Pembina gets it

[Cardboard]

http://business.financialpost.com/commodities/energy/pembina-pipelines-new-purpose-get-canadas-oil-and-gas-to-the-rest-of-the-world

 

Amazing what is going on. Go through Alaska or Oregon to avoid B.C.! $100 billion of projects that would have happened in Canada being done in the U.S. instead.

 

Just imagine how many jobs, businesses and communities this would have helped? And while our obstructionists think they are doing something great, reality is that the same quantity of fossil fuels end up in the global market. Someone else is benefiting vs Canadians and that is the only difference being made.

 

Cardboard

[scorpioncapital]

Rick Rule wrote many years ago how investors were irrational to think that an African gold miner was safer than a BC gold miner. His thesis was that in BC , a certain socialist mentality can more easily expropriate you slowly through taxes or red tape than in a capitalist continent where there is honour but no rules.

 

 

[SharperDingaan]

Actually this speaks to just how irresponsible the Alberta o/g industry has historicaly been - and remains so to this day.

 

We all know Alberta's oil/gas is landlocked, and heavily discounted because of it.

The opportunity loss literaly costs the Alberta economy (& the Alberta government via the royalty loss) billions/year EVERY YEAR, and has been costing everybody ever since Leduc No.1 came in - in 1947. The Tarsands ALONE had enough proven reserves in 2012 to supply all of NA for 100 years at the 2012 consumptiion level - yet 71 years after Leduc, and through multiple booms/busts, Alberta o/g is still as landlocked as ever. Even 3rd world countries (ME, VZ, etc.) invest in state owned/chartered tanker fleets to move their oil to market - Alberta does not even have a provincially chartered rail car fleet to backstop its pipeline access. Hard to be sympathetic, when the industry continues to be this irresponsible.

 

Newfoundland has long been the butt of many jokes.

But those same 'newfies' also managed to put their offshore Whiterose (& now Hebron) o/g into production, from literally scratch, and DO NOT SUFFER Alberta's 'differential'. Furthermore, few investors recognize that there are actually TWO o/g industries in Canada; most see only the WCSB. The fact that Newfoundland has its act together (& has successfully done it under much more difficult technical conditions), and Alberta still hasn't a clue - is an indication of just how irresponsible the 'blue-eyed sheiks' have been.

https://en.wikipedia.org/wiki/White_Rose_oil_field

http://www.cbc.ca/news/canada/newfoundland-labrador/hebron-first-oil-1.4422476

 

Hopefully this time around Alberta feels enough pain, and for long enough, to finally make the REAL changes neccessary.

Newfoundland oil can also flow west, and at some point - very likely will.

 

We wish everyone the best of luck.

 

SD

 

 

 

 

 

[StubbleJumper]

Actually this speaks to just how irresponsible the Alberta o/g industry has historicaly been - and remains so to this day.

 

We all know Alberta's oil/gas is landlocked, and heavily discounted because of it.

The opportunity loss literaly costs the Alberta economy (& the Alberta government via the royalty loss) billions/year EVERY YEAR, and has been costing everybody ever since Leduc No.1 came in - in 1947. The Tarsands ALONE had enough proven reserves in 2012 to supply all of NA for 100 years at the 2012 consumptiion level - yet 71 years after Leduc, and through multiple booms/busts, Alberta o/g is still as landlocked as ever. Even 3rd world countries (ME, VZ, etc.) invest in state owned/chartered tanker fleets to move their oil to market - Alberta does not even have a provincially chartered rail car fleet to backstop its pipeline access. Hard to be sympathetic, when the industry continues to be this irresponsible.

 

Newfoundland has long been the butt of many jokes.

But those same 'newfies' also managed to put their offshore Whiterose (& now Hebron) o/g into production, from literally scratch, and DO NOT SUFFER Alberta's 'differential'. Furthermore, few investors recognize that there are actually TWO o/g industries in Canada; most see only the WCSB. The fact that Newfoundland has its act together (& has successfully done it under much more difficult technical conditions), and Alberta still hasn't a clue - is an indication of just how irresponsible the 'blue-eyed sheiks' have been.

