Imagining Oil and Gas in B.C.

Oil and gas in B.C. | BCBusiness

To the oil and gas industry, B.C. is virgin ground ripe for development. The governing B.C. Liberal party has staked its future on building a robust natural gas infrastructure. Meanwhile, First Nations have voiced concerns and citizens are weighing the environmental risks. Hyperbole and rhetoric aside, what exactly is at stake and what would an expanded oil and gas industry look like to the average British Columbian?

Matt Sunderland resisted working in the Alberta oil sands for years. A high school friend kept offering him a position with Ledcor, an international construction firm, but Sunderland enjoyed being a stay-at-home dad, picking up the occasional renovation gig. With his wife Becky’s job at Canada Post, the couple made enough to own a house and raise four girls in Courtenay, in the Comox Valley on Vancouver Island’s east coast. “We have no debts besides a mortgage,” he says.

But the allure of fat paycheques was getting harder to resist. Sunderland noticed more and more people in Courtenay commuting to work in the oil patch, two or three weeks on, one week off. Basically the same amount of “weekend” but two or three times more money. The only cost was not being home every day. “We talked about it a lot,” he says. “Can our family handle it?”

In July 2012 he finally took his friend up on the offer. “In the end it came down to being able to put a big chunk down on our mortgage,” he says. “It will make it easier to eventually come back to work in Courtenay and not feel stressed about how much work I have to find every month.”

The money is already adding up. In Courtenay he could charge about $25 an hour, while in Alberta he earns $36 an hour plus overtime, which accounts for about half his hours because he’s working 12 hours a day for two weeks straight.

“I make more in a seven-day paycheque than I could in a month in Courtenay,” he says. And almost all of it ends up in the Vancouver Island economy, since Ledcor pays for his food and accommodation and includes $650 per shift in travel allowance, enough to get to and from the job. “Besides the odd beer in the lounge, I don’t really spend money up there,” Sunderland says.

Sunderland’s experience represents just a hint of the riches B.C. has already reaped during the current energy boom involving both the oil sands of Alberta and the natural gas fields of northeast B.C. Of course, oil booms are nothing new to Albertans and the good times have typically trickled over to B.C., thanks to transient workers like Sunderland. However, this time around it’s more than just a spectator sport for British Columbians; a staking rush is currently on to build a permanent infrastructure for a homegrown oil and gas industry.

Alberta faces a problem getting its product to market. A July 2012 study published by the Canadian Energy Research Institute estimates that production from the oil sands will grow from 1.5 million barrels a day in 2010 to 5.3 million by 2030; meanwhile existing transportation capacity from the oil sands will reach maximum capacity by 2015. “There’s significant growth in the oil sands driven by a demand for crude products,” explains Travis Davies, a spokesperson for the Canadian Association of Petroleum Producers. “We need more infrastructure to move the product to where the demand is. The pipeline industry is charged with reacting to that demand.” And that’s where B.C. comes in beyond simply supplying temporary workers to the Alberta oil patch: two current proposals would bring Alberta oil through B.C. to coastal ports, mostly to access export markets on the Pacific Rim.

Calgary-based Enbridge Inc.’s Northern Gateway pipeline would carry an estimated 530,000 barrels of oil a day from near Edmonton to Kitimat, a port town east of Prince Rupert, for export to markets in Asia and California. Houston-based Kinder Morgan Inc. wants to more than double the capacity of its existing Trans Mountain pipeline between Edmonton and Burnaby to 450,000 barrels a day, mostly to access export markets, but also to feed some unfulfilled capacity at Chevron’s Burnaby refinery. According to the companies, the proposals are worth a combined $9.6 billion.

Meanwhile, even more money is at stake in B.C.’s emerging natural gas industry. From Dawson Creek to Fort Nelson, billions are being invested in unconventional gas projects where horizontal drilling and fracking – using chemicals and steam to crack rock formations – are uncovering huge reserves of gas. This technology has also opened up new gas fields in the U.S., flooding the North American market with supply and driving the price down, especially compared to Europe and Asia.

