Pipeline Expansion Provides New Wrinkle in Canadian Oil Sands Debate

Late last week, Kinder Morgan Energy Partners announced its intention to expand the Trans Mountain Pipeline to 850,000 barrels per day. Currently, the Trans Mountain Pipeline is the only Pacific Coast outlet for Canadian crude oil to reach growing marketplaces in Asia. The news underscores the continued interest by Canadian producers and pipeline companies to search for additional markets for oils sands should US opposition persist in approving the Keystone XL Project.

The $5 billion dollar expansion project will more than double the line's current capacity of 300,000 barrels per day by a process called "twinning." Twinning basically means that the company plans to increase capacity by building a pipeline next to the existing line. Using this process will allow the company to utilize the existing right-of-way the line that spans more than 700 miles from Edmonton to Vancouver, British Columbia. Kinder Morgan expects the project to come on line by 2017 and some industry observers believe that the company may be able to avoid potential problems associated with siting a new line because of objections raised by First Nation communities.The proposed Northern Gateway Project by Enbridge has drawn opposition from environmental groups due to their opposition with the development of oil sands, and although the review process has only just begun in Canada, many expect at least some opposition from First Nations because the project will transverse their land on its way through British Columbia to the Pacific Coast.

Canada faces a very unique dilemma as it sits atop 90 percent of the world's proven oil reserves outside of OPEC, but it is largely dependent on the US for its crude exports and its existing pipeline capacity. According to Canada's National Energy Board, 98 percent of the country's crude exports go to the United States. Canada's Prime Minister Stephen Harper publicly expressed his disappointment with the Obama Administration's rejection of the $7 billion dollar Keystone XL Project that would have eased the growing supply glut of Alberta oil sands crude oil by sending it to refineries along the Gulf Coast. Harper “expressed his profound disappointment with the news,” according to a prepared statement and Canada's Natural Resource Minister, Joe Oliver, said the “decision by the Obama administration underlines the importance of diversifying and expanding our markets, including the growing Asian market.”