 

Hopefully this time around Alberta feels enough pain, and for long enough, to finally make the REAL changes neccessary.

Newfoundland oil can also flow west, and at some point - very likely will.

 

We wish everyone the best of luck.

 

SD

 

 

How would provincially owned railcars help?  It is your viewpoint that GATX is not leasing out enough cars? 

 

Look, the reality is that Alberta doesn't have a deep-water port and needs to use either a pipeline or rail to move product to salt water.  A pipeline is far more cost efficient, but certain governments are shamelessly pandering to foreign-funded environmental lobby movements.  See how the US is going ape-shit over the Russians interfering in their most recent election?  Well, that's the kind of bullshit that goes on in Canada, with foreigners spending their money to buy Canadian public policy decisions.  It's shameful. 

 

The leftists howl about Canadian sovereignty and then they get in bed with moneyed foreign interests.

 

 

SJ

[SharperDingaan]

"How would provincially owned railcars help?  It is your viewpoint that GATX is not leasing out enough cars?"

 

Today you cant get a rail-car unless you commit to a long-term lease.

It's to the producer to lease it, they are reluctant to commit, and the oil stays in the ground instead. Can't take the risk.

 

Nothing prevents Alberta from entering into (permanent) long-term rail-car leases, in large quantity (potentially 50% of existing maximum pipeline capacity), and re-leasing them to producers on a short-term spot rate basis. There is now permanently more than enough take-away capacity to move oil by rail to anywhere where it may be sold profitably, producers receive WTI less transport cost, and can produce as much as they can profitably sell. Alberta has permanent incentive to go to pipelines as soon as practicable, but in the meantiime everyone's oil is getting to market. If total lease costs exceed revenue, the difference is simply charged back to industry.

It's not difficult, 3rd world countries manage to do it every day.

 

SD

 

[StubbleJumper]

"How would provincially owned railcars help?  It is your viewpoint that GATX is not leasing out enough cars?"

 

Today you cant get a rail-car unless you commit to a long-term lease.

It's to the producer to lease it, they are reluctant to commit, and the oil stays in the ground instead. Can't take the risk.

 

Nothing prevents Alberta from entering into (permanent) long-term rail-car leases, in large quantity (potentially 50% of existing maximum pipeline capacity), and re-leasing them to producers on a short-term spot rate basis. There is now permanently more than enough take-away capacity to move oil by rail to anywhere where it may be sold profitably, producers receive WTI less transport cost, and can produce as much as they can profitably sell. Alberta has permanent incentive to go to pipelines as soon as practicable, but in the meantiime everyone's oil is getting to market. If total lease costs exceed revenue, the difference is simply charged back to industry.

It's not difficult, 3rd world countries manage to do it every day.

 

SD

 

 

Ahhh, so Albertans should absorb the financial risk of a long-term rail car lease with the goal of absolving the private sector of said risk.

 

I have a better idea.  How about governments act in citizens' interests in building pipelines?  How about governments spend one dollar on favourable propaganda for every dollar that foreigners spend on anti-pipeline fear mongering?  How about governments outlaw the use of foreign money for anti-pipeline crusades and when foreigners spend money to influence Canadian public policy, why don't we make them inadmissable to Canada for life?  Why don't we slap a prohibitive tax on foreign contributions to Canadian environmental lobby groups?

 

All of that strikes me as much better aligned with Canadian interests than having government absorb financial risk that should fall on industry.

 

Cheers

 

SJ

[Cardboard]

SD you make zero sense on this one.

 

There is no problem with the industry, pipeline companies or railroads. These is no funding issue and no need for the Alberta government to get involved.

 

The industry players are simply asking for the authorization to lay a pipeline and it has to go through another province. Others are asking for authorization to build LNG plants and a feeder pipeline on the West Coast.

