Will It Get Built?
Given the continued growing opposition, Enbridge’s project is quickly turning into another Keystone XL debacle. That project was subsequently killed by the Obama Administration as various environmental concerns took hold. A provision in the payroll-tax bill ultimately forced the president to make an early verdict on the project — without dealing with those environmental issues.
The Northern Gateway could see a similar fate. Almost two years ago, Ottawa officials issued safety concerns about Northern Gateway project with regards to the fact that the company had an “insufficient” oil spill response plan in sensitive environmental areas. The recent spills aren’t helping the public forget those concerns.
Additionally, the political landscape in Canada is looking similar to that of the U.S. with regards to the Keystone. Current Liberal Premier Christy Clark hasn’t publicly weighed in about the pipeline, but her support is dwindling because of it. A new political poll by IPSOS reports that Clark’s support is falling rapidly, and she’s now behind the anti-pipeline NDP party in the province. Clark has been rumored to be in talks with Enbridge and Alberta about getting a hefty payout for British Columbia for giving the pipeline the go-ahead. However, political analysts estimate that the price might be too high for such a deal.
Yet, Canada desperately needs the pipeline. Prices for bitumen crude from Alberta’s vast oil sands continue to be under pressure. A combination of surging production and tight export pipeline capacity has kept a lid on prices. According to a University of Calgary study, accessing emerging markets in Asia would help Canadian E&P companies realize a $13.60-per-barrel price gain by 2030.
So will the project get built? Realistically, it’s too early to tell. Public outrage is growing despite Enbridge’s and the Harper Administrations best efforts to move it forward. Odds are — just like the Keystone XL extension — the Northern Gateway approval will come down to some political pandering or maneuvering. Investors shouldn’t rest their entire hopes on the project.
While the pipeline ultimately would be a cash cow for Enbridge, the company’s long-term success doesn’t hinge on the pipeline being built. The Seaway reversal along with several other key pipelines already in place will continue to drive cash flows for years to come.
However, oil sands investors should pay attention to the fight. The Northern Gateway could ultimately be the lynch pin in the bitumen sector.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.