A big step toward public confidence in federally regulated pipelines: Canada's proposed financial requirements unveiled

Vincent Light and Allison Sears - 

With the publication of the Pipeline Financial Requirements Regulations in Part I of the Canada Gazette on September 29, 2016, the federal government provided pipeline companies a first glimpse at the absolute liability (i.e. liability without proof of fault or negligence) regulatory regime first set out in the Pipeline Safety Act, SC 2015, c. 21 (PSA), which amended the National Energy Board Act, RSC 1985, c. N-7 (NEBA).

The PSA, which came into force on June 19, 2016, provided the National Energy Board (NEB) with jurisdiction over pipelines post-abandonment, and provided the NEB with powers to assume control of pipelines in the event of a release. The PSA also established a limit of liability without proof of fault or negligence of $1 billion for pipelines carrying at least 250,000 barrels of oil per day. Determination of absolute liability limits for all other pipelines was, however, left to be prescribed by regulation. 

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Over the First Hurdle and into the Sharks: The NEB Recommends Approval of the Trans Mountain Pipeline Expansion Project

Allison Sears - 

1.The NEB’s Findings

After reviewing tens of thousands of pages of evidence during a hearing process that had 1650 registered participants (400 of which had full intervenor status) and lasted 686 days (including two lengthy pauses in the legislatively mandated review timeframe),[1] the NEB has handed Kinder Morgan its first victory on the long road toward the twinning of its existing Trans Mountain pipeline system between Edmonton, AB and Burnaby, BC (the Project). In OH-001-2014,[2] the NEB recommended that the Cabinet approve the Project, which will nearly triple the system’s capacity to ship oil from 300,000 bpd to 890,000 bpd, as being in the national public interest subject to 157 conditions. In this regard, the Board placed “significant weight” on the economic benefits of the Project. Particularly, the considerable benefits to national and regional economies associated with providing producers with increased flexibility and optionality in getting their product to market, as well as with the jobs created across Canada. The Board also noted the considerable benefits to regional and local economies associated with significant spending on pipeline materials.

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Energy East: Quebec's Gordian knot

 Erik Richer La Flèche - 

Energy East, when all is said and done, will serve as a fascinating case study for many decades to come. In the meantime, the project once publicly dubbed “pharaonic and utopic” by the CEO of a major energy corporation will continue to polarize Canadians. This division is nowhere more profound than in Quebec.

Quebec opposition to Energy East comes from every quarter and is concentrated along three axes:

  1. Canada and Quebec must fight climate change and prioritize de-carbonization. The pipeline will increase western Canadian oil production and related greenhouse gas emissions, thus making it more difficult for Canada to transition away from oil and meet its environmental objectives and international obligations.
  2. Pipeline accidents occur and big pipelines have big accidents. Energy East is projected to have a daily capacity of 1.1 million barrels, making it one of the largest pipelines in North America. Damage from spills will be amplified because Energy East is expected to cross more than 850 rivers and other bodies of water. An accident could therefore have serious consequences, including adversely affecting potable water sources.
  3. Quebec does not need the oil from Energy East. It is an export project that will produce little lasting economic benefit for Quebec and the 65 municipalities along the project’s path. 
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Pipe Dreams Deferred: A look back on how major Canadian pipeline projects fared in 2015 and outlook for the future

Allison Sears - 

2015 was not been a banner year for major inter-provincial or international pipeline projects in Canada. Apart from Enbridge finally being granted leave to open its Line 9 Reversal Project, 2015 brought little progress to report on the market access front as most of the major projects were mired in various procedural delays. Despite plummeting oil and gas prices, no proponents cancelled their major oil pipeline projects, and access to tidewater remains crucial to the viability of Canada’s energy sector. In fact, with President Obama’s symbolic rejection of Keystone XL (an indiscreet indictment of the carbon footprint of Canada’s oil sands) and the ever-increasing reliance by the US on its domestic oil and gas, the issue of access to markets beyond the US is top of mind for oil and gas producers. Shell Canada, for example, cited lack of pipeline capacity as one of the reasons for its cancellation of the 80,000 bpd Carmon Creek oil sands project, which was in mid-construction and for which Shell took a $2-billion impairment charge.

Significantly, 2015 marks the end of the Harper era, which made market access a priority, but failed to deliver in a meaningful way. Arguably, Harper’s streamlining of the environmental assessment process through amendments to the Canadian Environmental Assessment Act and the National Energy Board Act, among others, only fuelled anti-pipeline fervour and increased provincial intervention. The election of the Liberal majority government will have implications for the development and permitting of federally-regulated pipelines. Prime Minister Trudeau’s mandate letters to his Ministers of Environment and Climate Change, Natural Resources, and Fisheries, Oceans and the Canadian Coast Guard reveal that (i) a review of Canada’s environmental assessment process to regain public trust is to be undertaken immediately; (ii) the National Energy Board (NEB) is to be modernized to ensure its composition reflects regional views and has sufficient expertise in fields such as environmental science, community development, and Indigenous traditional knowledge; and (iii) a moratorium on crude oil tanker traffic on British Columbia’s North Coast is to be formalized.

