Editorial: Keystone kibosh strains Canada-US ties

Resource developers in Canada were dealt a heavy blow in mid-November, with the Obama Administration’s State Department in the U.S. failing to approve TransCanada’s relatively benign Keystone XL oil pipeline mega-project, which would have connected growing oilsands mining operations in northern Alberta to excess refining capacity in Houston, Tex.

Citing environmental concerns, the State Department has delayed any approval until 2013, or after the November 2012 U.S. presidential election, thereby extending the usual 18-month approval process to 54 months and probably more.

Ongoing worries among landowners of Nebraska about protecting vital aquifers in the state could have been addressed easily with an approval that was conditional on rerouting the pipeline around the sensitive Sand Hills area.

However, anyone thinking U.S. environmental extremists will be satisfied with a modified pipeline route in Nebraska is naive – the red-greens in the U.S. and Canada are out to kill this pipeline project entirely and shut down as much Canadian oilsands capacity as possible.

The $7-billion, 2,700-km KXL pipeline would have created 20,000 desperately needed, high-paying, private-sector jobs right away in America’s heartland. And, as many have pointed out, it would have simultaneously secured a reliable, friendly customer for Canada’s oilsands production and, to the benefit of the U.S., been another big step in ensuring energy security for the badly listing superpower.

In Canada, the federal and Alberta governments were caught off guard by Obama’s hyper-political kicking of the KXL can down the road, having reckoned that their own quiet diplomacy and the political pull of the pro-pipeline private-sector unions in the U.S. would win the day.

In past months, Prime Minister Stephen Harper went so far as to call the pipeline’s approval in the U.S. a “no-brainer.” Indeed, in October, the president’s own White House Jobs Council came out in support of KXL.

Worse than the actual project delay is the realization by some slow learners in Canada that the White House has truly been occupied by a radical administration, and we can no longer count on rational decision making to come from this corner of the U.S. political space until at least January 2013.

The Obama Administration’s snub of Canada also undermines the arguments of realpolitik “blood-for-oil” armchair generals in the Great White North who argued that militarily supporting U.S.-led invasions of Afghanistan and Libya would pay off in trade relations with the U.S. and allies down the road.

No one really believed it when Canadian proponents of KXL suggested to Americans over the past year that Asian and especially Chinese customers could pick up the demand slack if KXL was not approved, but that avenue has obviously gotten much more attractive and needs to be pursued with sincerity by Canadian industry and policy-makers.

The most-advanced project that would allow Canadian oil producers to tap into Asian markets remains Enbridge’s proposed Northern Gateway pipeline from the oilsands across northern B.C. to a seaport at Kitimat. The true strength of environmental opposition to this pipeline and the complex rivalry between TransCanada and Enbridge are the biggest unknowns here.

The overdependence of Canadian oil and gas operations on U.S. customers has never been more glaringly obvious, and our cousins in the oil and gas industry can look for inspiration to Canada’s mining industry, which has a much more diverse, global customer base.

According to the Mining Association of Canada, there is the potential for almost $140 billion of capital investment to be made in Canada’s mining industry – including oilsands – over the next five years, with a $67.7-billion investment in 12 Alberta mining projects proposed for development by 2016.

It’s time to take much more sober look at the potential customers for all this investment.

• In some positive news for Canada, American aluminum king Alcoa has greenlighted the next phase of a five-year, US$2.1-billion investment at its Baie-Comeau, Deschambault and Bécancour smelters in Quebec that will cut costs and boost production capacity by 120,000 tonnes aluminum per year.

With support from the Quebec government, 6,800 job-years will be sustained during the construction phase of the Baie-Comeau modernization, generating $500 million in economic spin-offs.