Canada is seeking to market the landlocked oil and gas riches of its western provinces to Asian markets where these hydrocarbons will command a better price than the discounted rates being paid by the United States. The US is currently the only buyer of Canada's natural gas and virtually the sole purchaser of its crude oil.

Canadian oil and gas output has the potential to rise substantially while demand for extra supplies in the US, which is currently reaping its own unconventional oil and gas bonanza, is flat. Even so, Canadian oil exports to the US, by pipeline and increasingly by rail tank car, are presently running at the healthy rate of 2.5 million barrels per day (bpd).

One route that Canada has investigated for delivering its growing output to overseas markets is to send the oil and gas South through the US, by means of existing and some proposed new infrastructure, for re-export through Gulf Coast terminals. However, this option is politically sensitive as the US does not allow exports of its own crude oil.

The Canadian government imposes no such restrictions and there are no legal obstacles to re-exporting Alberta crude from the US if it has been kept completely separate from domestically produced oil. However, any plan to re-export significant volumes of Canadian crude causes concern amongst US lawmakers, who regard such schemes as sidestepping US law. There is already intense debate over a proposal to build the North-South Keystone XL pipeline to provide a new direct route from Canada's oil sands to Gulf refineries.

Canada’s national government and its oil and gas industry believe that the Canada-only route for the delivery of its exports to the energy-hungry Asian market is the best option. This alternative is expedient, avoids the machinations of cross-border politics and simplifies sales and marketing, not least by cutting out the middle man and steering clear of pipeline bottlenecks and transit charges.

The Canada-only option entails the construction of oil and LNG terminals on British Columbia’s Pacific Coast as well as 1,000 km long pipelines linking these new facilities with the vast Albertan oil sands deposits and the shale gas plays of northeastern British Columbia.

However, even the Canada-only plans have not come without an internal political ruckus. Environmental groups and First Nation tribes have questioned the impact of pipelines, terminals and oil tanker and gas carrier traffic on the pristine flora and diverse fauna of British Columbia. The province’s government, sensitive to these concerns, has disagreed with Alberta on many environmental aspects of the proposals as well as their fiscal terms.

The plan to pipe oil from Alberta to the British Columbia coast and export it to world markets is based around one new scheme and a project to expand the capacity of the existing Trans Mountain Pipeline which runs across the province to a terminal at Vancouver.

The new project is the Northern Gateway scheme being promoted by Enbridge. It calls for two pipelines, the first to carry 525,000 bpd of crude oil westbound to the proposed Kitimat Marine Terminal for export and the second to move 193,000 bpd of condensate eastbound. Condensate is used at oil sands development sites to thin the viscous oil for pipeline transport.

The Kitimat Marine Terminal will include two tanker berths and 19 storage tanks for crude oil and condensate. When the facility is working at full capacity, it would be required to handle around 220 tanker calls per year.

The LNG loading terminals proposed for British Columbia are much more ambitious in overall scale than the oil plans. To date the developers of 12 LNG export projects have announced their intention of developing facilities along the province’s coast, primarily for locations in and around either Kitimat or Prince Rupert.

The country’s National Energy Board (NEB) has already issued export permits of 20 years or more to the operators of these three projects. Many of the proposed British Columbia LNG schemes are Worldscale in size, as highlighted by one of the three NEB-approved projects. Shell’s LNG Canada development calls for an export terminal at Kitimat with up to four liquefaction trains, each able to produce 6 million tonnes of LNG per annum. The operation of four trains would necessitate approximately 350 LNG carrier loadings each year.

It is estimated that less than one-half the proposed LNG terminals will eventually get built and, for those that do, the full complement of proposed liquefaction trains will not be required in the early phases of the project. Nevertheless, the projects that do materialise are poised to add a considerable volume of LNG carrier traffic to British Columbian waters.

Maritime experts have taken steps to reassure the citizens of British Columbia of the elaborate safeguards that are in place to ensure ship operational safety at oil and gas terminals worldwide and the exemplary safety record that has been established. Safeguards include pilotage, traffic separation schemes, security and exclusion zones and escort tugs.

On the subject of escort tugs a marine risk assessment study carried out recently by DNV on behalf of the Prince Rupert Port Authority pointed out that the risk reduction effect of a tethered escort tug alone may be up to 80% for grounding and 5% for collision. DNV also stated that the risk of collision in the approaches to a tanker terminal are less than those of grounding.

The exemplary safety record built up by the oil and gas shipping sectors over the years encompasses the sterling performance of such vessels in British Columbia waters. Local tug and barge deliveries of petroleum products, chemical tanker activity and occasional oil exports from the Vancouver terminal over many years have passed without notable incident.

The prospect of significant new oil tanker and gas carrier traffic has also prompted a rigorous reappraisal of the province’s maritime safety regime. Parties involved in this campaign include the Chamber of Shipping of British Columbia, government officials and Canadian and international maritime experts.

A considerable amount of consultation, research and planning is being carried out on aspects such as oceanographic assessment, weather monitoring, navigational aids, vessel traffic simulations, ship/shore interface operations, training programmes and emergency response procedures in respect of the Kitimat, Prince Rupert and other assorted terminals and their related marine routes. As a result of these investigations mitigation measures will be introduced, as appropriate.

In recent weeks the provincial governments of Alberta and British Columbia signed a framework agreement which paves the way for the joint development of the necessary export projects.

With the two provinces now committed to a common goal, all Canadian citizens stand to benefit. The nation can realise the potential of its vast gas resources by offering it to the lucrative Asian market as LNG in competition with a number of other potential gas sellers. Furthermore, the country can finally realise a world price for the Western Canadian Select oil that currently trades at a markdown to West Texas Intermediate and an even bigger discount to Brent crude.
Source: BIMCO