By K. Joseph Spears and Darryl Anderson
On Canada’s West Coast, there is a gathering storm over the potential risks arising from marine transportation of crude oil from Alberta’s oil sands through West Coast Canadian waters from a proposed new terminal at Kitimat, in the North, and Port Metro Vancouver on the South coast. As a result, there is heightened public interest, debate and coastal community protest as the respective factions seek to influence the outcome of pipeline development proposals. This article will look at this issue in the broad national context to provide some insight to our readers, who are following energy developments that are important to Canada’s economic future.
The vast majority of Canada’s oil reserves is found in Alberta, with 176.1 billion barrels of oil, or about 14 per cent of currently known world reserves. Alberta has one of the largest hydrocarbon reservoirs in the world. Canada’s oil sands investment, development and production are a major engine driving Canada’s economic growth. Major Canadian and international oil companies have spent over $100 billion to develop these hydrocarbon resources. Alberta’s upstream oil sands region is comprised of a number of major projects, consisting of extraction and production facilities. The end result of the production process, bitumen, is a very heavy crude-like substance which, like conventional oil, can be refined into a variety of petroleum products. Since Canada is a large and growing net exporter of crude oil, and is likely to remain so for the foreseeable future, maritime transportation of crude oil will only continue to grow in importance as oil sands production increases and new markets are sought.
Major pipeline projects
In 2000, three-quarters of Canada’s oil sands production was delivered to domestic refineries, all of which were operating at capacity or close to capacity. The BP Statistical Review of World Energy, June 2011 observed that currently, Canada is almost entirely reliant on a single market – the U.S. – for selling its oil, with exports to the U.S. accounting for close to 98 per cent of its overall exports. Purchasers in the United States buy the bitumen at the West Texas price (WTI) which, depending on market conditions, can be as much as 30 per cent below the world price commonly known as Brent Crude. Brent is the benchmark oil extracted from the North Sea. It has a very low sulphur content, which makes it easier and less costly to refine. Whereas in the past, WTI and Brent pricing were similar, a wide gap developed a few years ago as pipelines converging on Cushing, Oklahoma, began to deliver more oil from Montana, North Dakota and Canada, but which could not be sent to refineries willing to purchase the oil because of physical constraints. This situation is being addressed presently with pipelines feeding imported oil from the Gulf Coast to Cushing being reversed, and with additional pipeline capacity being brought on stream. This will mean that instead of imported oil flowing North to Cushing from Gulf Coast terminals, more U.S. and Canadian oil will be feeding refineries along the U.S. Gulf Coast. In addition, the targeted refineries will no longer need to purchase imported oil to serve as their feedstock. (This will have an impact on the WTI/Brent pricing differential, and some analysts believe that by next year, the Brent premium will be reduced to as little as $3 per barrel).
Lower prices associated with congestion at Cushing and the lack of regulatory approval to construct another pipeline from Canada (Keystone XL) into the United States have provided recent impetus to seek new markets along the West Coast of North America and in Asia. Such deliveries were not achievable without construction of the necessary pipeline capacity leading to the West Coast, and the eventual transportation of Alberta oil on conventional oil tankers.
A key commercial decision for Canadian oil producers is between exporting oil South into the U.S., or West to Asia and the burgeoning economies of the Indo-Pacific including India and China. Researchers at the Singapore Energy Studies Institute have noted that that under present market conditions, the cost of transporting oil to China, Japan, South Korea and Chinese Taipei (via pipeline and tanker) are lower than the costs of transporting oil to the U.S. (via pipeline).
Bulk liquid crude exports using a Canadian West Coast port represent an opportunity to solve the pipeline capacity problem, and simultaneously diversify the export market. While crude oil production growth in Alberta is not without its risks, it nevertheless represents a significant opportunity for a few West Coast ports to expand their trade and diversify their markets.