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Hybrid Debt Structure for Public Issuers

Julie D’Avignon and Doug Richardson - 

A recent public issuance of hybrid debt provides an innovative opportunity for public entities seeking to raise funds.  TransCanada PipeLines Limited (TCPL) recently raised US$750,000,000 through a public issuance of hybrid debt notes by TransCanada Trust (the Trust).  The Trust is a Canadian resident trust, all of the units of which are owned by TCPL.  The issuance of the hybrid debt notes (the Notes) provided TCPL with a cost-effective means of raising capital, which qualified for Basket “C” equity treatment by Moody’s and intermediate equity credit with S&P.  It was anticipated that the Notes would be issued primarily to U.S. residents. 

The offering of the Notes closed on May 20, 2015.  The Trust in turn used the proceeds from the offering to acquire subordinated notes (the Sub Notes) from TCPL.  As a result, the money borrowed under the offering was available to TCPL.

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Reality Bites: Status of BC LNG

Jonathan Drance and Brandon Mewhort -

During 2014, many of the significant LNG projects proposed for the West Coast of British Columbia seemed to be making progress.

Required environmental and other regulatory approvals at the federal and provincial levels, including LNG export licenses, were granted in the ordinary course without the delays and absent the passionate opposition that proposed oil pipeline projects experienced.  Indeed, in November, provincial Environmental Assessment Certificates were issued for three LNG projects in northern BC: the Westcoast Connector Gas Transmission pipeline, the Pacific NorthWest LNG export facility in Port Edward and the Prince Rupert Gas Transmission pipeline.

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BC LNG pipeline projects: Status update on the environmental assessment process

Cameron Anderson and Jonathan Drance

In a previous post (see August 27, 2014: BC LNG: Environmental Assessment Process for Pipeline Projects), we discussed the Environmental Assessment (EA) process applicable to various pipelines designed to serve the proposed LNG Export Terminals in British Columbia. The following summary provides an update as to the EA status of these projects:

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Need and resistance: a review of the status of major Canadian pipeline projects in 2014

Allison Sears -

Pipeline capacity continues to lag North American production gains. Increased pipeline access to refineries in the U.S. and Eastern Canada and, particularly to the coasts and new international markets beyond, remains critical for the Canadian energy sector even with oil prices perilously low. Alberta’s Premier recently reported that lack of access to oil markets cost the federal and Alberta government about $6 billion last year alone. Access is needed to (i) reduce the impacts of the discount that Western Canada Select heavy crude sells for; and (ii) mitigate against the impacts of the increased reliance of U.S. markets on its own domestic production, particularly Marcellus and Utica shale gas and Bakken shale oil. We have seen this reality play out over the last number of years on TransCanada’s Canadian Mainline, where even the Ontario and Quebec markets are placing ever-increasing reliance on shorthaul capacity from the Dawn Hub in favour of historic reliance on longhaul capacity from the WCSB.

In this climate of much needed access, pipeline projects necessary to access  refineries and new markets are continuing to face fierce resistance. Opposition from First Nations and environmental groups continued throughout 2014; heading into 2015, the new source of resistance is political, and comes from our very own provinces and municipalities. While their jurisdictional and constitutional footing to make demands or impose certain conditions on particular pipeline projects is questionable, their influence is unmistakable and their concerns will have to be addressed. After all, public expressions of a lack of confidence in Canada’s federal energy regulator from provincial governments do little to instill confidence in Canadian energy sector investors. 

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BC Approves the Pacific Northwest LNG Export Terminal, Federal Approval Pending

On November 25, 2014, the British Columbia Environmental Assessment Office (the BC EAO) approved the Pacific Northwest LNG Export Terminal (the Terminal), one of the twelve major BC LNG projects announced to date. The proponent of the Terminal is Pacific Northwest LNG Ltd. (Pacific Northwest), which is owned primarily by Malaysia’s PETRONAS. However, other minority shareholders such as China Petroleum & Chemical Corp., Japex and Indian Oil Corporation are also backing the development of the Terminal. 

In approving the Terminal, the BC EAO also approved two pipelines: (i) the Prince Rupert Gas Transmission pipeline (the Prince Rupert Pipeline), which is being developed by TransCanada Corp.,  and (ii) the Westcoast Connector Gas Transmission pipeline, proposed by Spectra Energy Corp. The Prince Rupert Pipeline will transport gas produced by PETRONAS’ subsidiary, Progress Energy Canada Ltd., in northeast B.C. to the Terminal on Lelu Island.

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Surprise: Energy east requires a political solution

Erik Richer La Flèche -

On November 18, 2014 the environment minister of Québec wrote to TransCanada Pipeline listing seven conditions for approving the Energy East Pipeline to Cacouna, Québec.

On November 21, 2014 the Office of the Premier of Ontario, Kathlyn Wynne issued a press release confirming that Ontario and Quebec had agreed on joint principles for pipeline projects. Since then the Premier of New Brunswick has characterized the principles as “very, very reasonable” and “achievable”.  The Premier of Saskatchewan on the other hand has vented his frustration at “goal posts continuously changing.”  

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Energy east pipeline: Quebec has had enough and takes control of the process

Erik Richer La Flèche -

After months of very public wrangling culminating on November 8 with a full page ad taken by Quebec’s gas utility in the Globe and Mail opposing the Energy East Pipeline, followed a week later with the embarrassing leakage of TransCanada’s 2014 Quebec communication strategy, Quebec’s government has had enough and has taken control of the process in the province. The purpose is to dial down the rhetoric and provide a calmer and more structured environment within which to evaluate the pipeline.