Located at the supply end of natural gas pipelines – whether to Montreal, California or Washington state – B.C. suffers its own problem getting its product to market, says Steven Paget, an oil and gas infrastructure analyst for FirstEnergy Capital Corp. in Calgary: it faces high production and shipping costs to access a low-price market. But get that gas on a ship and the economics change. “Now there’s the possibility of putting the gas in a short pipe and then to China, where a producer can get three times the price,” he says. “That’s pretty attractive.”

Thus, in addition to the oil pipeline proposals, three consortiums are proposing to build gas pipes across B.C. to Kitimat and Prince Rupert, where natural gas could be liquefied and loaded onto specially designed liquefied natural gas (LNG) tankers. Together these projects represent an even bigger infrastructure investment than the proposed oil pipelines, according to Paget’s research: about $12 billion for three pipes, more than $30 billion in five liquefaction plants and billions more in new exploration and well development to feed them.

Photos courtesy of Kinder-Morgan
Despite the rugged conditions, Alberta’s oil sands are a big draw for B.C. workers. Regular pay is about 150 per cent of similar work closer to civilization, with ample overtime available. A shortage of 100,000 workers is predicted by 2017.

The current B.C. Liberal government has thrown its weight behind proposals to build a natural gas infrastructure in the province, tying much of its economic policy to expanding the industry’s B.C. presence. In February 2012 the party announced a natural gas strategy aimed at attracting what it estimated to be $20 billion in infrastructure investment. In June that year Premier Christy Clark declared that natural gas would be reclassified as a “clean” fuel, paving the way for its use to power proposed LNG terminals in Kitimat and Prince Rupert, where huge amounts of energy are required to cool natural gas to -160 C in order to convert it to a liquid that can be shipped by a tanker. Natural gas development is also an integral component of the party’s BC Jobs Plan, which envisions 1,000 to 2,000 new jobs in the gas fields of the northeast over the next five years, 1,500 construction and 125 permanent jobs at a Kitimat LNG terminal and 1,500 pipeline construction jobs. The Liberals’ 2012/13 budget projects a windfall to provincial government coffers of $298 million in natural gas royalties and predicts that amount will rise to $846 million by 2014/15.

The general public’s support for developing a natural gas industry is not quite as robust as the Liberal party’s. A coalition of about a dozen First Nations calling itself Coastal First Nations has stopped short of condemning proposals for natural gas pipelines and coastal LNG terminals, but has expressed concerns about greenhouse gas emissions produced by both fracking and liquefaction. That’s a concern echoed by the David Suzuki Foundation, which calls the classification of natural gas as a “clean” fuel “absurd,” and predicts that the province’s natural gas export projections would more than double the current carbon footprint of B.C.’s oil and gas industry.

Oil Boom

Projected B.C. benefits from Alberta oil

Oil Sands spinoffs
• B.C. corporate and sales tax resulting from Alberta oil sands activity, 2012-2035: $1.6 billion
• B.C. employment for every $1 billion invested in Alberta’s oil sands: 600 person years*
Source: Conference Board of Canada

Northern Gateway Pipeline
• construction expenditure, B.C.: $3.96 billion
• construction employment, B.C.: 10,355 person years*
• employment, ongoing operations: 243 direct and indirect jobs
• annual employee compensation, ongoing operations: $7.7 million
• annual taxes to B.C., ongoing operation: $31.4 million
Source: Enbridge Northern Gateway Pipelines
*Person year=one full year of full-time employment for one person

Objections from the broader public focus more on extraction methods than on pipelines and LNG terminals. According to an Environics poll of February 2012, 67 per cent of British Columbians would support a permanent moratorium on fracking.

In contrast to its enthusiastic support for natural gas, the B.C. Liberal government has chosen to pick a fight with both Alberta and the federal government by withholding its support for the Northern Gateway pipeline. (Alberta, of course, is seeking access to B.C. ports, while the federal government has proposed a national energy strategy that would include an additional oil pipeline to the B.C. coast.) While B.C. has not outright rejected the Northern Gateway proposal, in July 2012 it made its support contingent on five demands, including what would be a precedent-setting sharing of oil royalties with Alberta, a legal requirement that First Nations’ rights are addressed and assurances of “world leading” oil spill prevention and recovery measures.