The Trans Mountain pipeline system (TMPL), operated by Kinder Morgan, moves crude oil to the Pacific Coast. The 1,150-kilometre-TMPL has been in operation since 1953, transporting crude oil and refined products from Edmonton to marketing terminals and refineries in Puget Sound (Washington State), and to the Westridge Marine Terminal (WMT) in Port Metro Vancouver, which is the only facility on Canada’s West Coast that can ship crude oil by ocean-going tanker. Kinder Morgan Canada is expanding its capacity through a three-stage Trans Mountain Pipeline Expansion (TMX). Stage one involved constructing a 178-kilometre section of 32-inch pipe looping the East end of the TMPL and linking several pumping stations and tank facilities. Stage two brought increases in pipeline capacity by adding new pumping stations through to Port Metro Vancouver. In April 2012, Kinder Morgan announced the third stage: a $5-billion expansion of its TMPL to more than double capacity on Canada’s only oil artery to the West Coast of North American and Asian markets. The planned TMX expansion would boost pipeline capacity to 850,000 barrels per day. The project may create the need for a second berth at WMT to accommodate Suezmax-sized tankers. If this project obtains regulatory approval, tanker traffic at Port Metro Vancouver would increase from an existing average of five to 10 vessels per month to between 25 and 30 per month.
Enbridge Pipelines Inc. is currently the major carrier of crude oil to Eastern Canadian and U.S. markets. However, it has proposed Enbridge Pipelines’ Northern Gateway project, which would transport crude oil and refined products from Edmonton to a marine marketing terminal at the Port of Kitimat. The Northern Gateway proposal represents both a cargo and market diversification opportunity for the port because it currently does not have a marine terminal that can ship crude oil. The project would require that a new 30-inch pipeline, bulk liquid crude storage facility and marine terminal be built. During operations, Northern Gateway expects between 190 and 250 oil and condensate tankers will call on the Kitimat terminal each year, comprising 50 Very-Large Crude Carriers (VLCC), 120 Suezmax tankers and 50 Aframax vessels. This project pipeline component is presently before a joint Canadian Environmental Assessment Act and National Energy Board Review Panel.
Shipping’s environmental risks
To appreciate the level of public consternation in some quarters in British Columbia it helps to understand the physical coastline where increased tanker traffic is likely to ply. The West Coast is remote, rugged and rich in marine life with some of the most biologically productive marine areas on the planet. It has been the ancestral home of First Nations communities for over 10,000 years. In a North-South direction, the B.C. coast only spans 965 kilometres, but the physical actual coastline is nearly 26,000 kilometres long, with over 4,000 islands throughout and many deep fjords. There are strong tidal currents in which a variety of marine life thrives, including intact populations of marine mammals and some of the world’s largest salmon runs. During the summer tourist season it is easy to think of these waters as coastal and sheltered. However, during the winter months, the coast is subject to major storms and wave conditions and strong tidal actions including strong outflow winds. In some locations the tidal current runs at over 22 knots. The coast of British Columbia is an integrated ecosystem of ocean, land and rivers. The renamed Salish Sea recognizes this holistic system in the southern portion.
Environmental advocacy pressures
In British Columbia, there has been a long history of environmental awareness and activism. Numerous environmental groups were founded on the West Coast and have been active globally on a variety of issues. In the 1990s, the dispute over the cutting of old-growth forest led to what was commonly known as “The War in the Woods”. This saw a great deal of social disobedience, and protests which ultimately led to changes in forest practices, dispute resolution and the setting aside a major chunk of the last coastal temperate rain forest in the world, the Great Bear Rainforest, on the central coast of British Columbia’s mainland North of Vancouver Island. Arguably, it also impacted some of the very corporations that are trying to undertake the logging, as the protests had both a solid scientific an emotional basis. It was a hard-fought battle. It was a very emotionally charged and difficult period in B.C. history. The current debate on tanker traffic has many of the same heightened emotions as this earlier period.
