Meeting the North American Energy Infrastructure Challenge
March 7, 2013
Jim Hoecker began the discussion with a pessimistic outlook of American energy infrastructure, including oil pipelines and electric transmission. In order to capitalize on growing energy production in the U.S. and Canada both countries must invest heavily, and quickly, in aging platforms and modernize our regulatory system to boost our economy.
Brenda Kenny described the current context of energy infrastructure and the negative perceptions and misconceptions surrounding pipelines and bitumen. She went on to point out that significant pipeline incidents are rare, and there is no evidence that pipelines have been injurious to waterways in Canada. Improving performance must go hand-in-hand with earning the public’s trust. Technology and innovation are also critical components to ensuring the safety of oil and gas pipelines. Regulatory leadership, including an ongoing dialogue with stakeholders, is integral to the energy infrastructure industry. Kenny concluded her remarks by emphasizing the industry’s good track record towards the environment and safety of Canadians and Americans.
Andy Black explained the critical role pipelines will play in solving our shared energy challenge. Black brought up the need for additional pipelines to move crude oil from Canada to the U.S. because there is not enough capacity for moving all of the oil being produced in Alberta and North Dakota. This lack of capacity creates shortfalls which hurt consumers and companies alike. Second, Black explained why pipelines are the best option to move oil. Although other modes can transport crude oil, pipelines are preferred by shippers because they are cost effective, efficient, and reliable. Pipelines are safer than other modalities, and they do not have the externalities – including traffic and pollution – that rail and trucks have. Finally, Black cautioned that the two countries need sound and predictable policies for energy infrastructure. Pipeline projects are capital intensive, and long-term contracts are essential for continued investment.
Roger Martella addressed how environmental laws affect the cross-border flow of energy by discussing three critical issues. First, he identified the rise of federal environmental regulations and their impact on energy choice and use. Second, he discussed the reach of state environmental regulations and how they affect cross-border energy. For example, California and Oregon have stringent carbon fuel standards which have an influence on energy use. State cap and trade programs allow for the import and export of energy, and these programs facilitate cross-border linkages. State regulations also require a life cycle analysis which compliments these other programs. Third, Martella recognized the emergence of a citizen group strategy that utilizes environmental laws to pursue specific outcomes. Regulatory challenges – including “sue and settle,” climate change petitions, and aggregation – persist and have a large effect on the energy policy of the United States.
Describing the coming expansion of North American crude oil production, John Kneiss discussed the race to North American petroleum self-sufficiency. In order to meet these goals, Canada and the U.S. must improve shared infrastructure in order to take advantage new production. Now, we need more pipelines and efficient transport systems. Within a decade, the challenge will shift to finding ways to export surplus oil overseas.
Celebrating the close partnership and friendship between Canada and the U.S., Hon. Brad Wall declared that Keystone XL is “just the latest episode in a very longstanding and robust and constructive relationship between two nations, the best relationship I think you’d find by almost any measure on earth in contemporary history and that should be the context really for any discussion of Keystone.”
Canada and the U.S. have the strongest bilateral economic relationship in the world. Canada provides a huge percentage of the world’s lentils, rye, peas, and canary seeds – and other products – which the U.S. then processes and refines. Canada and the U.S. are intertwined. As Wall noted, “we only grow the mustard seed. You create the jobs.”
The links extend far beyond farm crops. Saskatchewan alone provides more oil to the U.S. than do most countries, including Saudi Arabia. Now, the debate surrounding Keystone XL is putting pressure on the Canada-U.S. relationship. Canadians rightly recognize Keystone XL as the way to provide economic security, energy security, and energy independence, but Canada has not yet succeeded in allaying American fears, disseminating facts about Keystone XL, or reassuring the American public that the pipeline project is not detrimental to the U.S. or to the environment. Hon. Wall accepts Canadian responsibility for not sufficiently “presenting the facts” to the U.S.
The reality is that Keystone XL will carry up to 15% American “light sweet crude from the Bakken formation.” It will help lower the WTI Brent discount and bring prices closer to the world average. It will bring in money from tax revenue and increase GDP.
Finally, Wall stated that Keystone XL will greatly benefit both the United States and Canada. Wall stated, with cautious optimism, that the Canada-U.S. “relationship will prevail in the end” and that the Keystone pipeline will come to fruition.
Premier Wall Q&A session
Addressing questions on bringing “value-added” energy projects to Canada, Wall stated that Canada’s oil industry agrees that upgrading and refining more of the product at home is important. Wall indicated that he and other provincial premiers, including Alison Redford, will meet to discuss the upgrading of Canadian oil. In contrast, refining happens close to the market and will stay close to the market, in this case the U.S. Upgrading and refining are distinct processes, according to Wall, and any potential for value-added and refining would not lessen the need for pipelines.
Past action on the environment is a good indicator of future action. Wall and other premiers are working with the Canadian federal government on forthcoming regulations. Saskatchewan has environmentally sound regulations on coal – the province is even more stringent than the U.S. – and Saskatchewan accounts for 40% of CO2 captured worldwide. Canada must indicate to others that takes the environment seriously. Unfortunately, Wall said, Canada has not made clear its track record on the environment, its clean coal initiative, or its wind and renewable energy regulations. Canada must be more vocal about these policies in order to reassure others that it is committed to the environment. Because Canada’s past performance is not well known, Wall indicated he is “not hopeful” about Northern Gateway.
Wall also addressed the Canada’s national energy strategy with the provinces, due in July. The premiers will work together to explore inter-provincial cooperation to ensure the efficacious transport of energy in Canada. Because of the nature of the federation, the strategy will be somewhat loose.
- Premier of Saskatchewan
- senior counsel & energy strategist, Husch Blackwell LLP
- president, Association of Oil Pipe Lines
- president & CEO, Canadian Energy Pipeline Association
- Global Fellow
- partner, Environmental Practice Group, Sidley Austin LLP
- director, Government Affairs, Hart Energy Publishing