

MH: Anyone who has travelled Highway 17 through Ontario has a good sense of what the geography is like through that neck of the woods. What kind of ingenuity would it take to build this pipeline across the Canadian Shield?

RM: You can do it. Our natural gas pipelines do that. When we were building pipelines back decades ago, to make sure that the gas pipeline went over the top of Lake Superior. We chose not to do that for the oil pipeline. Some people argued that was cost savings, penny wise pound foolish over the long-term. Though we’ve never seen those pipelines actually shut down, it would be expensive to do.

Just to give a sense of the cost of things, that million-barrel-a-day pipeline to the West Coast is being talked about as a potentially $40-billion project for 1,200 kilometres. It has to go over some mountain ranges, and needs to have a terminal, but this pipeline would have to go 3,300 kilometres just to get to Sarnia. So it’s not clear what it would cost, but it would be a lot of money and private sector folks wouldn’t be keen to sign up for the toll that would be associated with it.

MH: Were there to be a pipeline, would there be value in branching off to tap export markets to the East? Be that through the Port of Churchill or otherwise, could that make it more viable?

RM: I don’t think Hudson Bay is going to prove to be a viable option right now. There’s about four months a year where you can ship without ice and oil pipelines need to run every day, right? The oil’s got to move, it moves at a pace that you walk, you can’t just shut it off for months in the freezing cold and hope that it’ll be all OK in the spring. Oil pipelines are not well suited to part-time ports.

Certainly we could try to get to the New Brunswick refinery, but part of the issue was Quebec and the challenges by the government and the individuals in Quebec at the time, and all those issues would have to be dealt with again in order to get to New Brunswick.

MH: Let’s shift focus to Alberta’s pipeline submission to the major projects office last week. What’s to be made of the degree of private sector buy-in, with Pembina looking at a 10-per-cent stake, that at this point is still considered non-binding?

RM: I would say I’m heartened that Alberta heard the feedback from many different participants and chose the southern route. I’m heartened that the federal government said Trans Mountain could be the proponent because what we now have is a route that doesn’t have to have the tanker ban lifted, which is going to mean less Indigenous conflict. It means that we just build a pipeline through that route.

We know everything about the environmental elements of it, the difficult parts of the terrain, we have a pipeline company that just built a big project that knows how to do it. We can build off the existing right of way, we can do it potentially incrementally, so there are many things that are favourable from this choice that could help to reduce cost and speed it up. It’s still going to face high hurdles because the toll at the end of the day has to be competitive with the alternatives, or you won’t get shippers signing up for 20-year take-or-pay commitments.

MH: There’s also the proposed prairie connector to Wyoming. What kind of changes to production capacity would be required of the oil sands to sufficiently fill a growing list of potential new pipelines?

RM: There’s four things on the table practically. There’s 300,000 barrel-a-day de-bottlenecking of the existing Trans Mountain expansion. There’s 400,000 barrels-a-day that Enbridge has in process right now. Prairie connectors have about 550,000 barrels a day, so that’s 1.2 million barrels a day, then this new million-barrels-a-day pipeline, so 2.2 million barrels a day.

Of that, about 650,000 barrels a day is going to have to be diluent that we’re going to have to get from somewhere and the balance, 1.6 million barrels a day, would be new bitumen production coming from the oil sands. Those are very ambitious numbers. In a world where we’re moving forward on all of that, we’re going to see a huge amount of economic activity associated with looking for the diluent, drilling condensate, producing natural gas associated with the diluent pipeline construction, fractionation construction, many different things.

Based on what I heard at the conference today, the TD Stampede Investment Conference CEOs are sounding much more enthusiastic, given the alignment between the federal government and the Alberta government, and B.C.’s willingness to live with this situation. I think that they see a lot of opportunity. Not everything’s in place yet. They’re still looking to settle on what they’re going to do with pathways and how they’re going to finance that, but I think there’s a huge opportunity emerging here for Western Canada to really start developing this resource over the coming decade.