The Northern Gateway and Trans Mountain pipeline proposals have attracted protest from environmental activists and First Nations. In a display that garnered international media exposure, Greenpeace draped an anti-pipeline banner from the Lions Gate Bridge in May 2012; about 3,500 anti-pipeline protestors demonstrated on the lawn of the Parliament building in Victoria in October 2012; and a protest march in Prince Rupert in February 2012 was organized by the Gitga’at First Nation – just one of an estimated 50 First Nations opposed to the pipeline.

While banners and public protests have given anti-pipeline groups considerable media exposure, the general public is not as united in its opposition to oil pipelines. A February 2012 poll commissioned by Encana Corp. found that 48 per cent of British Columbians supported the project, with only 32 opposing it and 20 per cent undecided. More recently, a December 2012 poll commissioned by the Gitga’at First Nation found 60 per cent of respondents opposed to the Northern Gateway pipeline, with 40 per cent in favour or undecided. Even the business community has it share of dissenters, with a November 2011 B.C. Chamber of Commerce survey finding only 61 per cent of members in support of the Northern Gateway pipeline.

Supporters argue that developing the oil industry is potentially no less lucrative for the province than natural gas. B.C. will pull in an estimated $1.6 billion in provincial corporate and sales taxes related to the oil sands between 2012 and 2035, according to a recent Conference Board of Canada study. The same study found that for every billion dollars invested in the oil sands, 600 person years of employment is generated in B.C. According to the Canadian Energy Research Institute, a non-profit organization funded by federal and provincial governments and the private sector, between 2011 and 2035 the Northern Gateway project would create 76,000 person years of employment in B.C., contribute $2.83 billion in employee compensation and add $5.1 billion to B.C. GDP and $1 billion in B.C. tax revenue.

No one has specific stats on the number of British Columbians commuting to work in the Alberta oil sands, but the conference board estimates that 34,500 people work in the “shadow population” – people like Sunderland who work but don’t live in the region. That number will likely grow, says the Canadian Association of Petroleum Producers, as oil sands production increases from 1.6 million barrels a day (mbd) in 2011 to an estimated 2.3 mbd in 2015 and eventually five mbd by 2030. The Alberta government anticipates a worker shortage of 100,000 people by 2017.

The build-out of B.C.’s oil and gas infrastructure is still very much a hypothetical exercise, with the proposals for pipelines and LNG terminals still in various stages of planning and approvals. The Northern Gateway is by far the most contentious and all indications are that it will likely not survive the opposition of the Province and the protestors. Other proposals, like one headed by Encana and Apache for an LNG terminal at Kitimat are well advanced; that project has been granted a federal LNG-export license and completion is projected for 2015, pending environmental and regulatory approvals. Regardless of which proposals eventually get the green light, there’s no denying that a new industry is emerging in B.C.

Marc Shandro/Getty Images
Enbridge is proposing a 36-inch diameter
pipeline 1,177 km in length.

It’s worth pausing to look at what a fully developed oil and gas industry might look like – and what’s at stake in terms of economic, environmental and social outcomes. One of the obvious benefits of building out oil pipelines, says Ian Anderson, president of Kinder Morgan Canada Inc., is indirect spending during construction, like the $40 million in hotel stays, food and the like that was spent in the town of Jasper when the Trans Mountain pipeline was twinned through Alberta’s Jasper National Park and B.C.’s Mount Robson Provincial Park in 2008. Kinder Morgan owns and operates the 60-year-old Trans Mountain pipeline between Edmonton and Burnaby, and the 2008 project was phase one of the company’s proposed twinning of the entire pipeline, a two-year, $4-billion project, two-thirds of which will be in B.C. “The Jasper section was a $600,000 project over eight months,” he says. “Communities all along the pipeline will see that kind of benefit.” Before construction begins, he says, Kinder Morgan representatives would visit communities along the route to find ways for local contractors and suppliers to be involved in construction.