 

And Newfoundland is sitting on the Ocean unless you missed it and they don't need to ask permission to another province.

 

Cardboard

[SharperDingaan]

Were there no problem, the Alberta differentials would not have risen to what they were;

the problem is just 'lack of common sense' - not money.

 

Example: In the IT world the days activities are backed up every night, and a warm start disaster recovery room maintained at a geographically remote site. It's an entirely redundent continuous expense, treated as an insurance premium, and the CIO would be terminated if he/she didn't maintain it. But if IT goes down, it can be recovered in hours.

 

In Alberta we use pipelines to transport, and rail cars as the equivalent of warm site backup.

Except there aren't enough rail cars to take over when the pipeline is constrained - 'cause rail coy's aren't building them in the absence of contracts with terms long enough to finance the cost of the build. So when the pipeline is down/constrained/restricted, we scramble for short-term solutions - and wonder why we end up f'd. Apparently it is too hard for industry/government to collectively lease enough rail cars on a long-term basis, so as to ensure that they are always available? It's cheap insurance, no different to maintaining a warm start disaster recovery room. Canadian industry cost recovery models are widely available (Facility Association auto-insurance).

 

We fully agree that pipelines are the way to go, and that it is in the national interest to allow them to transport o/g across the provinces. Transportation of o/g across provincial boundaries is no different to electricity, hazardous waste, or even produce (wine, beer, weed, cheese, etc.). We simply recognize that it is often easier (& with fewer 'barriers') to move goods between provinces via the northern US rail links -  and that for most industries, THAT is the natural 'disaster recovery' plan.

 

We mentioned Newfoundland BECAUSE it is on the ocean.

If you think Canadian o/g services is a great place to invest, there are other viable and functioning places in Canada where an investor does not have to put up with the differential. More importantly, it is just a straight forward shipping route to replace declining North Sea production going to customers in the Atlantic basin.

 

SD

 

 

 

 

 

 

[Cardboard]

The real issue here is not a short term pop in the differential because a key pipeline had to go down. The real problem is a continual differential that costs each Canadian (not just Albertans), $500/year in lost taxes, royalties, etc. and an industry at a significant disadvantage: capital, lost cash flow because of it.

 

Unlike an IT backup, oil does not disappear and storage is already in place in the chain to ensure continued supply. Previously there was also a "backup" with more pipeline supply than production and currently, there is excess rail supply to ship. However, it does not go into full run mode at the flip of a switch.

 

However, to bitch about the Alberta government because they don't have emergency railcars is silly. What about engines, crews and tracks too since they are needed to get the job done?

 

Once again, the industry saw increased demand, did what they could to ship with existing pipelines, developed on their own a more expensive alternative shipping method: rail, because they have asked permission for years without success to build new pipelines. I actually believe that they have done a lot more than elsewhere in the world. Was there a backup pipeline in Scotland when they had to shut it down? They are also on the Ocean, where was the backup plan?

 

You are free to complain about the Alberta government not retaining revenues from O&G for future needs but, some kind of nationalisation of how to ship oil makes no sense.

 

And regarding some competing opportunity in NewFoundland what the heck are you talking about? Most companies have largely abandoned offshore production because of high cost, large capital commitment and years before a return.

 

Cardboard

[RichardGibbons]

This is an issue that I actually changed my mind on--two years ago, I was pro-pipeline, now I'm not.

 

The real issue is the negative externalities.  I can totally see why many Albertans would support these pipelines--they bear few of the negative externalities of pipelines and receive the vast majority of the benefits.

 

In contrast, British Columbians get a huge number of negative externalities, and a tiny portion of the benefits.  Why the heck would anyone in BC want to sign up for that deal?

 

The simple solution is to have the pipeline owners pay for the negative externalities.  Estimates are that the Valdez would've cost about $13B to clean up today.  So have Kinder put $13B into escrow to deal with spills (and they can get the money and the interest returned after the pipeline is decommissioned.)