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Keystone XL pipeline still a pipe dream

Erin Dand -

On Tuesday (November 18, 2014), the U.S. Senate defeated Bill S. 2280 (the Bill), a bill to approve the Keystone XL pipeline. Approval of the Keystone project was stopped by a single vote, as the Bill received only 59 of the 60 affirmative votes required to continue forward in the legislative process. Shortly after the vote, Senator Mitch McConnell, the Senator of Kentucky and the incoming U.S. Senate majority leader from the Republican Party spoke on the Senate floor and stated that he would reintroduce a bill in support of the Keystone XL pipeline once the new Senate convenes in the new year. In 2015, the Republican Party, which has traditionally been in support of Keystone, will control both the U.S. Senate and the U.S. House of Representatives for the first time in eight years. It is also important to note that even if both the U.S. House of Representatives and the U.S. Senate approve the Keystone XL pipeline, President Obama still has the power to veto approval of the project. However, the U.S. House of Representatives and the U.S. Senate together may override a presidential veto in certain circumstances.

Ninth time's the charm? Keystone XL Pipeline approved by the U.S. House of Representatives

Cameron Anderson and Erin Dand -

Bill H.R. 5682 (the Bill) to approve the Keystone XL Pipeline was passed in the U.S. House of Representatives today (November 14, 2014). The Bill was approved with 252 representatives voting in favour of approval and 161 representatives voting against it. Approval of the Bill marks the ninth time the U.S. House of Representatives has approved the Keystone XL project.

On Tuesday, November 18, 2014 the Bill will be considered by the U.S. Senate. Although the Republicans, who have traditionally been supporters of the Keystone XL project, regained the majority of the U.S. Senate in the recent midterm elections, the new Senators-elect will not be sworn in until the new year. Moreover, it is important to note that even if the Senate approves the Bill, President Obama has the presidential power to veto passage of the Bill. However, a presidential veto may be overridden by the U.S. Congress in certain circumstances.

To date, the Keystone XL pipeline has been delayed for roughly six years due to environmental reviews, legal challenges to the route of the pipeline and political opposition.

BC LNG: Environmental Assessment Process for pipeline projects

Cameron Anderson and Jonathan Drance -

In a previous post, we discussed the Environmental Assessment (EA) Process applicable to the proposed BC LNG Export Terminals. Here, we discuss the EA Process applicable to various Pipelines designed to serve the LNG Export Terminals.

Unlike the LNG Export Terminals, where EA jurisdiction has historically been shared between the Federal and Provincial governments, the Pipelines are generally governed only by the BC EA Process, as administered by the BC Environmental Assessment Office (BC EAO). This is largely a result of Federal Regulations (enacted October 24, 2013) which remove from the Federal EA Process any Pipelines which are effectively intra-provincial in nature – as all of the currently proposed LNG Pipelines are.

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Northern Gateway pipeline project approved

Alisha Bhanji -

On June 17,2014 the federal government approved the Enbridge Northern Gateway pipeline project. The decision follows the recommendation of the Joint Review Panel (JRP) on December 19, 2013 to approve the project, subject to satisfaction of 209 required conditions set out in the JRP report.

The federal government’s approval is subject to compliance with the 209 conditions identified in the JRP report. Some of the conditions include: employing rigorous pipeline inspection processes, developing a marine mammal protection plan, conducting pre-operation emergency response exercises, carrying liability coverage of $950 million and development of a research program on the behavior and cleanup of heavy oil.

Obama's Climate Change Policy Presented

P. Jason Kroft and J.B. Elliott -

During President Obama’s State of the Union address on January 28th, he made his intentions clear that he would use his authority to continue to push forward new standards and regulations that would curb the amount carbon pollution US power plants are allowed to dump into the air. Further still, Obama stated that the United States must “act with more urgency” citing continuing climate changes which have seen droughts and floods affect North American cities in recent years.  Canadians must watch these developments for potential implications for business.

In furtherance of these positions, Obama has directed the EPA to issue a draft of a regulation that would set new national standards for carbon pollution by June 1st of this year. It appears the brunt of these changes will target coal-fired power plants, likely forcing hundreds of plant closures throughout the country, and, as such, coal-heavy states have lobbied the EPA extensively with respect to the stringency of the standards to be set in the impending regulation.

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Enbridge Northern Gateway

Allison Sears -

The proposed Northern Gateway project consists of two pipelines that would run 1,178 kilometres from Bruderheim, Alberta to a marine terminal in Kitimat, British Columbia (the Project). One pipeline would take 525,000 bpd of Alberta oil west to the enticing Asian markets; the other, would bring 193,000 bpd of much-needed condensate back east to thin all of the bitumen causing concern for land-locked Albertans.

The Joint Review Panel (the Panel) was established by the Minister of the Environment as well as the National Energy Board (NEB) to review the Project pursuant to the Canadian Environmental Assessment Act, 2012 and the National Energy Board Act. Among other issues, the Panel was tasked with assessing and making recommendations to the Governor in Council in respect of the following:

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2014 Energy M&A Trends in Canada

Glenn Cameron, Susan Hutton, Keith Miller, Cameron Anderson and Brandon Mewhort -

Whether measured by volume or aggregate value, 2013 was a weaker year for energy-related M&A than 2012, continuing a four-year decline in activity in the sector. There was a noteworthy lack of public company M&A in 2013 and nothing to match the marquee deals of 2012: PETRONAS’ $6B acquisition of Progress Energy or CNOOC Limited’s $20B acquisition of Nexen. In spite of that, 2013 still saw a significant number of large and complex transactions, including Suncor’s sale of its conventional natural gas properties for $1B to Centrica and Qatar Petroleum, Progress/PETRONAS’ $1.5B acquisition of Talisman Energy’s Farrell Creek and Cyprus properties and Exxon Mobil/Imperial Oil’s $750M acquisition of part of ConocoPhillips’ non-producing Clyden oil sands acreage.