The Trans Mountain pipe already supplies Chevron’s Burnaby refinery, the source of 80 to 90 per cent of southwest B.C.’s gasoline. Those types of economic spinoffs are in addition to direct benefits, such as the 119 people the company already employs in B.C. earning $11.5 million in payroll, or the $20 million in property taxes the company pays annually. Kinder Morgan says the proposed expansion will create 35 new full-time jobs and an additional $20 million in property taxes in B.C. every year.

Government Support

The B.C. Liberals’ rosy projections in support of natural gas

• infrastructure investment: $20 billion
• jobs in the gas fields, next five years: 1,000 – 2,000
• pipeline construction jobs: 1,500
• construction jobs at Kitimat LNG facility: 1,500
• permanent jobs at Kitimat: 125
• royalties to the Province, 2012/13: $298 million
• royalties to the Province, 2014/15: $846 million
Source: Province of B.C.

Marc Lee, an economist with the Canadian Centre for Policy Alternatives, takes issue with Anderson’s depiction of benefits to local economies. “Jobs are the main selling point of the plans, but these projects don’t tend to produce that many jobs long-term,” he says. He believes the actual building of the pipeline tends to be done by dedicated and specialized crews who travel from pipeline project to pipeline project, not by the locally and provincially unemployed, says Lee. He adds that the spinoff job estimates are unrealistic. “There are a lot of assumptions made about how money is spent and what impact it will have on jobs when creating these numbers,” says Lee. “The assumptions tend to produce big numbers.”

If any of the current oil or gas pipeline proposals ultimately proceed, the big winners would be smaller companies, like Kelowna-based Flair Airlines Ltd. Even if only one pipeline gets the green light, Flair anticipates adding one or two aircraft to its existing fleet of four Boeing 747s and as many as 24 permanent positions to its 70 full-time employees in Vancouver, Kelowna and Alberta. Half of the charter aircraft company’s revenue comes from moving workers to and from construction projects, and most of those are related to the oil and gas industry. “It’s a fight for contractors to get skilled trades and workers,” says Chris Lapointe, the company’s GM. “Companies have to offer door-to-door service.”

For instance, Flair flies a weekly circuit that originates in Kelowna and stops in Vancouver and Comox before continuing to Fort Nelson, exclusively carrying 140 to 150 workers to an Encana gas refining plant construction site. During the construction phase of Shell’s Albian Sands oil mine, between 2007 and 2010, Flair flew four flights a week across the country moving 10,000 workers a month, 20 per cent from B.C.

The Downside

Projected costs of a major tanker spill to B.C.’s north coast

• lost economic output: $87 million – $308 million
• lost employment: 1,652 – 4,379 person years
• lost GDP: $72 million – $205 million
Source: UBC Fisheries Centre

“These are long-term contracts of two to four years,” Lapointe explains. “They provide long-term stability for us as a company. We can plan, put roots down, invest in people and equipment.” Already Flair Airlines has had preliminary discussions with one of the companies planning a major development in Kitimat. “If pipelines are approved, it could be significant for our company,” Lapointe says.

SMIT Marine Canada Inc. is also cautiously optimistic about the future. Its Canadian operations are exclusively in B.C. and involve harbour tugboats, with tugs and crews in Vancouver, New Westminster, Kitimat and Prince Rupert. But its Dutch parent is considered one of the world’s largest international marine services companies, with operations in port development and offshore installations (including oil and gas related), oil and gas terminal management, transportation and heavy lift capabilities, marine salvage and harbour tug services. 
“We hope to be part of the marine operations for any oil and gas terminal development,” says Frans Tjallingii, president of SMIT Canada. “We bring a lot of international experience to the table.” He says that although there has been contact between SMIT and one or two proponents of oil and gas related projects in the Prince Rupert and Kitimat area, “It’s too soon to get into any real concrete discussions.”

With 30 to 35 employees working on nine tugs in Prince Rupert and Kitimat already, tug operations are an obvious start. Each LNG or oil tanker would likely need tug assistance to navigate the twists and turns leading from the open ocean to port and for manoeuvring into the dock. Depending on the schedules, each terminal could need its own dedicated team of tugs and tug operators, says Tjallingii. For instance, a typical LNG terminal would need four tugs and each one would require three shifts of two to five people each. “An oil terminal will probably have higher tug requirements,” he says. “With the safety measures proposed, it will be a very safe operation on the marine side. Every vessel will get the attention it needs.”

