So you’re the Canadian oil industry and you do what you think is a great thing by developing a mother lode of heavy crude beneath the forests and muskeg of northern Alberta. The plan is to send it clear to refineries on the U.S. Gulf Coast via a pipeline called Keystone XL. Just a few years back, America desperately wanted that oil. Then one day the politics get sticky. In Nebraska, farmers don’t want the pipeline running through their fields or over their water source. U.S. environmentalists invoke global warming in protesting the project. President Barack Obama keeps siding with them, delaying and delaying approval. From the Canadian perspective, Keystone has become a tractor mired in an interminably muddy field.
In this period of national gloom comes an idea — a crazy-sounding notion, or maybe, actually, an epiphany. How about an all-Canadian route to liberate that oil sands crude from Alberta’s isolation and America’s fickleness? Canada’s own environmental and aboriginal politics are holding up a shorter and cheaper pipeline to the Pacific that would supply a shipping portal to oil-thirsty Asia. Instead, go east, all the way to the Atlantic. Thus was born Energy East, an improbable pipeline that its backers say has a high probability of being built. It will cost C$12 billion ($10.7 billion) and could be up and running by 2018. Its 4,600-kilometer (2,858-mile) path, taking advantage of a vast length of existing and underused natural gas pipeline, would wend through six provinces and four time zones. It would be Keystone on steroids, more than twice as long and carrying a third more crude.
Its end point, a refinery in Saint John, New Brunswick, operated by a reclusive Canadian billionaire family, would give Canada’s oil-sands crude supertanker access to the same Louisiana and Texas refineries Keystone was meant to supply. As well, Vladimir Putin’s provocations in Ukraine are spurring interest in that oil from Europe and, strange as it seems, Saint John provides among the fastest shipping times to India of any oil port in North America. Indian companies, having already sampled this crude, are interested in more. That means oil-sands production for the first time would trade in more than dribs and drabs on the international markets. With the U.S. virtually its only buyer, the captive Canadians are subject to price discounts of as much as $43 a barrel that cost Canada $20 billion a year. And if you’re a fed-up Canadian, like Prime Minister Stephen Harper, there’s a bonus: Obama can’t do a single thing about it.
“The best way to get Keystone XL built is to make it irrelevant,” said Frank McKenna, who served three terms as premier of New Brunswick and was ambassador to the U.S. before becoming a banker. So confident is TransCanada Corp., the chief backer of both Keystone and Energy East, of success that Alex Pourbaix, the executive in charge, spoke of the cross-Canada line as virtually a done deal. “With one project,” Energy East will give Alberta’s oil sands not only an outlet to “eastern Canadian markets but to global markets,” said Pourbaix. “And we’ve done so at scale, with a 1.1 million barrel per day pipeline, which will go a long way to removing the specter of those big differentials for many years to come.” The project still faces political hurdles. U.S. and international greens who hate Keystone may not like this any better. In Quebec, where most new construction will occur, a homegrown environmental movement is already asking tough questions.
Still, if this end run around the Keystone holdup comes to fruition, it would give a lift to Canadian oil and government interests who feel they’re being played by Obama as he sweeps aside a long understood “special relationship” between the world’s two biggest trading partners to score political points with environmental supporters at home.