Reasons for the decline in M&A activity in 2013 included the following:

  • Asian investors paused to digest what they bought after five years of significant investment in the Canadian energy sector, particularly in the oil sands.
     
  • Changes to Industry Canada’s State Owned Entity (SOE) guidelines announced in December 2012 under the Investment Canada Act, coupled with the failure of two transactions to pass “national security” reviews, have chilled foreign investment by SOEs.
     
  • Increased uncertainty about whether regulatory approvals would be obtained for pipelines and other projects needed to expand the capacity to transport Canadian crude oil and natural gas to the U.S. and to provide access to offshore markets contributed to investors’ concerns about the future prospects for Canadian production.

In addition to the absence of major acquisitions, 2013 also saw a decline in financing activity by oil and gas issuers. While a select few were able to raise the equity they required, many others could not – at least until Q4 when a spike in oil and gas-related capital markets activity occurred. The numbers of oil and gas issuers on the TSX and TSXV, the number of financings by those issuers and the aggregate equity capital raised to the end of Q3 of this past year were all significantly lower than over the same period in 2012.

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Supreme Court rules on the taxation of assumed obligations in asset purchase transactions

Doug Richardson and Julie D’Avignon -

The Supreme Court of Canada recently released a decision which overturned previous court decisions and confirmed that the assumption of reforestation liabilities by a purchaser does not constitute additional sale proceeds to the vendor if the liabilities are embedded in the underlying timber rights. This decision is also of particular importance to other resource sectors, where purchasers typically assume reclamation and other obligations. 

Background

The case of Daishowa-Marubeni International Ltd. v. The Queen  involved a vendor (Daishowa) that sold a forestry division, which included timber rights that gave rise to certain reforestation obligations. The agreement set out a purchase price of $169,000,000 and the assumption by the purchaser of reforestation obligations of $11,000,000 (subject to adjustment based on a post-closing estimate). The lower courts had held that the purchaser’s assumption of the reforestation obligations constituted additional proceeds of disposition upon which the vendor was taxable, although the Tax Court had discounted that amount on account of the uncertain nature of the reforestation obligations.

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Proposed Keystone XL Pipeline bill receives approval from United States House of Representatives

Derek Schiissler -

On May 22, 2013, the United States House of Representatives (the “House”) approved a bill that would allow construction of the Keystone XL Pipeline. The House voted in favour of the proposed Northern Route Approval Act, which gives congress the power to approve the construction of the Keystone XL Pipeline without the requirement for a presidential permit. Currently, the pipeline approval process requires the State Department to assess and review pipeline projects and issue a permit. The House voted 241-175 in favour of the Act with nineteen democrats voting in favour of the legislation. The bill will now come before the Senate for consideration.

The Obama Administration is expected to make a decision in regards to the Keystone XL Pipeline later this year.

National Energy Board approves tolls on the Trans Mountain Pipeline expansion

On May 16, 2013, the National Energy Board (“NEB”) released a decision approving the commercial aspects of the proposed Trans Mountain pipeline expansion. The NEB was asked to consider the toll methodology, and terms and conditions that would apply to the expanded Trans Mountain pipeline (“Trans Mountain”) if the pipeline's owner, Kinder Morgan Canada, ultimately decides to undertake the proposed expansion.

According to the decision, the NEB found that the proposed allocation of capacity between firm service and uncommitted service, and the proposed allocation of uncommitted capacity between dock and land destinations, is appropriate. As a result, the NEB found that Trans Mountain would satisfy its common carrier obligations. Further, the NEB found that the open season and negotiation process conducted by Trans Mountain was fair and transparent and that, on balance, the toll methodology proposed by Trans Mountain will produce tolls that will be just, reasonable and not unjustly discriminatory, pursuant to Part IV of the National Energy Board Act (Canada).

How Alberta and the Keystone XL pipeline can learn from Quebec's failed Great Whale project

Erik Richer La Flèche -

Alberta, and by extension Canada, is learning a lesson Quebec learned the hard way 20 years ago.

U.S. opposition to the Keystone XL oil pipeline has been galvanized by less than favourable attention on Canada’s recent environmental record and the manner in which Alberta’s tar sands are exploited. The same is somewhat true in British Columbia and Quebec, where there is opposition to new pipeline routes from Alberta to the Pacific and the Atlantic, respectively.

If Albertan oil cannot be exported, then it will be stranded and its price heavily discounted. This will not just affect oil producers, but also Alberta’s finances and the Canadian economy as a whole.

It threatens to be Alberta’s Great Whale.