The assurances of the tug operator and others about the safety of shipping oil and gas products through B.C. waters do little to calm the fears of Kevin Smith. As the owner of Maple Leaf Adventures Corp., a sailboat tour company, Smith sat at the land-use planning table that created special management plans for the coast between Vancouver Island and Prince Rupert, an area often referred to as the Great Bear Rainforest or the central coast. “Society on all sides – fishing, forestry, government, First Nations, tourism, recreation – decided that the central coast is of national and international significance and deserves special treatment,” he says. “Now one industry wants to not play by the rules. It could wipe out all the good that’s been done.”
Maple Leaf employs five full-time and 25 seasonal staff, and 70 per cent of its tours are on the central coast, representing 90 per cent of the company’s revenue, or $700,000 a year. Though there are no up-to-date statistics of revenue generated by tourism businesses operating on the central coast, Evan Loveless, the executive director of the B.C. Wilderness Tourism Association, says the industry he represents is growing by 10 per cent a year, currently generating $1.6 billion annually; businesses on the coast produce about 42 per cent of that, or $672 million. One oil spill could destroy it all, says Smith, killing wildlife and muddying the province’s reputation as a wilderness destination.

After the Exxon Valdez oil spill in Alaska, one study pegged the value of the lost wildlife at $218 million. There are no stats on wildlife’s value to tourism in B.C., but “for us, there’s no use having a wilderness tourism industry if there is no wildlife,” says Smith.

It may not matter. Even before the impact to wildlife is known, the effect on tourism would likely be felt far beyond the central coast. A study by travel website TripAdvisor after the 2010 Deepwater Horizon oil spill in the Gulf of Mexico found that 32 per cent of people planning on visiting the Gulf Coast tourism area changed their plans in 2010. Even though the spill was off Louisiana and Texas, the study found 2010 TripAdvisor searches for “Gulf Shores, Alabama” were down 65 per cent and 52 per cent for “Pensacola, Florida” compared to 2009. A separate study of charter boats in southern Mississippi in June 2010 found revenue was down an average of 70 per cent.

No matter where a spill happens on the central coast, Smith thinks the area from north of Powell River to southeast Alaska would be painted with the same brush. Further, because nature-based tourism clients tend to visit several locations, “If a client cancelled a trip to the central coast or Haida Gwaii because of a spill, they are likely to cancel their entire trip to B.C. or Canada,” Loveless says. The reputation is as hard to wash off as the oil. Tourism remained depressed after the Exxon Valdez, Deepwater Horizon and a spill near Mexico’s Mayan Riviera for two to three years, says Smith. On B.C.’s central coast, “tourism businesses don’t have the deep pockets to sustain that lack of cash flow and revenue,” he says. “Businesses would go bankrupt.”

“Right now the central coast is up there with the Galapagos,” Smith says. “We have a niche in the world as a high-value wilderness experience. We shouldn’t be so quick to trade that away for profits for Alberta and Ottawa and oil for China.”

When it comes to Northern Gateway, Terry Lake, B.C.’s minister of the environment says that “the benefits for B.C. are relatively small over the life of the project. Studies show Ontario will benefit more, yet we’re the ones shouldering all the risk. We’ve told Enbridge they have to reduce the risk to the environment; otherwise we won’t have it.”

The problem: once the oil or natural gas is loaded on a ship, the product is no longer the pipeline’s responsibility and marine waters are federal jurisdiction, not provincial. Shippers must carry spill insurance and contribute to a pollution cleanup fund worth $1.3 billion in Canada, but who will cover cleanup costs beyond that remains a grey area. Considering that the Deep Water Horizon cleanup cost BP at least $20 billion, it’s a legitimate question, says Marc Lee, an economist with the Canadian Centre for Policy Alternatives. “It’s the biggest issue if any of these pipes go ahead,” he says. “We need to ensure the operators have the means to deal with a spill; otherwise taxpayers are on the hook.” That’s not Lee’s only concern.