 

Until businesses start paying the cost of negative externalities, they'll deal with this environmental fight on every project that has huge negative externalities.  That said, I can understand why businesses are displeased that they now have to pay a major cost of their project that they historically dumped on the government.

 

[StubbleJumper]

This is an issue that I actually changed my mind on--two years ago, I was pro-pipeline, now I'm not.

 

The real issue is the negative externalities.  I can totally see why many Albertans would support these pipelines--they bear few of the negative externalities of pipelines and receive the vast majority of the benefits.

 

In contrast, British Columbians get a huge number of negative externalities, and a tiny portion of the benefits.  Why the heck would anyone in BC want to sign up for that deal?

 

The simple solution is to have the pipeline owners pay for the negative externalities.  Estimates are that the Valdez would've cost about $13B to clean up today.  So have Kinder put $13B into escrow to deal with spills (and they can get the money and the interest returned after the pipeline is decommissioned.)

 

Until businesses start paying the cost of negative externalities, they'll deal with this environmental fight on every project that has huge negative externalities.  That said, I can understand why businesses are displeased that they now have to pay a major cost of their project that they historically dumped on the government.

 

 

As I understand it, the federal government has guaranteed any spill coverage.  So, now what's the BC government's excuse?

 

 

SJ

[SharperDingaan]

All we have suggested is that Alberta would materially help itself if it had a rail-car fleet on long term lease.

No engines, drivers, track, nationalisation, etc. - just a fleet of rail-cars to continuously keep the differentials as low as possible.

The industry simply fills 'em up as it needs them, at whatever the cost at the time is.

If it's not profitable to ship, there's no fill.

 

Agreed the industry is incredibly innovative, but it's also incredibly 'tone deaf'.

For the most part folks are open to alternative solutions (fed involvement), but flatly just don't trust the industry - and will not give it the time of day. It's distrust that's well supported, and 'Lotus Landers' are just as adamant as Albertans are. It also cannot continue.

 

Newfoundland vs Alberta? Per Newfoundland, an investor lets the big boys drill - and only gets involved once the o/g is well on its way to being connected up with on-shore facilities; a back-end focus on who benefits when the o/g starts to flow, & investing accordingly. In Alberta it's front-end focused, as everybody can both drill fairly cheaply & tie-up to a collector facility a lot more easily. It's just a different approach.

 

Ultimately the pipelines will go through, but once the dust settles - it is not going to be business as usual.

Not a bad thing.

 

SD

 

[Cardboard]

What about positive externalities such as $ billions sent East in the form of equalization each year? And it is not just Alberta that ships oil out West but, B.C., Saskatchewan and Manitoba too. More shipping options help them all and the country.

 

Lots more money than a Valdez potential here at play. And in case you did not know, double-hull ships are now the norm since the Valdez, there is insurance, etc. Why are tankers from foreign countries even allowed on the St Lawrence River with thinking like that? And what is your excuse for not shipping your own B.C. made natural gas via LNG?

 

Some Albertans would likely be glad to deal with fewer shipping options and to keep all the money home. I am certain it would be net positive for them. What a country!

 

Cardboard

[Spekulatius]

All we have suggested is that Alberta would materially help itself if it had a rail-car fleet on long term lease.

No engines, drivers, track, nationalisation, etc. - just a fleet of rail-cars to continuously keep the differentials as low as possible.

The industry simply fills 'em up as it needs them, at whatever the cost at the time is.

If it's not profitable to ship, there's no fill.

 

Agreed the industry is incredibly innovative, but it's also incredibly 'tone deaf'.

For the most part folks are open to alternative solutions (fed involvement), but flatly just don't trust the industry - and will not give it the time of day. It's distrust that's well supported, and 'Lotus Landers' are just as adamant as Albertans are. It also cannot continue.

 

Newfoundland vs Alberta? Per Newfoundland, an investor lets the big boys drill - and only gets involved once the o/g is well on its way to being connected up with on-shore facilities; a back-end focus on who benefits when the o/g starts to flow, & investing accordingly. In Alberta it's front-end focused, as everybody can both drill fairly cheaply & tie-up to a collector facility a lot more easily. It's just a different approach.

