With Keystone XL Delay, Alberta Looks North

Tuktoyaktuk, Northwest Territories. Could this sleepy Arctic hamlet one day be an oil export terminal? Photo: Flickr/Ian McKenzie.
Tuktoyaktuk, Northwest Territories. Could this sleepy Arctic hamlet one day be an oil export terminal? Photo: Flickr/Ian McKenzie

Keystone XL, the $5.4 billion, 1,897-kilometer pipeline that would transport crude oil from the Alberta tar sands across the border through Montana, South Dakota, and Nebraska, has been debated for six years. Today, Canadian Prime Minister Stephen Harper proclaimed,”I think its eventual approval under the right circumstances is inevitable.”

Much the same was said for years about the Mackenzie Valley Pipeline (MVP), which would have brought natural gas from the Beaufort Sea through the Northwest Territories to Alberta. It was rejected by the Trudeau government in the 1970s after a slump in global energy prices turned it into an economically unviable project. In actuality, this excuse was basically cover for the fact that the pipeline was unwarranted on social grounds given that it crossed swaths of land claimed by Aboriginal and First Nations groups. Just as the MVP seemed to again gather steam in the 2000s, a fracking boom in the Lower 48 put plans on hold indefinitely once again due to lack of economic viability. Now, despite Harper’s confidence, Keystone XL’s approval is hardly inevitable due to the obstacles in its way that extend far beyond President Obama’s desk.

One of those obstacles is that oil producers and refiners are increasingly choosing to transport the black stuff by rail. Rail cars in Canada carried 20% more oil in 2013 than they did in 2012. Due to the regulatory obstacles, lawsuits, various land holdings disputes (from private landowners to aboriginal land claims) and environmental assessments that prevent a pipeline from being quickly constructed, rail transport is an easier option even though it is in principal more risky. Oil shipment by rail generated 2 incidents per billion ton-miles annually, while pipeline shipment caused 0.6 incidents over the same time and distance [1].

Without more pipeline approvals, rail shipment could further increase. Although the U.S. already has 4.2 million kilometers of pipeline and Canada 825,000 kilometers, it is rare to see new monumental projects being undertaken equivalent to, say, the epically-named Power of Siberia pipeline, which will carry natural gas from Russia to China. Many of the major pipelines under discussion in the U.S. – Keystone XL and Northern Gateway, for instance – have been debated for years, although it should be noted that the other three phases of the larger Keystone pipeline system have opened since 2010.

This terrestrial transportation of fossil fuels in the Canadian provinces and Lower 48 differs significantly from the Arctic, where the future seems bright for shipping oil and natural gas via ships. To illustrate, there’s Mikhail Ulyanov, which carried the first barrels of oil from Russia’s Prirazlomnoye offshore field north of the Arctic Circle to Rotterdam. There’s also the the fleet of Korean-built liquefied natural gas (LNG) tankers that will carry the fossil fuel from Russia’s Yamal Peninsula to markets in East Asia if and when the project comes on line. As the map below illustrates, railways are few and far between in the Arctic, although there are plans for a potential rail corridor in northern Finland. This railway would generally cover cargo, however, and not oil and gas, which can more easily be shipped along the Norwegian coastline. Besides stunning fjords, the shores of this Scandinavian country are graced with well-developed port infrastructure. Yet in contrast to the Arctic, pipelines clearly out-distance railways in sub-Arctic places like Alaska, Alberta, and western Siberia.

A map of pipelines and railroads. Note the lack of either infrastructure in the Arctic.
The potential routings of the Arctic Energy Gateway, along with pipelines and railroads in the northern part of the globe. Notice the sheer lack of either infrastructure north of the Arctic Circle.

That’s not to say that there isn’t a future for pipelines in North America, let alone the North American Arctic. While the MVP would have brought Arctic gas south to Alberta, plans have been floated to turn the tables and transport oil from Alberta north to the Arctic. As Keystone XL awaits a final decision, Andrew Breiner at Climate Progress reports on a study on the “Arctic Energy Gateway” commissioned last year by the Government of Alberta and Canadian company Canatec, which provides services to the Arctic offshore oil and shipping sectors. Instead of shipping oil from Alberta south across the U.S. border, the Arctic Energy Gateway would ship oil north from Alberta to two possible terminuses: one in Tuktoyaktuk, Northwest Territories, and one in Churchill, Manitoba, which has already witnessed some port growth in recent years. Oil and gas coming out of Tuk would go to Asian markets in summer, while the products coming out of Churchill, Canada’s polar bear capital, would go to Europe. The report finds that capacity of the Arctic Energy Gateway could reach a high of 100,000 barrels a day; by contrast, Keystone XL promises to move a whopping 830,000 barrels daily.

The Arctic Energy Gateway idea is popular with NWT Premier Bob MacLeod, whose territory sits on sizable oil and gas shale prospects that have no feasible way to get to market. Frustrated by the lack of a pipeline in any direction, this summer, he expressed to CBC, “We need to find markets for our oil and gas potential. The United States they have significant amounts of shale gas. Obviously we have to look at other markets. One of the ways is to look at Asia, China and those places.” MacLeod echoed a sentiment mentioned in the report, which states,

“Second, this route offers Alberta the opportunity to get to markets that are not just the US, and also to markets that are both Atlantic and Asian. The increased breadth of these market opportunities and the flexibility to choose the ones with optimal returns is a significant increased benefit offered by the Arctic Energy Gateway.”

Whereas Keystone XL would continue Canada’s reliance on the U.S. for oil exports, to where it already sends close to 99% of its products, sending the oil north to the NWT – assuming Arctic shipping conditions were ideal, and that’s a big assumption – might permit Canada a better chance to sell its oil sands products to markets in Asia. But since the Arctic Energy Gateway’s capacity would be less than 1/8 that of Keystone XL, the opportunity to sell to China, Japan, and South Korea might still not stack up.

Tuktoyaktuk is a hamlet of fewer than 1,000 people that will soon be reachable by an all-weather road, which I covered in January. Prime Minister Stephen Harper approved construction on what will be the final extension of the Dempster Highway, connecting Canada from sea to sea to sea and realizing former prime minister John Diefenbaker’s dreams. Down the line, the creation of an all-weather road could facilitate additional megaprojects like a pipeline. In fact, another proposed Arctic pipeline, the Alaska Gas Pipeline, would carry natural gas from Prudhoe Bay and parallel the Alaska Highway from Fairbanks to Yukon. Tuk’s all-weather road may make it easier for tourists to come to visit this remote Arctic outpost, but it might also make it easier for resource extraction companies to come, too. Yet one challenge to the feasibility of pipelines (and roads and railroads) crossing the Canadian Arctic is melting permafrost. This is a problem facing Arctic Russia, too, which prefers to ship its oil and gas via the Northern Sea Route. Just as Arctic sea ice melts, so does the permafrost, creating a quandary for intermodal Arctic transportation.

Canatec, the authors of the report on the Arctic Energy Gateway, however, see no quandary when it comes to choosing between Keystone XL and Arctic Gateway, however. Incredulously, they argue on page 122,

“Our initial analysis suggests that the socio-political and environmental climate may be more favourable to an arctic route than to a US or BC pipeline route. Alberta promoting a northern route might gain allies rather than enemies.”

Given the fight that Greenpeace has put up to Russia’s Arctic oil developments, it seems likely that Alberta would make at least a few enemies by pursuing this northern route. It’s contentious enough to get oil out of the Arctic. To bring it in by pipeline would be another battle entirely.

Sources

[1] The Fraser Institute, 2013.

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