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National Energy Board Approves New Tolls for TransCanada Mainline

On March 27, 2013 the National Energy Board (the Board) provided their ruling on TransCanada’s application to revise the toll structure for TransCanada’s mainline pipeline. According to the Board’s decision, the new “multi-year fixed tolls are competitive and provide TransCanada with a reasonable opportunity to recover its mainline costs, given the increase in mainline throughput that is forecast”. In the short term, the Board’s decision has the effect of significantly decreasing the transportation toll from Empress, Alberta, to Dawn, Ontario, to $1.42 per gigajoule as opposed to $2.58 per gigajoule for 2013 had the Board not made changes to the tolling structure. The tolls are expected to remain in effect through 2017. In their decision, the Board noted that the Mainline faces challenges but “tolls cannot continue to increase each year in response to throughput decline”. The Board did approve some elements of TransCanada’s proposal giving TransCanada some flexibility in allocating costs on the Mainline and increasing the rate of return that it could earn should higher throughput on the Mainline be achieved.

Historically, the Mainline system once carried as much as 6 billion cubic feet of natural gas per day. However, increasing gas production from the Eastern United States, from supplies such as the Marcellus shale field in Pennsylvania, have resulted in decreasing throughput on the Mainline resulting in increasing tolls for shippers on the line. The decision comes more than 18 months after TransCanada first asked the Board to reconsider the tolling structure on the Mainline.

U.S. State Department - Supplemental Environmental Impact Statement (EIS) for the Keystone XL Pipeline

On March 1, 2013, the U.S. State Department released its draft Supplemental Environmental Impact Statement (“EIS”) for the Keystone XL pipeline project. The EIS is a draft technical review of the potential environmental impacts from the proposed Keystone XL pipeline. Among the reports major findings, the EIS reaffirmed that there would be no significant impacts to resources along the proposed project route. The EIS also noted that Keystone XL would result in no substantive change in global greenhouse gas emissions and that it is unlikely to have a substantial impact on the rate of development of the oil sands, or on the amount of heavy crude oil refined in the gulf coast area. Finally, the EIS noted that the denial of a presidential permit would likely result in actions by other firms in the U.S. and global petroleum markets, such as use of alternative modes of transport for Western Canadian and Bakken crude oil.

The EIS will now undergo a public comment period which will last for 45 days. Following the end of the public comment period, the U.S. State Department will prepare a final EIS. Following this, a determination will be made by the U.S. State Department on whether the proposed Keystone XL project serves the national interest. The national interest determination will involve consideration of many factors, including: energy security, environmental, foreign policy, economic and relevant federal regulations. Even with minimal delays it appears that this process will not be completed until at least the middle of this year.

Union Gas assessed with $30 million charge

Michael Nilevsky -

Spectra Energy, the parent company of Union Gas Limited, has been hit with a 4th quarter $30 Million charge related to a decision by Ontario’s energy regulator. The Ontario Energy Board (OEB) determined that the revenues realized by Union Gas from the optimization of upstream transportation contracts must be reclassified as gas supply costs. As a result, approximately 90% of the total reclassified revenues, equaling approximately $30 Million will be refunded to customers, while the remaining 10% shall accrue to Union Gas as an incentive to continue to undertake optimization activities.

In reaching its decision, the OEB explained that it did not agree with Union Gas’ arguments that the optimization activities were sustainable efficiency improvements found by Union Gas in 2011 and 2012. Instead, the OEB held that the optimization revenues were clearly related to reductions in upstream transportation costs that resulted in an overall reduction to Union Gas’ supply chain costs. As such, given that these cost reductions are subject to “pass through” treatment, the OEB held that they must accrue to customers.

A link to the full decision can be found here.

Reforms to Federal Environmental Assessment Process receive Royal Assent

Annie Pyke and Elyse Velagic -

On June 29, 2012, the federal government’s Jobs, Growth and Long-Term Prosperity Act received Royal Assent. This newly enacted legislation implements key components of the Economic Action Plan 2012 and also contains important features of the Ministry of Natural Resources Responsible Resource Development plan. The intended goals of Responsible Resource Development are to: 1) ensure timely and predicable project reviews; 2) eliminate duplication of project reviews; 3) strengthen environment protection, and 4) improve dialogue with Aboriginal peoples.

As discussed in our April 19, 2012 post, as part of the goal to ensure timely and predictable project reviews, there are now fixed timelines for the beginning-to-end review process, which range from 12 to 24 months depending on the type of review. The plan also provides for the replacement of federal assessments with provincial environmental assessments that meet the requirements of the Canadian Environmental Assessment Act, in order to avoid duplication of environmental reviews.

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TransCanada Toll Hearing Begins

On June 4, 2012, the National Energy Board began hearing an application from TransCanada Pipelines Ltd. for approval of a business and services restructuring plan and restructuring to Mainline final tolls for 2012 and 2013. The company believes the restructuring proposal is crucial to enhance the long-term economic viability of its Mainline, as well as gas production in the Western Canadian Sedimentary Basin as a whole.

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Federal Government announces reforms to the Federal Environmental Assessment Process

Patrick Duffy and Sean Gibson -

The federal government announced on April 17, 2012 its plan for “Responsible Resource Development” which contains a number of proposals to reform key aspects of the review process for federal environmental assessments.

Simplified and Set Timelines for Environmental Assessments

The government’s plan proposes to simplify the current structure of environmental assessments and replace it with two kinds of reviews: 1) a standard environmental assessment, or 2) a review panel. Though details on this proposal are currently lacking, it appears this reform is meant to allow appropriate projects to proceed in a more streamlined fashion through a standard environmental assessment.

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Federal Budget 2012: regulatory efficiency for the energy sector

Patrick Duffy and Daniel Suss -

Last Thursday, the federal government released Budget 2012. It contained a number of proposals to improve efficiency and predictability in the review and approval process for major resource development projects while shifting tax incentives and strengthening environmental protection and free trade.