 

Ultimately the pipelines will go through, but once the dust settles - it is not going to be business as usual.

Not a bad thing.

 

SD

 

i have not done the math, but I am guessing thwt there is not enough rail capacity to move all the oil. besides, it is some what costly too to move the oil on rail, probably about $5-10/brl.

I am wondering, could they build a pipeline to the east, I stead of he west. Sure the distance would be longer and the cost higher, but if that the only way it can be einem why not do it? Or would there be equal resistance  to build a pipeline to the east?

 

I think Richard is onto something when he states that BC has very little incentive to have a pipeline through their territory. If the E&P industry in Alberta has economic issues to move crude, its their problem, not BC’s. Maybe the solution is to give BC more economic incentive to let the pipeline through their territory?

[rb]

i have not done the math, but I am guessing thwt there is not enough rail capacity to move all the oil. besides, it is some what costly too to move the oil on rail, probably about $5-10/brl.

I am wondering, could they build a pipeline to the east, I stead of he west. Sure the distance would be longer and the cost higher, but if that the only way it can be einem why not do it? Or would there be equal resistance  to build a pipeline to the east?

 

I think Richard is onto something when he states that BC has very little incentive to have a pipeline through their territory. If the E&P industry in Alberta has economic issues to move crude, its their problem, not BC’s. Maybe the solution is to give BC more economic incentive to let the pipeline through their territory?

They've tried a pipeline to the East (see Energy East). But the pipeline company pissed off the people in the center (Quebec in particular) so that didn't happen.

[Cardboard]

"The pipeline company pissed off the people..."

 

Wow! It is more that a mayor in Montreal opposed it in every way possible because he is anti-oil. Yet this idiot who has not been re-elected by the way (although the new mayor is likely no smarter) allows oil to flow by tanker in the St Lawrence. He even dumped a massive amount of sewage down the River because the town infrastructure could not deal with it for a while.

 

IMO, when Energy East got blocked, Alberta and all the Western provinces for that matter should have done everything in their power to stop equalization payments. They should still and show all the arrogant pricks how things work.

 

Cardboard

[JRM]

Are we talking about oil or natural gas here?  They are not the same thing.

[Cardboard]

Both. These are called projects for the National interest. Just like Americans did not start going around and asking everyone's permission to build Los Alamos and huge plants in Tennessee and elsewhere.

 

Let's look at B.C., what do they produce? Natural gas, very light oil and condensates. Where does that go? Mostly to Alberta since that is where natural gas and oil pipeline collectors are.

 

Why does B.C. still produce so much natural gas in a very depressed environment? Because their very light oil and condensates which comes from these same wells is selling for often more than light oil in Alberta. Why? Because bitumen producers need it to mix it with their product to allow shipment into pipelines and into most rail cars.

 

Obviously the B.C. producers would like feeder pipelines to LNG plants on the B.C. coast but, for now that is just a dream with all the obstructionists. So their business right now, royalties collected by B.C. are mostly due to Alberta.

 

Start to see the level of hypocrisy?

 

Cardboard

 

 

[rukawa]

This is one of those threads that the politics sections was meant for. Why was it posted here again?

[rb]

"The pipeline company pissed off the people..."

 

Wow! It is more that a mayor in Montreal opposed it in every way possible because he is anti-oil. Yet this idiot who has not been re-elected by the way (although the new mayor is likely no smarter) allows oil to flow by tanker in the St Lawrence. He even dumped a massive amount of sewage down the River because the town infrastructure could not deal with it for a while.

 

IMO, when Energy East got blocked, Alberta and all the Western provinces for that matter should have done everything in their power to stop equalization payments. They should still and show all the arrogant pricks how things work.

 

Cardboard

But, but, but, but. But the mayor was an idiot, but the mayor didn't win re-election, but Montreal released sewage in the Saint Lawrence, but, but, but...

