Advertisement

Follow Us On:

Crossing That (Damned) Continent

There are the big pipelines and the railways. And then there are more drastic options to get oil and gas to foreign markets

Apr 8, 2014

by Tim Querengesser

The biggest barrier is North America itself. If you are an oil and gas producer and your market is in Asia, or Europe, continental geography is not your friend. The sea is. That is how you get your product to foreign markets. But getting to the sea is a continental challenge, with pipelines often blocked by politics, environmental concerns or NIMBY-ism.

Attempts to beat geography with trunk pipelines suck up most attention – the Keystone XLs, the Northern Gateways; the alternatives get little press. With the rise of oil delivered by rail, that situation has shifted somewhat, but regardless, the fringe yet potentially viable pipeline alternatives remain all but ignored. These options are at best optimistic and at the worst ridiculous. To measure what they mean for energy distribution to international markets, we ran them past expert Bob Page, a professor at the Haskayne School of Business in Calgary.

The Panama Canal

This year marks the 100th anniversary of the 90-kilometre Panama Canal, but the conduit between the Gulf of Mexico and the Pacific Ocean has long shown signs of age. Now, it’s too narrow and shallow for all but six per cent of LNG tankers, while supertankers and even regular cargo ships often pass through it at reduced payloads.

Panama is fighting to make the canal centrally relevant again and that aim is being helped by global energy markets. In January, U.S. Vice-President Joe Biden toured the canal’s expansion, which started in 2007 and will eventually see the laneway and its locks widened to three times their current proportions, as well as deepened, at a cost of $7 billion.

With the Gulf of Mexico as the main terminus for a majority of U.S. exports of shale gas, crossing the continental isthmus at Panama is an enticing proposition. But while Page says the canal will be widened, he is less sure that it will return to its former centrality for shipping.

The reason is a warming climate that’s opening the Northwest Passage. “When we look at the Panama Canal and its expansion, there’ll still be advantages for the Northwest Passage in terms of cost and speed, going out of a west coast port, than there would be to move that through the Panama Canal.”

Stats:Between five and six per cent of the world’s commerce passes through the Panama Canal

Fact Box

Probability: 10/10
Pro: Status-quo option with increased capacity and fewer pirates than other straits
Con: Embroiled in cost over-runs, work stoppages

The Northwest Passage

Climate change is warming the circumpolar world about 2.5 times faster than at the equator. That’s bad news, of course, but one of the knock-on consequences is that it’s opening up the previously impassable Northern Passage. Because the sea-ice is thinner and covers less area each year – the loss in the last decade alone has been approximately 700,000 square kilometres – the straits that make up the passage are ice-free for longer periods. And as of 2013, the Passage is being used. “Last year we had a shipment of coal from Vancouver, going all the way to Finland, though the Northwest Passage,” Page says. “That saved seven or 10 days for the bulk carrier and it saved them significant amounts of money per tonne of coal.”

Indeed, where it all gets interesting is economics. If the Passage becomes less icy in the future, Page says companies will forgo the Panama Canal – expansion or not – as it will allow them to run bigger loads with deeper keels, driving costs down. What’s more, the option is coast-agnostic: it offers benefit for ships going from the Atlantic to Pacific, or vice versa.

Stats:The Northwest Passage is approximately 1,500 kilometres end to end

Fact Box

Probability: 7/10
Pro: Substantial savings
Con: If you want a long history of broken commercial dreams, the Northwest Passage is peerless

The Northern Option

“If the Northern Gateway or Keystone debacles are going to be the way of the future, then we have tremendous oil and gas resources that have been stranded for 40 years or more, and we have to find a way to get those resources to market,” says Northwest Territories Premier Bob McLeod.

Since becoming premier in 2011, McLeod has been pushing the so-called Northern Option. His goal, essentially, is to do a pipeline piggy-back to get the NWT’s oil and gas reserves to market. McLeod says the Alberta government is currently undergoing a “desktop exercise” to examine the feasibility of this idea. He says the government is looking at two routes: directly north, to the Arctic Ocean at Tuktoyaktuk, or north to Norman Wells, where a current pipeline links to Zama, Alberta, and then west, through the Pelly Mountains, along the historic (and failed) Canol Pipeline route, through the Yukon, then more mountains, and finally, to ports in Alaska.

But Page is not convinced it’s viable. “This is a very high cost, risky operation,” he says. “You would have to create a whole new pipeline system.” He says there would also be costly add-ons, like finding ways to get people, equipment and supplies into places without roads (outside of winter roads), and finding gravel.

Stats:The Mackenzie Valley Pipeline took more than 40 years to be approved. It still has not been built

Fact Box

Probability: 0.1/10
Pro: Gets oil to markets
Con: Pretty much everything else

Churchill, Manitoba

Most of the trade that passes through Hudson Bay today is in the form of grain – the Arctic Bridge, which links Churchill to the Siberian port of Murmansk, moves 400,000 tonnes of it per year – but that cargo could soon be joined by oil.

A joint federal-provincial report released in 2013 argued that over the next five years, it makes sense – barring environmental risks, of course – to export crude oil through Churchill and on to Russia. Murmansk may sound like a cold place, after all, but its port is ice-free year-round and it offers pipeline and rail linkages to all of Europe.

There are pros and cons to the idea, Page says. “It has a relatively short season for shipping [through Hudson Bay] in the summer – early summer through early fall, but the ice on Hudson Bay and elsewhere is thinning each year, so that season could be increasing,” he says.

“But it’s a high cost alternative.”

Stats:It’s a 1,700-kilometre train journey from Winnipeg to Churchill

Fact Box

Probability: 8/10
Pro: Railhead, already built
Con: Wrong direction, the prospect of polar bears stained by an oil spill
Advertisement

Alberta Venture welcomes your comments. Please stay on topic and be respectful of other readers. Review our comments policy. If you see a typo or error on our site, report it to us. Please include a link to the story where you spotted the error.

Comments are closed.

Advertisement
Small Business
Small Business
Brought to you by ATB Financial
Venture 250
Venture 250
tiny thing
Business Person of the Year
In partnership with MacPherson Leslie & Tyerman LLP and Alberta School of Business Executive Education
Alberta Oil
Alberta Oil
Magazine
Advertisement