That alone raised public hackles. What wasn't discussed is the fact that Enbridge has the chance to export much more, and with less oversight, thanks to a loophole in the National Energy Board Act.
In fact, heavy oil pipeline companies have used the act to further maximize their export capacity on various projects without fulsome and transparent evaluation.
All companies must apply for regulatory approval of new infrastructure under Section 52 of the act, which requires environmental assessment and public review, but rarely is the "applied-for" capacity anywhere near a project's designed capacity.
When pipeline operators subsequently request approval to expand capacity to meet their project's designed potential, it falls under Section 58 of the act. This section streamlines the process, and doesn't require full environmental review or automatically trigger a public hearing.
In this way, significantly increased volumes of oil sands crude can flow through pipelines -- and in the case of British Columbia be loaded onto tankers -- without undergoing proper environmental risk or public interest scrutiny.
Big Oil's big secret
The Trans Mountain pipeline has benefited from a Section 58 application. The application was used in 2003 and 2005 to expand the pipeline's capacity by more than 30 per cent, from approximately 198,000 to 260,000 barrels a day. Terrestrial spill risk and other environmental impact analysis were limited to pump station zones, rather than along the entire system, as would have been prudent. Increased throughput enabled oil tanker traffic to effectively double without evaluation of increased marine spill risk.
We have been told the capacity of Northern Gateway's oil sands export pipeline is 525,000 barrels a day of crude oil and the condensate import pipeline is 193,000 barrels a day of diluent, triggering an average of 220 supertankers a year in the Hecate Straight and Douglas Channel. This is the "applied-for" capacity of the project, not its designed capacity.
Northern Gateway is designed to carry 60 per cent more heavy crude and 40 per cent more condensate (page 9-10). As Enbridge explained when questioned by the panel at the hearings, "the hydraulic design incorporates the potential to expand the system capacity by adding additional pump stations and pumping facilities." Therefore, all that is required when Enbridge decides to significantly expand throughput to double its system is a Section 58 application.
If Prime Minister Stephen Harper's cabinet approves Northern Gateway in June and orders the NEB to provide Enbridge with its certificates, a Section 58 request for significant expansion could take place even before construction on the system begins. In fact, Enbridge told the panel it has lined up expressed interest from long-term shippers beyond the "applied-for" capacity (line 15567).
At the recent NEB hearing to approve the tolls Kinder Morgan will charge shippers if its proposed Trans Mountain expansion is approved, Suncor, which plans to ship on both Trans Mountain and Northern Gateway, confirmed "the National Energy Board's regulatory approval process for new pumps situated within existing station property or new pump stations are more streamlined as compared to applications involving new pipeline facilities." (Paragraph 6912-6913.)
Kinder Morgan counsel was questioning Suncor about streamlined approvals and the ease with which Northern Gateway could be expanded to show Gateway offers a competitive alternative, particularly since its designed capacity extends beyond its applied for capacity.
Suncor agreed that Northern Gateway can be expanded relatively easily when it "has the necessary support to move forward" -- i.e. cabinet approval and certificates in hand -- if shippers elect to do so.
Suncor also confirmed that "expansion on the Gateway system has been commercially contemplated by the parties (shippers)" and any one of them "can request the carrier to make an expansion to the system" at any time.
Gateway's full potential
Northern Gateway's pipe width, marine berths and tank storage specifications support 850,000 barrels a day of heavy oil and 275,000 barrels a day of condensate. This is the capacity included in its engineering details recommended for cabinet approval by the Joint Review Panel. This enhanced capacity is partly responsible for why Northern Gateway's updated capital budget will be well over the unspecified and stale-dated $7.9-billion capital cost provided to the panel.
Enbridge investors were recently warned that the project's capital costs would increase significantly over the estimate provided to the panel. "The cost estimates included in the Northern Gateway filing with the [panel] reflects a preliminary estimate prepared in 2004 and escalated to 2010." (Page 31.)
A new estimate is currently being prepared. Enbridge explained to investors that the impending "detailed estimate will reflect a larger proportion of high cost terrain, longer tunneling requirements and more extensive terminal site rock excavation than provided for in the preliminary estimate."
What Enbridge didn't clarify is that late in the NEB hearings, the company tabled a 75 per cent increase in tanker storage at the Kitimat terminal by increasing the size of the 14 existing tanks and adding five new ones. This expanded storage capacity supports the full designed capacity of the project and has been included in specifications recommended for approval by the panel, but the cost has not yet made its way into the project's construction budget.