 

The pipeline company flat out refused to engage in discussion or consultation with any local municipalities. When you're gonna run a pipeline through water sources and refuse to engage with stakeholders that's stupid. When one of those stakeholders is the 2nd largest city in the country in a province with a lot of political power and you tell them to shove it? Well that becomes massively stupid and gross negligence.

 

My best friend's dad is a very senior executive who's very involved in all these pipeline projects. I was having some scotch with him one night, this must have been in 2011 or 2012, about the time when the first troubles with Keystone XL were popping up in that liberal bastion called Nebraska. I told him that I was seriously concerned about the local opposition because of the route it took through Ogallala. His answer was not to be worried because the locals don't have a choice. Boy was he wrong! Then years later we have Energy East by the same company and they use the same playbook and they make the same mistakes. They've learned nothing!

[RichardGibbons]

As I understand it, the federal government has guaranteed any spill coverage.  So, now what's the BC government's excuse?

 

I didn't realize this had happened.  Is this what you were talking about?  I'm guessing not, because it isn't what you described.

 

If you have a link to where they signed such a contract, then that certainly changes my view.  (I mean, I still don't think that the government should be subsidizing businesses, but taking care of the monetary environmental costs is a big deal.)

[RichardGibbons]

This is one of those threads that the politics sections was meant for. Why was it posted here again?

 

My best guess is that there is no audience for Cardboard in the politics section, so he needs to post here.

[rukawa]

This is one of those threads that the politics sections was meant for. Why was it posted here again?

 

My best guess is that there is no audience for Cardboard in the politics section, so he needs to post here.

 

Your right of course. The solution is to get an account on reddit and post there. Or better still run for office and actually try to change things.

 

I do the same thing in this forum but really its really just anger and frustration with stuff you can't change directed at the only people who will listen. The politics section was a good middle ground for that.

[petec]

This is one of those threads that the politics sections was meant for. Why was it posted here again?

 

Actually understanding the problems and possibilities here is critical for anyone considering investing in Canadian O&G producers. I hate the politics threads on here but I'm glad to have read this. 

[StubbleJumper]

As I understand it, the federal government has guaranteed any spill coverage.  So, now what's the BC government's excuse?

 

I didn't realize this had happened.  Is this what you were talking about?  I'm guessing not, because it isn't what you described.

 

If you have a link to where they signed such a contract, then that certainly changes my view.  (I mean, I still don't think that the government should be subsidizing businesses, but taking care of the monetary environmental costs is a big deal.)

 

 

Nope, it's federal legislation.  Here's the facts, taken right from the FAQ on Natural Resources Canada's website at http://www.nrcan.gc.ca/energy/infrastructure/5893#h-3-7 :

 

3.7 Who is liable for cleaning up a pipeline spill?

 

If the operator is at fault, the pipeline company is completely liable for all costs to clean up a pipeline spill. In Canada, there is no limit on the amount a company may be required to pay to clean up a spill. In addition to being financially responsible for clean up, the company may also be fined or be subjected to other enforcement actions such as Board Orders and Directives or prosecution.

 

If an incident occurs, the NEB holds the company responsible and accountable for clean-up and site remediation.  The Pipeline Safety Act sets out absolute liability of $1 billion for companies operating major oil pipelines (classes and limits for other pipelines will be established in regulations).  This means that companies will be automatically responsible for up to $1 billion in damages regardless of whom or what caused the incident.  It is important to note that where the pipeline company is at fault or negligent, liability will remain unlimited.  This extends to damages to the environment beyond the costs of clean-up and other losses. All companies operating a pipeline will be required to hold a minimum level of financial resources to ensure they can respond quickly in the event of an incident. If the operator is unwilling or unable to shoulder its responsibilities, the Government of Canada will provide the NEB with the resources to take control of spill response, cleanup and remediation, and the NEB will be authorized to recover any costs incurred from industry.