More recently, the emission of greenhouse gases has been identified as a major challenge facing the planet. As a result, the battle over the future development of Canada’s oil sands is one that has captured both domestic and international attention. This provides some backdrop to the present issue with respect to tankers, intertwined with the issue of the Alberta oil sands and global CO2 emissions. Alberta’s oil sands are seen as a major creator of greenhouse gas emissions, and limiting market access through impeding transportation infrastructure investments has been targeted by some environmental groups as the most effective strategy to limit growth.
Most of the recent public attention has focused on potential oil tanker traffic from new pipeline developments on the West Coast. However, it is important to note that crude oil and product tanker traffic in either Canada’s Exclusive Economic Zone (EEZ), internal waters, and the Strait of Juan de Fuca occurred prior to and after the completion of the Alaskan pipeline in 1975. For example, the oil export port of Valdez, Alaska, averaged 401 vessels calls per year between 2002 and 2010, generating marine traffic in Canadian waters as many of these American flagged oil tankers discharged Alaskan North slope crude at refineries in Puget Sound in Washington State.
Beginning in 1982, B.C.’s North coast experienced significant exports of methanol in chemical tankers until the production facility at Port of Kitimat closed in 2005. Since then, approximately 22 tanker vessels have imported condensate into Kitimat for shipment by rail to Alberta each year. On B.C.’s Southeast coast, the Westridge Marine Terminal in Port Metro Vancouver generates an average of 90 tanker vessel visits each year. British Columbia has relatively modest tanker traffic compared to the top 10 Puget Sound locations. These coastal communities immediately adjacent to B.C.’s waters safely receive an average of over a thousand tanker port calls and about 3,200 tug and tank barge movements each year.
Even with this volume of shipping traffic, the public response to marine transportation of crude oil products is driven by the memories and images of oil spills such as the Deepwater Horizon in 2010 and Exxon Valdez in 1989. These types of events serve to fuel anti-tanker public sentiment and calls for political action to ban this economic activity. Residents of coastal communities believe they are exposed to most of the risks with increased tanker traffic and doubt that sufficient resources will be directed towards protecting their interests and the marine environment, in case of accidents. There is a strong public perception that a total ban on oil tankers is the only option available to protect the marine environment from possible pollution. In response to public sentiment, members of the federal parliament have engaged in a number of recent attempts to address concerns by introducing private member sponsored legislation to ban oil tanker traffic in West Coast waters. These bills have died on the order table. The city of Vancouver, with Canada’s largest port, has set out to be the world’s greenest city. Opposition led by the Mayor Gregor Robertson, a former provincial New Democrat Member of the Legislative Assembly, is leading a charge against increasing tanker traffic in Vancouver by bringing an anti-tanker resolution before Vancouver city council. The Vancouver Parks Board has also passed a resolution opposing increased tanker traffic.
While the public image of the tanker industry on the Canada’s West Coast remains fixed by images of the Exxon Valdez incident in 1989, there remains a considerable gap in public knowledge about the current state of safety performance in the tanker industry worldwide. The International Tanker Owners Pollution Federation reported that 2011 was a record year for the lowest number of spill incidences and the lowest amount of oil spilled. The data indicates that 99.9 per cent of oil transported by ship arrived safely and the total volume of cargo involved in oil spills declined significantly while the total tonnes of cargo increased.
This information strongly suggests that the international regulatory structure has had a positive effect on improving the safety performance of the world tanker industry. From an international perspective, the risks associated with an oil spill in the marine environment have decreased over the years, primarily due to increased preventive measures, including the phase-in of double-hulled tankers, requirements to have contracts with response organizations and increased monitoring and inspection. In addition, the Oil Companies International Marine Forum (OCIMF), through its best-practice guide Tanker Management and Self Assessment (TMSA), has challenged tanker owners and operators to evaluate their approach to the International Safety Management Code to improve their management systems and to demonstrate a strong commitment to safety and environmental excellence. Leading international tanker owners such as Vancouver-based Teekay Corporation and others in the industry have adopted such best risk management practices.