All told, Enbridge's budget for its designed capacity, absent some pumping power, could exceed $10 billion, including the allowance for financing costs incurred during pre-development and construction. Toll rates are determined by a project's capital and operating cost. A significant increase in Northern Gateway's costs means the toll rates facing potential shippers will be much higher than previously predicted, potentially compromising the commercially viability of the project.
NEB's past expansion habit
One way for Big Oil to solve that potential problem -- since toll rates are determined on a cost-per-barrel basis -- is to request a relatively inexpensive but significant expansion under Section 58 before operations commence, but after cabinet approval. Sophisticated market players have understood the benefits of such an approach all along.
The tankers needed to move Northern Gateway's designed capacity will be closer to 350 a year, not 220 -- more than two transits a day in B.C.'s northern coastal waters. Greater pipeline throughput and more tankers means way more terrestrial and marine spill risk than the panel's review contemplated.
Given the NEB's history of accommodating industry's expansion requests, the environmental and socio-economic risk of Northern Gateway's intended size will never be appropriately addressed.
Residents in Ontario recently experienced the undesirable consequences of a Section 58 expansion. Enbridge applied last June to increase throughput by 20 per cent on Line 7, which transports crude from Sarnia to Hamilton. By October, the NEB granted the request, even though the Ontario Pipeline Landowners Association informed it in July that Enbridge had not notified their members about the proposed expansion. These landowners considered themselves directly affected since the pipeline traverses their land, and increased throughput represents increased risk. The association requested the NEB hold a public hearing so landowners could voice their concerns. The request was denied.
The NEB seems content to accept pipeline operators' definitions of affected parties. When pumping power and facilities increase throughput, only affected parties in the vicinity of the pumping stations need be advised. Only environmental issues in the immediate area surrounding the affected land need be addressed. The fact that expanded throughput increases spill risk across the entire system, or triggers increased tanker traffic and the potential for harm in marine waterways, appears irrelevant.
Enbridge has used loophole before
Enbridge also took advantage of Section 58 when it applied for and received NEB approval to expand its Alberta Clipper crude oil pipeline by almost 80 per cent, from 450,000 barrels a day to 800,000 barrels a day.
This expansion was undertaken in two stages. In 2012, an application was filed to take the line to 570,000 barrels a day. The review was conducted without a public hearing and limited environmental assessment. It was approved four months later. Phase II of the expansion -- to go from 570,000 to 800,000 barrels a day -- was similar. It was applied for in August 2013 and approved on Feb. 10, 2014.
Alberta Clipper was built in 2010. It originates in Hardisty, Alberta and moves crude oil to a terminal in Superior, Wisconsin. From there, the oil is shipped to U.S. Midwestern and Gulf Coast markets by other pipelines.
Just as Keystone XL requires U.S. State Department approval before it can cross the border, so too did Alberta Clipper. Approval was granted in 2009, but only for 450,000 barrels a day. Despite receiving the go-ahead in Canada, Enbridge also needs an amended U.S. State Department certificate before it can expand system capacity.
Enbridge applied for that amendment in November 2012. The company requested approval to expand Alberta Clipper from 450,000 barrels a day to 570,000 by mid-2014 and to full designed capacity by mid-2015.
It appears the U.S. State Department is making a far greater effort to assess the environmental and public interest merits of expanded capacity on Alberta Clipper than the NEB. Last March, the state department requested public input about what it should consider as it updated its environmental impact statement. More than 16 months after filing its request in the U.S., Enbridge still has not received a response and according to the company's president, Al Monaco, does not expect one before mid-year.
Kinder Morgan filed an application with the NEB for approval to twin its Trans Mountain pipeline last December under Section 52, automatically triggering an environmental assessment and public review. The new pipeline specified in the documents is a 36-inch diameter pipe -- the same diameter as Northern Gateway's crude oil pipeline. Kinder Morgan has only requested approval for 540,000 barrels a day on its twin, even though with additional pumping power a pipeline its width could push through much more.
If Trans Mountain designed capacity is approved while the environmental impact is limited to its "applied for" capacity, we'll be set up for another round of this deceptive capacity expansion game.
The public deserves better. Heavy oil pipeline design capacity should be the subject of full environmental assessment and public review at the outset. We should not permit energy companies to increase terrestrial and marine spill risk after the fact, under the radar.
Original Article
Source: thetyee.ca/
Author: Robyn Allan
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