APRIL 23, 2020
PIPELINE NEWS NORTH •
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In midst of oil crisis, construction starts on Keystone XL NELSON BENNETT With so many Canadian companies facing an existential threat, and too few ventilators, has the climate crisis, followed by the COVID-19 crisis, followed by an oil crash crisis provided Canada with the opportunity to pull the plug on Canada’s oil and gas sector and let it die? That is the hope of anti-fossil fuel activist groups like Stand.earth and Dogwood, which participated in a virtual rally April 3 and launched a petition calling on Ottawa to reject calls for an emergency liquidity package for the oil and gas sector, which is experiencing what the International Energy Agency calls “a shock like no other in its history.” That shock is a one-two-three punch that started with a uncertain long-term future -- due to climate change policies, decarbonisation and fossil fuel divestment -- and shorter-term, but severe, shocks from the COVID-19 virus, resulting in a temporary shutdown of the global economy and steep fall in demand for oil and gas, and a price war between Saudi Arabia and Russia that drove oil prices down 60% in a matter of days. The shock has exposed the vulnerability of countries, states and provinces that depend heavily on oil and gas for their economic prosperity, raising questions about whether governments should prop the industry up in the current downturn, or surrender to Russia and Saudi Arabia. But given that oil and gas accounts for about 8% of Canada’s gross domestic product, its single most valuable export, and an estimated 800,000 direct and indirect jobs nation-wide, Canada needs the oil and gas sector as much as it now needs Canada, if it hopes for an economic recovery, said Alberta Energy Minister Sonya Savage. “The country will not recover without a strong energy sector,” Savage said at a virtual energy conference sponsored by Scotiabank and the Canadian Association of Petroleum Producers (CAPP). “The Canadian oil and natural gas industry was the economic engine that pulled Canada out of the great economic recession of 2008,” added CAPP CEO Tim McMillan. “And we can do it again.” Alberta Premier Jason Kenney said unemployment in Alberta is expected to hit 25% -- 500,000 out of work – which is on the level of the Great Depression. To shore up the industry through what is hoped to be a short-lived
crisis, the Alberta government has offered more than $100 million to help oil land gas producers cover costs, and recently announced that the long-delayed Keystone XL pipeline is now under construction, thanks to a $7.5 billion commitment in equity and loan guarantees from Alberta. “I am pleased to report construction is already underway,” said Kenny, a keynote speaker at the conference. Savage expressed optimism that Ottawa would be forthcoming with an aid package for Canada’s oil and gas sector in the coming days, once it had dealt with the more immediate problem of getting money into the hands of roughly 2 million Canadians who have been laid off. Oil and natural gas production is not just an Alberta story. It is also important to the economies of British Columbia, Saskatchewan and Newfoundland, and the Canadian economy more generally. (CAPP estimates that Alberta’s oil sector generates close to $600 million annually for B.C. service companies.) The industry is also important to Canadian banks, which are heavily invested in the Canadian energy industry, Kenney said. “Our banks, our financial institutions, cannot afford to see massive and permanent destruction of value in the Canadian energy sector -- it’s too important” Kenney said. Alberta is in a particularly hard spot right now. Its oil and gas sector was just starting to recover from the last oil price shock, and expected to invest $2 billion this year. Much of that investment won’t happen now, as producers have announced hundreds of millions of dollars worth of reductions from their 2020 spending plans.
The oil and refining industries have been hammered by a sharp and sudden decline in the demand for oil and refined fuels, as the global economy voluntarily shuts down to contain the COVID-19 pandemic, and an equally sudden and sharp drop in oil prices – the result of a price war between Saudi Arabia and Russia. Globally, 5 million barrels of oil per day is not fetching a price that makes it worth producing, says the IEA. “These operators are now losing money on every barrel they produce,” the IEA said in a recent brief. And oil producing countries will see revenue from oil fall from $287 billion in 2019 to $70 billion in 2020, the IEA estimates, which means there will be tremendous international political pressure to resolve the price war. Talks are expected to take place this week with OPEC members, and for the first time there is serious talk that non-OPEC members, like the U.S. and Canada, could agree to cut oil production, along with Saudi Arabia and other major producers to bring oil prices back up. Asked if Alberta would agree to production cuts, Kenney said, “If we see progress towards a global consensus by producers….we’ll keep an open mind.” But even if some agreement is struck, and oil prices move back up, the demand won’t, at least not for several weeks or months. Most countries are still in the middle of a pandemic lock-down, which means a continued low demand for oil, gasoline and jet fuel for the foreseeable future, as large swaths of the world’s population stops driving and flying. If an agreement isn’t reached, Kenney said he thinks Canada and
