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Why it’s now or maybe never for Canada’s proposed pipeline projects

The Not-So-Great Race

Jul 9, 2012

by Marzena Czarnecka

Hot Topic: A pipeline project used to be about as controversial as a zoning application. What happened?

ON THE HOT SEAT: Gavin Fitch, a regulatory lawyer with McLennan Ross, Lorne Carson, a project finance lawyer with Osler, Hoskin & Harcourt, Patrick Duffy, an energy litigator with Stikeman Elliott, Lawrence Smith, a regulatory partner with Bennett Jones, Alan Ross, a regulatory partner with Borden Ladner Gervais and Josh Patterson, counsel with West Coast Environmental Law, the oldest environmental law organization in B.C.

Once Canadian crude gets to a port, it can get to the world. Asia today. South America tomorrow. Wherever.

“Pipeline applications used to be so routine,” says Gavin Fitch, a regulatory lawyer with Alberta regional law firm McLennan Ross. “Yes, there certainly are issues from time to time, but the overall environmental impact of pipelines was for the most part well understood.” And getting those babies approved was, as he says, “routine.”

But there’s nothing routine about Keystone XL’s misadventures in the U.S., nor the furor surrounding Northern Gateway. And the discussion around these projects has been hysterical rather than rational. Listen to either side and you might get the impression that what’s at stake isn’t actually Gateway or Keystone, but life as we know it.

If approved and built, these pipelines will change everything. Gateway would bring oil sands crude to the West Coast. Keystone, nominally about getting crude south to the U.S. market, is ultimately about getting it out to the rest of the world. You’ve seen the headlines about the price discounts for Canadian crude (CIBC World Markets’ analyst Andrew Potter pegs the resulting financial loss to Albertan producers at a whopping $18 billion a year). Getting the crude to ports would change that – almost overnight.

“Once you hit tidewater, then you are a world commodity,” says Lorne Carson, a project finance lawyer with Osler, Hoskin & Harcourt in Calgary. So the pipeline debate is vicious because it isn’t about Gateway, and it wasn’t about Keystone. The brakes that were put on Keystone down south underscored to those in the industry how critical getting to that tidewater was.

The federal government has, effectively, bet the Canadian farm on an energy policy in which the export of hydrocarbons is key. The writing was on the wall long before the March 29, 2012, budgetand before the massive budget bill C-38 that overhauled the regulatory process for major energy projects, including repealing and replacing the entire Canadian Environmental Assessment Act. Remember Natural Resource Minister Joe Oliver’s outbursts about “radical groups that would seek to block this opportunity to diversify our trade” and “hijack our regulatory system” when speaking about Gateway? Or Harper’s pronouncements in Bangkok in March 2012: “It’s essential that we be able to sell our energy products outside of North America to partners, countries other than the United States. That will require some significant infrastructure projects to go forward, and we’re obviously, as we’ve indicated, looking at taking steps necessary to ensure we can get timely regulatory decisions.”

They didn’t actually come out and say, “We will make sure these pipelines get built come hell or high water,” but they might as well have done so. Why the urgency? Patrick Duffy, an energy litigator with Stikeman Elliott, sums it up: “The federal government has made no bones about turning us into an energy superpower. To do that, we have to get projects through the regulatory process in a reasonable time before the opportunities get taken away.”

The markets don’t stand still. Demand for hydrocarbons in general isn’t static, nor is it guaranteed to be around forever. And despite the hydrocarbon energy bet the Harper government is making, surely it knows this.

Its opponents know this, too. If Canada gets its crude to water, the payoff will be vast. And it will come as a result of – or, if you prefer, at the price of – increased oil sands development. So if you are opposed to a hydrocarbon-powered economy, if you are opposed to the current pace of oil sands development, let alone an increase in it, it is at these to-the-coast pipelines that you must take your stand.

And so they do. “Pipelines are now a favourite target for people who want to make the pipeline project a referendum on hydrocarbon development and the hydrocarbon world,” says Lawrence Smith, regulatory partner with Bennett Jones and former counsel to the National Energy Board, the federal agency most in the spotlight during the pipeline wars.

“The kinds of things that have been happening [with Gateway] are an attempt by those interests to delay and thereby defeat the developments altogether,” Smith says. Them’s fighting words, as all the words in this debate seem to be. But it’s Smith’s job to get these darned things approved so his clients can build them. He’s admittedly biased. And, just like the federal government’s energy policy brain trust and the anti-pipeline strategists on the other side, he knows timing is everything.

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The whole energy industry knows it better than anyone. In Alberta, the lesson is most apparent in the ill-fated Mackenzie Valley gas pipeline, first put forward in 1974 and approved in 2010 but still a pipe dream that may never get built.

“By the time approvals were in place on Mackenzie, the market had changed,” Fitch says. Drastically. When the pipeline got its regulatory blessing, natural gas was at $4.57/MMBtu, down from a high of $15.38/MMBtu in December 2005.

Now, Fitch does not want to insinuate that there was any strategic attempt at delaying Mackenzie so it would become uneconomical – its issues are more complex and idiosyncratic. But project opponents would have to be completely unaware to not notice the end result: no pipeline because the underlying economics changed.
Pipelines are a long-term proposition, as Alan Ross, a regulatory partner with Borden Ladner Gervais, points out. They may take years and decades to dream, approve and build. But then, they function for decades.

And this, again, is why the opposition is pulling out all the stops. If built, a pipeline like Gateway will move oil sands crude for decades. From the coast, the crude will move to the world. For decades.

So, if you are opposed to a hydrocarbon-powered economy, you have to stop these pipelines. The stakes for the opponents are as high – one could argue even higher – than for the proponents.

Josh Paterson, counsel with West Coast Environmental Law, is monitoring the Gateway review closely and understands this. He sees how inflamed and passionate the parties are in the debate. And given how divergent their goals and priorities are – how drastically different the world views involved – he doesn’t see how any review process, in Gateway anyway, will arrive at a resolution or a compromise acceptable to most parties.

“My understanding of the positions taken by First Nations who oppose this development through their country is that it is unequivocal, and while there may certainly be, at some point, certain communities who take a different view, there are so many others who are so deeply opposed, I don’t think … there is room for some sort of compromise to be built,” Paterson says.

No possible compromise equals an almost intolerable amount of legal risk. “I think that it is going to face a lot of legal obstacles which could quite realistically delay and tie it up for many years to come,” Paterson says.

Delay tactics. But the oil sands pipelines do have an immensely powerful ally on their side in the form of the federal government, which seems to be doing pretty much everything – including rewriting all relevant legislation – to stack the deck in its favour. So, will Gateway get built? Will Keystone?

Probably. But with proponents and opponents acutely aware that everything’s at stake here, it won’t be easy. No matter how unfairly the feds play.

Next Month: Robert James, the Edmonton-based head of the labour and employment group at Parlee McLaws LLP, and Joyce Mitchell, employment partner with the Calgary office of McLennan Ross LLP, discuss the legal implications of in-office bullying.

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