Thwarted on US Oil Pipeline, Canada Looks to China

The latest chapter in Canada's quest to become a full-blown oil superpower unfolded this month in a village gym on the British Columbia coast.

Here, several hundred people gathered for hearings on whether a pipeline should be laid from the Alberta oil sands to the Pacific in order to deliver oil to Asia, chiefly energy-hungry China. The stakes are particularly high for the village of Kitamaat and its neighbors, because the pipeline would terminate here and a port would be built to handle 220 tankers a year and 525,000 barrels of oil a day.

But the planned Northern Gateway Pipeline is just one aspect of an epic battle over Canada's oil ambitions – a battle that already has a supporting role in the U.S. presidential election, and which will help to shape North America's future energy relationship with China.

It actually is a tale of two pipelines – the one that is supposed to end at Kitamaat Village, and another that would have gone from Alberta to the Texas coast but was blocked by the Obama administration citing environmental grounds.

Those same environmental issues are certain to haunt Northern Gateway as the Joint Review Panel of energy and environmental officials canvasses opinion along the 1,177 kilometer (731 mile) route of the Northern Gateway pipeline to be built by Enbridge, a Canadian company.

The fear of oil spills is especially acute in this pristine corner of northwest British Columbia, with its snowcapped mountains and deep ocean inlets. People here still remember the Exxon Valdez oil spill of 1989, and oil is still leaking from the Queen of the North, a ferry that sank off nearby Hartley Bay six years ago.

The seas nearby, in the Douglas Channel, "are very treacherous waters," says David Suzuki, a leading environmentalist. "You take a supertanker that takes miles in order to stop, (and) an accident is absolutely inevitable."

Prime Minister Stephen Harper says Canada's national interest makes the $5.5 billion pipeline essential. He was "profoundly disappointed" that U.S. President Barack Obama rejected the Texas Keystone XL option but also spoke of the need to diversify Canada's oil industry. Ninety-seven percent of Canadian oil exports now go to the U.S.

"I think what's happened around the Keystone is a wake-up call, the degree to which we are dependent or possibly held hostage to decisions in the United States, and especially decisions that may be made for very bad political reasons," he told Canadian TV.

Republican presidential candidate Newt Gingrich quickly picked up the theme, saying that Harper, "who, by the way, is conservative and pro-American … has said he's going cut a deal with the Chinese … We'll get none of the jobs, none of the energy, none of the opportunity."

He charged that "An American president who can create a Chinese-Canadian partnership is truly a danger to this country."

But the environmental objections that pushed Obama to block the pipeline to Texas apply equally to the Pacific pipeline, and the review panel says more than 4,000 people have signed up to testify.

The atmosphere has turned acrimonious, with Natural Resources Minister Joe Oliver claiming in an open letter that "environmental and other radical groups" are out to thwart Canada's economic ascent.

He said they were bent on bogging down the panel's work. And in an unusually caustic mention of Canada's southern neighbor, he added: "If all other avenues have failed, they will take a quintessential American approach: Sue everyone and anyone to delay the project even further."

Environmentalists and First Nations (a Canadian synonym for native tribes) could delay approval all the way to the Supreme Court, and First Nations still hold title to some of the land the pipeline would cross, meaning the government will have to move with extreme sensitivity.

Alberta has the world's third-largest oil reserves after Saudi Arabia and Venezuela: more than 170 billion barrels. Daily production of 1.5 million barrels from the oil sands is expected to increase to 3.7 million in 2025, which the oil industry sees as a pressing reason to build the pipelines.

Critics, however, dislike the whole concept of tapping the oil sands, saying it requires huge amounts of energy and water, increases greenhouse gas emissions and threatens rivers and forests. Some projects are massive open-pit mines, and the process of separating oil from sand can generate lake-sized pools of toxic sludge.

Meanwhile, China's growing economy is hungry for Canadian oil. Chinese state-owned companies have invested more than $16 billion in Canadian energy in the past two years, state-controlled Sinopec has a stake in the pipeline, and if it is built, Chinese investment in Alberta oil sands is sure to boom.

"They (the Chinese) wonder why it's not being built already," said Wenran Jiang, an energy expert and professor at the University of Alberta.

In a report on China's stake in Canadian energy, Jiang notes that if every Chinese burned oil at the rate Americans do, China's daily consumption would equal the entire world's.

Harper is set to visit China next month. After Obama first delayed the Keystone pipeline in November, Harper told Chinese President Hu Jintao at the Pacific Rim summit in Hawaii that Canada would like to sell more oil to China, and the Canadian prime minister filled in Obama on what he said.

Jiang reads that to mean "China has become leverage."

But oil analysts say Alberta has enough oil to meet both countries' needs, and the pipeline's capacity of 525,000 barrels a day would amount to less than 6 percent of China's current needs.

"I don't think U.S. policymakers view China's investment in the Canadian oil sands as a threat," says David Goldwyn, a former energy official in the Obama administration.

"In the short term it provides additional investment to increase Canadian supply; that's a good thing. Longer-term, if Canadian oil goes to China, that means China's demand is being met by a non-OPEC country, and that's a good thing for global oil supply. Right now we are spending an awful lot of time finding ways for China to meet its demand from some place other than Iran. Canada would be a great candidate."

Pipelines are rarely rejected in Canada, but Murray Minchin, an environmentalist who lives near Kitamaat Village, says this time he and other opponents are determined to block construction. "They are ready to put themselves in front of something to stop the equipment," Minchin said. "Even if it gets the green light it doesn't mean it's getting done."

Enbridge is confident the pipeline will be built and claims about 40 percent of First Nation communities living along the route have entered into a long-term equity partnership with Enbridge. The communities together are being offered 10 percent ownership of the pipeline, meaning those which sign on will share an expected $400 million over 30 years.

But of the 43 eligible communities, only one went public with its acceptance and it has since reneged after fierce protests from its members.

Janet Holder, the Enbridge executive overseeing the project, says pipeline leaks are not inevitable, new technologies make monitoring more reliable, and tugboats will guide tankers through the Douglas Channel.

At the Kitamaat hearings, speakers ranged from Ellis Ross, chief of the Haisla First Nation in British Columbia, to Dieter Wagner, a German-born Canadian, retired scientist and veteran sailor who called the Douglas Channel "an insane route to take."

Ross used to work on whale-watching boats, and refers to himself as a First Nation, a term applicable to individuals as well as groups. He testified that the tanker port would go up just as marine life decimated by industrial pollution was making a comeback in his territory.

He held the audience spellbound as he described an extraordinary nighttime encounter last summer with a whale that was "logging" – the half-doze that passes for sleep in the cetacean world.

"…Midnight I hear this whale and it's right outside the soccer field. … It's waterfront, but I can hear this whale, and I can't understand why it's so close, something's got to be wrong.

"So I walk down there with my daughter, my youngest daughter, and I try to flash a light down there, and quickly figured out it's not in trouble, it's sleeping. It's resting right outside our soccer field.

"You can't imagine what that means to a First Nation that's watched his territory get destroyed over 60 years. You can't imagine the feeling."