the U.S. should respond to Saudi Arabia’s “predatory dumping” with tariffs. There is some irony that, in the midst of the current crisis, Alberta’s oil sector is now getting what it has demanded for a decade or more: new pipelines. Construction is underway on the $12.6 billion Trans Mountain pipeline expansion, and, just this week, construction started on the $8 billion Keystone XL pipeline project. TC Energy Corp. (TSX:TRP) announced at the beginning of April that construction has already started in Northern Montana near the Canadian border on the longdelayed pipeline project, following Alberta’s announcement it will take a $1.5 billion equity stake in the project, and provide $6 billion in government guaranteed loans. That news has been greeted with a noticeable absence of outcry from activists, who are now confined to virtual protests, due to the pandemic. Savage said she didn’t think Canadians will have much patience with protests against a project that is expected to create 7,000 jobs in the current economic climate. As for the Trans Mountain pipeline expansion, now that Keystone XL is underway, Kenny now seems less interested in, or optimistic about, its completion. He said Keystone XL is the more important project for Alberta. “I hope the TMX happens, but I’m not prepared to bet the future of Alberta on that one project,” he said. “This (Keystone XL) is our hedge against risk of the non-completion of TMX. And it’s a bigger project. It’s at least 830,000 barrels of oil a day of heavy crude, and we know that the Gulf complex refineries in the U.S. are hungry for our kind of heavy. “They’re not going to get it from Venezuela or Mexico, and I think the Saudis have overstepped themselves in this price war – that U.S. producers are going to be a lot more cautious about importing overseas energy.” In addition to asking the federal government for emergency “liquidity” for oil and gas companies, Kenney said his government is also pushing a “do-no-harm” approach that would postpone a number of new federal regulations, like a federal low carbon fuel standard and new methane regulations. “We think we’re getting a more sympathetic ear on that than we have in the past,” Kenney said. — Business in Vancouver
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• PIPELINE NEWS NORTH APRIL 23, 2020
B.C. natural gas producers insulated for now NELSON BENNETT The last time oil prices collapsed, major liquefied natural gas projects in B.C. and elsewhere were shelved. Long-term LNG contracts are indexed somewhat to the price of oil, and without guarantees of sufficient long-term pricing, no one pulls the trigger on a multibillion-dollar LNG project. But for natural gas producers in B.C., the biggest concern now isn’t necessarily the impact of the COVID-19 and low oil prices on natural gas. A bigger concern is the effect on natural gas liquids, like propane and condensate – otherwise known as “wet” gas. “The consensus seems to be that, so far, we haven’t seen an impact on demand for natural gas,” Tracy Robinson, president of Canadian natural gas pipelines for TC Energy Corp., said April 7 at a two-day virtual energy conference hosted by Scotiabank and the Canadian Association of Petroleum Producers (CAPP). “I would say that any impact that we do see in the future related to this COVID-19 situation, there’s a shortterm response,” Robinson said. “It is not a structural change to demand. So the fundamentals stay strong, and we’re quite optimistic.” Natural gas liquids are a different story – one that is particularly important for B.C. The Montney formation in northeastern B.C. and western Alberta is liquids rich. Many of the operators there focus mainly on the liquids, with natural gas being something of a by-product. Operators in B.C. appear to be holding their own right now, according to companies participating in in last week’s conference. Tourmaline Oil Corp., for example, still has drill rigs operating in B.C. and plans to add more this year. Drilling would normally slow down this time of year for spring breakup, and the demand for natural gas begins to decline with
The new AltaGas propane terminal in Prince Rupert provides new market access, but the pandemic has taken a bite out of propane demand in Asia. | Submitted
the approach of summer. The biggest concern for those companies focused on natural gas liquids is the falling demand for propane in Asia, and the impact of low oil prices on condensate. A new propane export terminal that AltaGas Ltd. built in Prince Rupert has given producers in B.C. and Alberta access to the Asian market. But demand in Asia has fallen, due to the general contraction of economic activity in response to the COVID-19 pandemic. “We had hoped that actually we had diversified the whole propane market from Western Canada,” said Darren Gee, president of Peyto Exploration & Development Corp., which is focused on the Deep Basin of Alberta. “But unfortunately the Far East prices have collapsed so badly, that new export market doesn’t look very attractive, and Edmonton now looks like the most attractive place for propane,” Gee said. “Propane, as a product, doesn’t look great this year.” As for condensate, prices are directly affected by oil prices. It is
used to dilute bitumen. One of the problems with condensate is a lack of storage, which means that there is little capacity for producers to simply store it until prices come back up. Right now, there is a price differential between oil and condensate of about US$15 per barrel, and oil prices have been down 50% to 60% in recent weeks. “Right now condensate is the big concern, I think for a lot of natural gas liquids producers,” Gee said. “With pricing way off, the differentials and the demands for condensate have dropped off. And unfortunately we don’t have any storage in Western Canada really for condensate. “It’s the one product that we produce a lot of, because of the demand on the heavy oil side, but we really have no storage capability, so any interruptions to demand put us in a real pickle as an industry. “In the very short-term, it looks like there could be some potential interruptions in demand for condensate, as the heavy oil guys shut in as the result of the pricing.”