Back in Courtenay, the pipeline debate is mostly background noise to Matt Sunderland as he prepares for his commute to work: two WestJet flights to Fort MacMurray and an hour-long bus ride to the $200-a-night deluxe camp where he lives, paid for by Ledcor. “The rooms are nice and the food is great,” he says. After dropping off his gear, he works a half-day shift but gets paid for the full day. Same story on the last day of the shift. No wonder he’s got no complaints – except for the cold weather.

As for all that extra cash, well, he’s not spending it on a $40,000 truck like many of his colleagues. “We’re trying not to spend any more than we used to,” he says. It’s part of his plan to only work up north for a year or two. But then in the next breath he talks about an uncle who put in 15 years of hard work in Fort MacMurray and is now retired. He shrugs as if to say, “That would be pretty nice.”


Whole Lotta Pipe

Five pipeline proposals currently under consideration

Natural Gas Pipelines

With an eye to linking abundant natural gas from northeastern B.C. with more profitable markets in Asia, the three natural gas pipeline proposals are tied to exporting facilities known as liquefied natural gas, or LNG, plants. The gas is condensed into liquid form and then loaded onto special ships for transport. LNG facilities typically cost three to four times the pipe and require up to several hundred people to operate.

Pacific Trail Pipeline
Value: $1.3 billion
Capacity: 1 billion cubic feet per day
Length: 463 km
A partnership between Houston-based natural gas producers Apache Corp. and EOG and Calgary-based Encana Corp., the proposal is one of the most advanced; a National Energy Board export permit was issued in October 2011. The Pacific Trail would bring natural gas from an existing pipe at Summit Lake, B.C., to Kitimat, where the same group is proposing to build Kitimat LNG. The partnership has yet to sign a contract with a buyer, the last step before a final investment decision will be made.

Spectra-BG pipe
Value: $8 billion
Capacity: 4.2 billion cubic feet per day
Length: 850 km
A 50-50 partnership between pipeline maker Spectra Energy Corp. and gas producer and marketer BG Group PLC, the pipe will move gas from BG’s gas fields in northeast B.C. to Prince Rupert, where BG has access to port land suitable for an LNG facility. Petronas, Malaysia’s state oil company, was going to share that pipe to feed its proposed LNG plant nearby, but the federal government’s blocking of its takeover of Progress Energy Resources Corp. may disrupt that plan. One of the most recent LNG pipeline announcements, it remains in the concept phase.

Coastal GasLink
Value: $4 billion
Capacity: 1.7 billion cubic feet per day
Length: 700 km
Shell Canada Ltd. chose TransCanada Corp., one of Canada’s oldest and biggest pipeline companies, to build a pipe from Shell’s Montney gas region, near Dawson Creek, to Kitimat. Shell has partnered with Korea Gas Corp. (KOGAS), Mitsubishi Corp. and PetroChina Co. Ltd. on a proposed LNG facility in Kitimat. Announced in May 2012, this proposal is also in the early stages.

Oil Pipelines

To meet demand for oil – mostly for heavy-crude products – two projects are proposed from the Edmonton area to the West Coast, where the oil can be loaded onto tankers for markets in California and Asia.

Northern Gateway
Construction cost: $6 billion
Capacity: 525,000 barrels of oil per day
Length: 1,777 km
Canada’s oil and gas pipeline giant Enbridge Inc. plans to build a twin pipe between Bruderheim, Alberta, and Kitimat. One pipe would carry diluted bitumen, a heavy oil product, west, while the other, smaller pipe, would flow east carrying imported condensate, used in oil transport to improve the viscosity of heavy oil. Now in a public review and comment stage, the project’s future will likely be decided in late 2013.

Trans Mountain Twinning
Construction cost: $4 billion
Capacity: at least 450,000 barrels of oil per day
Length: 1,150 km
Kinder Morgan wants to twin its existing pipeline from Edmonton to Burnaby and on to Washington state’s Puget Sound to boost capacity from the present 300,000 barrels a day. The new pipe would carry heavy oil products, allowing the existing pipe to exclusively carry refined products. Kinder Morgan plans to begin the public review process by the end of 2013.