Canada has among the world’s largest reserves of oil (including oil sands), rivalling those of Saudi Arabia. Canada’s oil exports have more than doubled over the past five years to 2.6 million barrels a day and are expected to continue growing. While more than 95% of those exports currently go to the US, a long awaited decision by the Canadian government approving the construction of a C$6.5 billion (US$6 billion) Northern Gateway pipeline signals a push to expand Canadian oil markets globally.
The Northern Gateway project involves building a 1,177-kilometre twin pipeline system running westward from Canada’s oil sands near Edmonton, Alberta, to a new marine terminal at Kitimat, a port in northern British Columbia. From Kitimat the oil will be loaded on supertankers and shipped to international markets, with Asia being a particular focus.
While the approval is a major step towards construction, the project remains subject to conditions which cover a broad range of issues including additional consultations with First Nations groups, environmental protection, and construction practices and standards.
The decision to approve the pipeline is seen as a strong message by the Canadian government that it is acting on its goals of diversifying its oil and gas export markets and becoming a leading global energy supplier. While the Keystone XL pipeline project remains in limbo, awaiting US approval, the Northern Gateway decision also signals to the US that Canada is planning and implementing its own major domestic infrastructure projects in order to facilitate its oil export strategy.
With the approval delay of Keystone XL, the Northern Gateway has emerged as a priority and the focus is shifting away from North America towards international markets for Canadian oil and gas.
Array of advantages
The primary aim of the Northern Gateway is to bolster Canada as a global energy supplier. In order to achieve this end, Canada is looking towards Asia, focusing on countries like India as major markets for Canadian oil and gas. Asia is and is expected to continue to be an area of high growth and significantly increasing energy demands.
With the approval of the Northern Gateway, Canada, having recognized that Asian markets are seeking stable, reliable and long-term suppliers, is now acting on its ambition to fill international demand by meaningfully entering the global market. Once completed, the Northern Gateway is expected to ship 500,000 barrels a day overseas.
As the past few months have again demonstrated, uncertainty and supply disruptions continue to plague the Middle East and can have a significant impact on oil prices. Canadian oil (West Canada Select) usually enjoys a significant discount of more than C$20 a barrel to OPEC’s Brent crude and is typically less affected by events in the Middle East. Canada is among the world’s most stable economic and political environments and should form an important part of India’s energy security policy in the future.
Canada and India have already recognized this to some extent and in late 2013, Husky Canada shipped its first batch of Canadian oil to India. However, more needs to be done to ensure that India and Canada develop a true trade partnership in the area of oil and petroleum products, for the mutual benefit of both countries. India stands to gain an important, stable source of long-term supply to meet its burgeoning energy needs and Canada stands to gain a rapidly growing market and access to top-notch Indian refineries to process Canadian crude.
Time for action
The Northern Gateway approval is a significant step because it demonstrates that Canada is committed to continuing development of its energy industry and getting Canadian oil to markets such as India. The pipeline also bolsters the viability of the many Canadian energy companies that make for attractive targets for investment or M&A activity.
With an outlet to Asia, investment and activity in the Canadian oil and gas sector is expected to continue to accelerate as the Northern Gateway project advances. Significant oil and gas investments have already been made in Canada by state-owned and private companies from China, Korea, Japan and Malaysia, among others.
India has not yet made any significant investment in the Canadian oil and gas sector. With a majority central government now in place in India, which is committed to fostering energy security, and the development of Canada’s infrastructure progressing to make economical export of Canadian oil and gas to Asia more viable, the time has come for India to seize the opportunity and make the necessary investments in Canadian oil and gas projects to secure its supply.
Raj Sahni is a partner and chair of the India Business Group and Zyshan Kaba is an associate at Bennett Jones LLP, a law firm with offices in Calgary, Toronto, Edmonton, Ottawa, Dubai and Doha, and representative offices in Washington DC and Beijing.
Suite 3400, 1 First Canadian Place
P.O. Box 130
Toronto, Ontario M5X 1A4
Fax: +1 416 863 1716
Tel: Raj Sahni, Chair – India Business Group +1 416 777 4804