Government of Canada
Under the Constitution Act of 1867, the federal government is given power over navigation and shipping and enacted the Canada Shipping Act, 2001, which sets out a variety of requirements for a wide range of maritime-related activities including salvage, pollution response, and pollution prevention standards. The main policy tools in place in Canada today to manage the risks of crude oil by tanker include:
• Project specific risk assessments
• Port-based compliance assessment
• Vessel traffic management schemes
• Compulsory marine pilotage
• Port authority and terminal procedures
• Oil spill response
• Tug assistance
Canada’s marine risk management approach to marine shipping has been evolving over time to include governance and practice. The cornerstone of Canada’s ocean management strategy is to protect the marine environment and regulate shipping in an efficient and sustainable matter. This involves an overarching web of federal marine legislation, federal government departments including Transport Canada, the Canadian Coast Guard and Fisheries and Oceans Canada. These departments are involved at the prevention, protection and response phase of risk management.
On the West Coast of Canada, there is also compulsory marine pilotage provided by the Pacific Pilotage Authority along the entire coast. The marine pilots are contracted through the British Columbia Coastal Marine Pilots Limited. Pilotage services are provided 24-hours per day, year-round, to all foreign-flagged vessels. While compulsory pilotage is not a new requirement – it has been in place since the last century – it nevertheless has served the test of time and continues to evolve in a changing and complex world. This is independent from commercial interests and is funded by the shipping industry. There are over 12,000 vessel movements a year, with almost an incident-free safety record.
The need to chart a new way forward
The public debate, broken down into its simplest form, raises issues about risk and reward. The sale of oil will see royalties and other taxes primarily flowing to both Canada and Alberta. Prime Minister Harper has stated at the World Economic Forum in Davos that his government is making it a priority to ensure we have the capacity to export our energy products to Asia. There is only one way to do that and that is by tankers through British Columbia waters. However, British Columbia’s coastal communities will be exposed to any marine tanker incidents and thus taking a disproportional share of the risk in the minds of the public.
In Canada, we have ad hoc and often reactive maritime policy development approach. As a country we have not considered a coast-wide risk assessment, but rather our responses have been driven by project-specific actions. Jim Prentice, the former federal Minister of Environment, now Executive Vice-President and Vice-Chairman of the Canadian Imperial Bank of Commerce (CIBC), delivered a speech to the Vancouver Board of Trade in February that highlighted the importance of the marine pillar to Canada’s energy policy. He observed that Ottawa has sole jurisdiction over our territorial waters. Prentice stated it must take the lead in developing a marine management regime that will take into account the rewards as well as the environmental risks of increased West Coast tanker traffic. Legislation will be required. So too will contingency plans for unforeseen eventualities.
The path forward should include increased public transparency, and sustained independent policy funding that seeks input, incorporates and evaluates insights from academics, government, the private sector, and First Nations communities. Both industry and government investment, leadership, resources, and public communication is required to ensure a culture of continuous improvement as marine traffic volume expands and the overall vessel traffic mix changes in complexity. We need to look carefully at the risk involved with marine tanker traffic. We should not be afraid to ask the hard questions.
Canada led the way in developing a comprehensive pollution prevention regime that goes back to the grounding of the tanker Arrow in 1970 off the Nova Scotia coast. We need to rediscover this vigorous approach to examining new marine risks. We must look carefully at all marine transportation risks and those specific to increased tanker traffic. We need to engage all parties in this important discussion. This will require leadership and a robust policy analysis. This issue is too important for the debate to be based solely on rhetoric. International shipping of Canadian energy product matters to Canada’s future. We need to see a break in the gathering storm and chart a proper course as a nation.
Joe Spears is the Principal of HBMG in West Vancouver and works closely with Darryl Anderson, Managing Director Wave Point Consulting. The authors have been involved in various aspects of the marine transportation including policy development governance, operations, pollution response and salvage for the last 30 years. Their research papers can be found at www.wavepointconsulting.ca