One project, one review

The government plans to create a “one project, one review” policy in coordination with the provinces and territories for environmental assessments (EAs) and associated regulatory processes. Provincial EAs would substitute for federal EAs, and responsibility for review would be consolidated significantly from at present over 40 departments and agencies. Federal and provincial governments would also coordinate Aboriginal consultations and fully integrate them into project reviews.

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President Obama denies Keystone XL application

Gus Lu

On January 18, 2012, the U.S. State Department recommended to President Obama that the Presidential Permit for TransCanada Corp.’s Keystone XL pipeline be denied. President Obama concurred with this recommendation, which according to a State Department spokesperson was “predicated on the fact that the Department does not have sufficient time to obtain the information necessary to assess whether the project, in its current state, is in the national interest”.

The State Department’s reference to the time constraint refers to the Temporary Payroll Tax Cut Continuation Act of 2011 (“Act“), passed by Congress and signed by President Obama on December 23, 2011.  Subsection 501(a) of the Act provided that the President had 60 days from the enactment of the Act to issue a Presidential Permit for the Keystone XL pipeline. Under Subsection 501(b), the President did not have to issue the Presidential Permit if he determined that Keystone XL was not in the national interest. 

Had the Presidential Permit been granted under Subsection 501(a), Subsection 501(d) would have required the Permit to provide for a reconsideration of the route of Keystone XL within the State of Nebraska, and to provide a review period for the new route. Keystone XL’s route through Nebraska has been a controversial issue due to its location relative to the heavily-utilized Ogallala aquifer. 

On November 14, 2011, TransCanada entered an agreement with the State of Nebraska to amend Keystone XL’s route to bypass the Sandhills region that sits atop the Ogallala aquifer. That development followed the State Department’s ruling that required TransCanada to examine new routes, and President Obama’s announcement indicating that his decision would be delayed until after the 2012 Presidential elections.

Following President Obama's announcement, TransCanada stated that it intended to re-apply for a Presidential Permit and expected the new application to be processed in an expedited manner.

Enbridge's Northern Gateway gains Gitxsan First Nation's support despite Save the Fraser Declaration

Gus Lu -

On December 2, 2011, Enbridge Inc. entered into an equity participation agreement with the Gitxsan First Nation, pursuant to which Enbridge will assist the Gitxsan First Nation in purchasing a stake in the proposed $5.5 billion Northern Gateway pipeline which has the potential to result in $7 million in profits for the Gitxsan over the project’s lifetime.  Northern Gateway’s proposed route does not cross the Gitxsan First Nation’s territory, although the route passes several tributaries which feed into a lake used by the Gitxsan.

This announcement arrived shortly after 61 British Columbia First Nation groups signed the “Save the Fraser Gathering of Nations” declaration, a document which states that the federal process to approve Northern Gateway violates the signatories’ “laws, traditions, values and inherent rights as Indigenous People under international law.”

The federal Joint Review Panel, established by the National Energy Board and the Canadian Environmental Assessment Agency, will begin community hearings on Northern Gateway in Kitimat, B.C. on January 12, 2012.

Keystone XL rerouted to bypass Sandhills region

On Monday, TransCanada Corp. announced that it reached an agreement with the Nebraska state government to amend the route of the proposed Keystone XL pipeline to bypass the Sandhills region, an environmentally sensitive area that sits atop the heavily-utilized Ogallala Aquifer. As part of the agreement, the state will fund studies to evaluate alternative routes.

Today, the Nebraska state legislature will consider the proposed law that will direct the Nebraska Department of Environmental Quality to prepare a supplemental environmental impact statement for the Nebraska Governor.

This development follows last week’s U.S. State Department ruling that required TransCanada to examine new routes, as well as an earlier announcement by President Obama indicating that the decision whether to approve Keystone XL would be delayed until after the 2012 Presidential elections. A U.S. State Department spokesman indicated that any agreement between the state of Nebraska and TransCanada will not alter the review process undertaken by the federal agency.

NEB orders pipeline operators to reduce flow of oil & gas

Canada's National Energy Board ("NEB") has issued a series of pressure restrictions to five pipelines as part of a broader safety strategy.  Traditionally, the NEB has sparingly enacted measures to reduce the flow of oil and gas, but several major spills in the last year have prompted the preventative response.

Pipeline age has been a factor in the issuance of restrictions, indicating that pre-1970 flash-welded pipe is of greater concern.  Most of the restrictions have required a 20 percent reduction in throughput until operators satisfy certain conditions that include "an engineering assessment that indicates that the pipeline remains fit for its intended service."

Brenda Kenny, Chief Executive of the Canadian Energy Pipeline Association ("CEPA") says the scrutiny is welcomed and operators are supportive of strong regulation, but CEPA has not seen any evidence that such reductions are necessary to ensure a high level of safety.

Mackenzie Gas Project receives NEB and Cabinet approval

After conducting a five-year application process and having received approval from the Federal Cabinet, the National Energy Board granted a Certificate of Public Convenience and Necessity to the Mackenzie Gas Project.

The project includes the 1,196-kilometre Mackenzie Valley Pipeline, which would transport 1.2 billion cubic feet of natural gas per day from the Beaufort Sea to northern Alberta.  As well, the project will involve the development of three onshore natural gas fields and the construction of a 457-kilometre NGL pipeline linking Inuvik, NWT to Normal Wells, NWT and other related facilities.

