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If Oilsands Crude Can't Get to China, then Europe Instead?

Rumoured Enbridge oil shipment to Spain 'tip of the iceberg,' says Calgary analyst.

By Geoff Dembicki 11 Jun 2014 | TheTyee.ca

Geoff Dembicki reports on energy and climate change for The Tyee. Find his previous stories here.

Funding for this article was partially provided by the Climate Justice Project of the Canadian Centre for Policy Alternatives, with support from the Fossil Fuel Development Mitigation Fund of Tides Canada Foundation.

Any day now Prime Minister Stephen Harper will announce whether he's approving Enbridge's Northern Gateway proposal. It's a big moment. But with First Nations vowing lawsuits against the pipeline, and Canada's green movement united in opposition, Enbridge CEO Al Monaco has already warned investors that "regardless of the government's decision," he doesn't expect to see construction begin anytime soon. "The regulatory process is one step," Monaco said at the company's annual meeting in Calgary last month.

Many more will be needed before Enbridge is able to transport oilsands crude to Asia. Yet away from the glare of Canada's media, the company is quietly seeking out markets in Europe. Despite delays to Keystone XL, a pipeline connecting the oilsands to Texan refineries, heavy oil from Alberta is making it to the U.S. Gulf Coast. It's getting there through a maze of pipelines that includes Enbridge's recent Seaway expansion from Oklahoma to Texas. Earlier this year, Enbridge received permission to ship unrefined Canadian oil off U.S. shores.

Though the company won't confirm it, Enbridge's first shipment of oilsands crude is suspected by analysts to have arrived in Spain earlier this month. The timing may be serendipitous, given that Europe, after pressure from Canadian officials, is set to relax rules restricting oilsands imports. So with market access to Asia blocked for now by First Nations and enviros, and a looming decision from Harper unlikely to change that situation soon, Enbridge's Gulf Coast plans may signal a new eastward-thinking era of oilsands expansion. "Oh yes," Martin King, an analyst for FirstEnergy Capital in Calgary, told The Tyee, "I think that this is just the tip of the iceberg."

Capital flows east

Harper must make a decision on Gateway by June 17. Among his considerations is a poll suggesting 77 per cent of British Columbians don't want the pipeline approved. Another is the First Nations vowing to delay it for years in court. "That opposition has been more formidable to deal with than Enbridge or the Prime Minister's Office anticipated," said Kai Nagata from the Dogwood Initiative, an organizer of Gateway opposition. "Now we see a situation where capital is going to flow in the path of least resistance."

Nagata was referring to mounting interest in selling oilsands crude to European markets. TransCanada's proposed Energy East pipeline to New Brunswick is one potential outlet. But it's still years from being built. Going south to Texas, where Enbridge now has permission to export Canadian oil, may become a compelling option. Enbridge "is trying to secure alternative markets," said David McColl, an analyst for Morningstar in Chicago. "The whole idea is, 'Can we get a better price?'"

The reason oilsands firms are so eager to get their crude offshore is because North America is oversupplied with oil, which keeps prices low. Europe offers potential for higher profits, which is why FirstEnergy's King thinks it's a big deal that the Spanish refiner Repsol just bought 600,000 barrels of heavy Albertan oil shipped off the Gulf Coast. "That in and of itself was something very new and very significant," he said. "I think were going to see a lot more of this type of activity in the next year or two."

Protesters amass

The oilsands crude Repsol bought was loaded onto a ship at Freeport, Texas, where Enbridge's Seaway pipeline terminates. But Enbridge hasn't made any statement about the shipment, and didn't respond to The Tyee's media request. Fifty or so demonstrators gathered in Spain to protest the ship's arrival. "This was just the first mobilization," one of the organizers told the media outlet EurActiv. "We expect to strengthen our activities, and organize bigger protests against any future [oilsands] shipments."

In that case, European environmentalists are likely to be busy. As the G-7 talks closed in Brussels last week, news broke that the European Union may be relaxing proposed climate restrictions on oilsands crude, following years of pressure from Canadian officials. Credit for that is due in no small part to Russia, the largest exporter of oil to Europe, whose invasion of Ukraine has caused EU members "to realize that maybe they shouldn't be reliant on one [oil] supply source," said Morningstar's McColl.

The oilsands industry is watching the situation closely. Relaxed EU climate rules "would certainly create more opportunities for Canadian crude to reach Europe," King said. As would an increase in oilsands shipments from the Gulf Coast. So when Harper announces his decision on Gateway, keep in mind that for all the attention being paid to western Canada, Enbridge, as well as other oilsands firms, are quietly figuring out if it makes financial sense to go east to Europe instead.  [Tyee]

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