Jihad Traya, a natural gas consultant for Solomon Associates, said the longer-term impact on the demand and price for natural gas and natural gas liquids is hard to estimate, because no one knows how long or deep a self-induced global recession will last. “In the short term right now, you’re kind of insulated,” Traya said. “In the medium to long term, assuming this continues, it’s just as dire, if not more dire, for gas producers. “They’ve got a place to take their natural gas,” he said. “Once they don’t have a place to take their liquids, their natural gas can’t flow. “If that natural gas can’t flow, you’ve got to pull it out of storage, which could result in higher prices, and then you’ve got to go start drilling for drier natural gas, which generally has a higher cost. “There are so many moving parts right now, producers are trying to figure it out. In a lot of ways we are in uncharted territory, as everybody says. I’ve never experienced a situation where global economies contract by up to 30% a quarter – never.”
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• PIPELINE NEWS NORTH APRIL 23, 2020
Trans Mountain construction updates Construction Progressing in Alberta Construction has progressed considerably in Alberta, with pipe in the ground in the Yellowhead region and Greater Edmonton. Currently, there are active sites at all phases of pipeline construction as well as work underway on a number of trenchless crossings. In JasperMount Robson, reactivation work has also begun to complete the full twinning of the pipeline system. In response to the evolving Covid-19 pandemic, Trans Mountain and our construction contractors are following all advice from government and health officials while maintaining the uninterrupted operation of our pipeline and the safe construction of the Expansion Project. While each worksite is unique, each of our construction contractors are required to adopt government and company recommended health and safety measures to ensure the protection of our people on the ground. Our General Contractors are monitoring staff for fever and other symptoms including the addition of a Registered Nurse on site. There has also been a reduction on seasonal and non-essential personnel which is helping to manage risk of exposure. We continue to work with our construction contractors to revisit and update plans and monitor implementation. Crews have been busy preparing worksites for thirteen trenchless crossings in the Greater Edmonton area; clearing and grading entry and exit portals and performing utility relocates for existing underground infrastructure. Work on the North Saskatchewan River Horizonatal Directional Drill (HDD) is ongoing and pipe has been pulled at the Wedgewood Creek and 50th St HDD sites, completing two of the thirteen HDDs in the area. A fourth trenchless crossing, the Highway 14 HDD, is scheduled to begin soon, with the entry and exit sites being currently prepared for construction. Trenchless crossings, like these allow us to safely cross underneath watercourse crossings, railways, highways, major roads, sensitive environmental areas and in places with restricted workspace, such as some urban areas. They greatly mitigate the impacts to normal daily activities and traffic circulation patterns, and minimize or eliminate ground disturbance.
As we enter springtime, Trans Mountain is following spring breakup protocols for construction. We are demobilizing crews and equipment from some worksites in the Yellowhead region until early May, as melting snow and frost cause the ground to become soft and muddy. Environmental monitoring of sensitive sites will remain in place during spring breakup, in following with Trans Mountain’s Environmental Protection Plans. SA Energy Group is our Pipeline Contractor responsible for work in Greater Edmonton, and work in the Yellowhead region is being undertaken by Midwest Pipelines. Burnaby Terminal and Westridge Marine Terminal Work continues at our Lower Mainland terminals, with considerable progress being made on the foreshore expansion at Westridge Marine Terminal and ongoing work to prepare for the installation of 14 new tanks at Burnaby Terminal. In response to the evolving COVID-19 pandemic, we continue to follow all advice from government and health officials to ensure the protection of our people on the ground, while continuing the safe construction of the Expansion Project. Over the past month, Trans Mountain and our construction contractors have implemented a number of new safety measures to ensure the health and safety of everyone on our sites, including temperature testing of those
entering the site for fever or sickness, staggering work shifts to minimize the number of people on site, and practicing physical distancing guidelines. In order to safely transport workers to our Burnaby sites, we have reduced the number of people transported per vehicle to adhere to health authority recommendations and increased vehicle cleaning requirements and frequency. have been enhanced to better deliver more protection and better manage the dissipation of underwater noise around each pile. At this time, 43 of the 162 necessary piles have been completed. These bubble curtains, alongside noise shrouds, help mitigate the noise effects in the area in accordance with our comprehensive Environmental Protection Plan and Noise Management Plan for Westridge. With a strategic set of marine piles now installed, the marine crews have begun construction of the above water superstructure for the loading docks. We recently completed the backfill of 11 full cells and 10 half cells, which, will form the foundation of the foreshore expansion at the Terminal. Crews are now beginning the levelling of the aggregate material within the cells and have begun the soil improvement work to establish the foundation for the expanded foreshore. On shore, crews are working to widen the access road to the terminal, including the installation of an anchored retaining wall.
In preparation for the Burnaby Mountain Tunnel; crews have begun to develop the Westridge Tunnel Portal. Over at Burnaby Terminal, work continues to prepare the site for the installation of 14 new storage tanks. Currently the excavation for tanks 75, 77 and 79 is underway. The construction of a temporary roadway inside the fenceline to accommodate work activities is also ongoing. The contractor responsible for work on the Lower Mainland portion of the Expansion Project is the Kiewit Ledcor Trans Mountain Partnership (KLTP).
APRIL 23, 2020
PIPELINE NEWS NORTH •
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