Imperial Oil, the lead proponent of the project, now estimates Mackenzie's costs to be $16.6 billion.  The Imperial-led consortium, which includes Exxon Mobil Corp., ConocoPhillips, Royal Dutch Shell PLC, and the Aboriginal Pipeline Group, has until the end of 2013 to decide whether to proceed with the project.

SCC affirms Pipeline Arbitration Committee's discretion in awarding costs

In Smith v. Alliance Pipeline Ltd., the Supreme Court of Canada upheld a Pipeline Arbitration Committee (Committee)'s award of costs for the proceedings before it, as well as the costs incurred by a landowner in prior arbitration proceedings and a related Alberta Court of Queen's Bench action.

The case arose from a dispute regarding compensation to a landowner for reclamation work that he completed, but which a pipeline company was obligated to perform. The dispute, which continued for over ten years, resulted in two Pipeline Arbitration Committee proceedings and a discontinued Queen's Bench action that was commenced by the pipeline company.

The Committee determined that the costs from the other proceedings "all related to a single claim for compensation in respect of a single expropriation by a single expropriating party." The SCC held that this was a reasonable interpretation and exercise of Section 99(1) of the National Energy Board Act (NEBA), a provision that requires an expropriating company to pay all "legal, appraisal and other costs" reasonably incurred by a party in asserting their claim for compensation.

Writing for the unanimous court (with concurring reasons also written by Madam Justice Deschamps), Justice Fish mentioned that the Committee's decision was consistent with Section 75 of NEBA, which expresses the principle that parties should be made "economically whole" for all damages sustained by reason of expropriation.

Pipeline and railway firms plan to increase crude transport capacity to the West Coast

Despite a consistent rise in Canadian oil shipped overseas in the last few years, less than 2 per cent of all Canadian crude exports are delivered to destinations other than the United States.  A lack of sufficient infrastructure is to blame.  However, Asian markets may soon assume a greater share of Canadian production if various projects come online to raise transport capacity to the West Coast of Canada. 

In the last month, pipeline and railway players have made the following announcements:

  • Enbridge’s Northern Gateway pipeline received a $100 million injection from a corsortium that included China Petroleum & Chemical Corp., also known as Sinopec, to help the $5.5 billion pipeline get through the regulatory approval process. If approved, Northern Gateway will transport up to 525,000 barrels per day and may commence deliveries as early as 2016.
  • Kinder Morgan plans to construct an 80,000 barrel-per-day expansion to its TransMountain pipeline that runs from Edmonton, Alberta to Burnaby, B.C. Kinder Morgan intends to accept open season bids for shipping commitments later this year, and may complete its expansion project by 2014 to 2015.
  • Canadian National Railway Co. confirmed that it is in early discussions with Canadian oil producers and Chinese companies to ship oil via railway from Saskatchewan and Alberta to yet-to-be-determined West Coast tanker ports. 
  • There are also reports that Canadian Pacific Railway Ltd. is working on a similar proposal for a “pipeline on rail” to the West Coast.

NEB approves Mackenzie Valley pipeline

On December 16, 2010, the National Energy Board (NEB) approved the application for the construction and operation of the Mackenzie Gas Project. The Project includes the 1,196 kilometer Mackenzie Valley Pipeline, three onshore natural gas fields and a 457 kilometer pipeline to carry natural gas liquids from near the coast of the Beaufort Sea to northwestern Alberta and onwards to southern markets. The NEB attached 264 conditions to the Project’s approval in areas such as engineering, safety and environmental protection. The NEB will monitor the Project throughout its lifespan to ensure these conditions are being met.

The NEB began hearing evidence in January 2006 on five applications filed by a number of parties, including lead partner Imperial Oil. The Board held over 58 days of hearing sessions in 15 communities throughout the Northwest Territories and northern Alberta.

To move forward, the NEB’s decision must now be approved by the Federal Cabinet. If the Project is approved, construction is expected to begin in 2014 and the pipeline is scheduled to be in operation by the end of 2018. If the Project proceeds, it will be the largest pipeline system to be constructed and operated in Canada’s north.

A news release was provided by the NEB concurrently with the reasons for their decision.
 

Alberta ERCB approves Nipisi and Mitsue pipelines

On Tuesday, Pembina Pipeline Corporation announced that it has received approval from the Alberta Energy Resources Conservation Board to construct and operate two pipeline projects, which will link oilfields in Slave Lake to a processing and transportation hub near Edmonton.

The Nipisi Pipeline, which is expected to carry 100,000 barrels per day (bbls/d), is set to originate north of Slave Lake and run south of Judy Creek, where it will connect to an existing pipeline delivering product to Edmonton.  The second pipeline, the Mitsue Pipeline, is designed to deliver 20,000 bbls/d of diluent from Whitecourt, Alberta to producers north of Slave Lake.

Pembina has announced that two founding customers, Canadian Natural Resources Limited and Cenovus Energy Inc., have contracted for 80% of the capacity of the Nipisi Pipeline and 50% of the capacity of the Mitsue Pipeline.  Pembina Marketing Ltd. has contracted for the remainder.

Pembina has estimated that the projects will cost a combined total of $440 million.  It also predicted that the pipelines will generate $45 million per annum in net operating income.  Project construction will commence immediately, and the pipelines are expected to be fully operational by mid-2011. 

Deliveries start on TransCanada's Keystone pipeline

Mike Styczen

TransCanada announced on July 30 that it had completed line fill on the first phase of the Keystone Pipeline and that deliveries from Hardisty, Alberta to Wood River and Patoka, Illinois had commenced.

The construction of the first phase of Keystone, which will have a capacity of 435,000 barrels per day, involved the conversion of 864 kilometers of existing gas pipeline to oil service, the construction of 2177 kilometers of new 30” pipeline, and the construction of 39 new pump stations. 

Construction of the second phase of Keystone, a 480 kilometer expansion to Cushing, Oklahoma, will increase the capacity of the pipeline to 591,000 barrels per day and is expected to be in service in 2011. 

TransCanada has  already announced plans for the final phase of Keystone expansion (Keystone XL), which will take an additional 500,000 barrels per day to the U.S. Gulf Coast.  

Canada to develop CCS standards for underground storage

Lanette Wilkinson

On June 16, 2010, CSA Standards and the International Performance Assessment Centre for Geologic Storage of Carbon Dioxide (IPAC-CO2 Research Inc.) announced an agreement to develop Canada's first carbon capture and storage (CCS) standard for underground storage.

CCS is a process that involves the capture, transportation and injection of carbon dioxide emissions underground, which many believe is a promising technology to assist certain emissions-intensive industries to reduce CO2 emissions. Several large-scale projects involving CCS have been announced in recent years in Saskatchewan, Alberta and British Columbia.

The proposed standard focuses primarily on long-term underground storage of CO2. According to a representative of CSA Standards, the new standard will create guidelines for, and advance risk assessment expertise associated with, geological storage projects. As mentioned in our March post, risks associated with long-term storage include the reliability of injection and the effectiveness of ongoing monitoring and verification. In addition, the perpetual nature of storage also makes the siting of CCS important, including the specific geological characteristics of the proposed storage site and site-specific risks. The development of this standard represents an opportunity to promote careful site selection while also instilling public confidence in the reliability and safety of long-term storage and monitoring and verification. Ideally, the standard will contain important technical guidelines, while also remaining flexible enough to address site-specific characteristics, emerging technologies, and new information.

It is intended that the completed standard will be submitted to the Standards Council of Canada for recognition. If recognized, it could become the world's first formally recognized standard in underground storage.

National Energy Board decision introduces new cost of capital methodology

Kemm Yates

The National Energy Board (NEB) has charted a new course for cost of capital determination. In a decision released on March 19, 2009 regarding the 2007 and 2008 cost of capital of Trans Québec & Maritimes Pipeline Inc. (TQM), Decision RH-1-2008 (TQM Decision), the NEB departed from its long-standing, formulaic methodology and adopted a market-based approach for TQM, based on an After Tax Weighted Average Cost of Capital (ATWACC) methodology. Stikeman Elliott acted as counsel to TQM.

The TQM Decision has potentially significant ramifications for other pipelines regulated by the NEB and for the returns allowed to other regulated utilities in Canada.

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NGTL pipeline system moves to federal jurisdiction

C. Kemm Yates, Q.C. andLisa McDowell

The National Energy Board (the NEB) has granted TransCanada PipeLines Limited's (TransCanada) application to shift regulation of the NOVA Gas Transmission Ltd. system (the Alberta System) from the Alberta Utilities Commission to the NEB. The NEB's GH-5-2008 Decision (the Decision), issued on February 26, 2009, determined that the Alberta System is properly within federal jurisdiction and subject to NEB regulation.  Stikeman Elliott acted for TransCanada.

The Alberta System is an existing natural gas pipeline system consisting of over 23,500 km of pipeline, associated compression and other facilities, located entirely within Alberta. In 2007, it carried over 10 billion cubic feet of natural gas per day, accounting for approximately 66% of natural gas production from Western Canada, or about 16% of the total North American production. Natural gas flowing through the Alberta System moves through connecting pipelines to markets in Western and Central Canada, and the United States West, MidWest and NorthEast.

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Carbon capture and storage: A key carbon abatement option in Canada?

Ruth Elnekave

As countries worldwide search for ways to make deep cuts in carbon dioxide (CO2) and other greenhouse gas (GHG) emissions, carbon capture and storage (CCS) technology is being recognized by governments, research institutions and industry as a potentially key tool for such emissions reduction.

The world's leading body of experts on climate change, the Intergovernmental Panel on Climate Change,1 believes that CCS is among the most promising tools to control GHG emissions. In Canada, with the recent re-election of Prime Minister Stephen Harper, the development of CCS is expected to proceed as planned as a cornerstone of the government's green plan.

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Ontario Energy Board releases decision on natural gas storage allocation

Dan Murdoch

On April 29, 2008, the Ontario Energy Board (OEB) released its decisions on Natural Gas Storage Allocation Policies for Enbridge Gas Distribution Inc. and Union Gas Limited (EB-2007-0724 and 0725). An oral hearing had taken place December 17-20, 2007.

The hearing addressed certain issues arising from the OEB's 2006 Natural Gas Electricity Interface Review (NGEIR) decision, in which the OEB had ordered Union and Enbridge to submit new storage allocation policies on the basis that existing rules, in particular Union's policy of applying the aggregate excess method for semi-unbundled customers, were not consistently applied. The aggregate excess method permits customers with seasonal loads to balance constant supply, allowing them to inject storage all summer and then withdraw all winter.

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