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Amid oil price crisis, major energy producer says Canada’s largest pipeline system is ‘dysfunctional’

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Canadian Natural Resources is doubling down on its concerns about wasted space on Canada’s biggest oil pipeline, blaming a “dysfunctional” process as one reason for slashing its spending plans next year.

It follows complaints the company’s executive vice chairman Steve Laut made last month, saying current rules allow “certain players” to exploit the system by booking pipeline space they don’t need when capacity is tight. 

There are concerns these so-called air barrels mean less oil is reaching the market, resulting in lower prices for Canadian crude.

On Wednesday, Canadian Natural slashed its capital spending for 2019 by about $1 billion.

“Currently the lack of market access and a dysfunctional pipeline nomination process are creating industry challenges,” the Calgary-based company said in a release.

So-called “air barrels” are caused when oilpatch players or traders book more pipeline space than they physically need, resulting in leftover pipeline space. Alberta is desperate for any spare space right now.

Steve Laut, executive vice-chairman of Canadian Natural Resources Ltd., has called the pipeline nomination process ‘dysfunctional’ and said it’s contributing to low oil prices in Western Canada. (Jeff McIntosh/Canadian Press)

Because there is so much competition for pipeline space these days, pipelines can become overbooked, causing the pipeline company to then cut allocations across the board. Oil companies react by booking more space than they need, so that if there is an allocation cut they will still be able to ship all their oil.

Serious complaints

The Enbridge Mainline, running from Edmonton to Sarnia, Ont. and into the U.S. midwest, is the focus of concern that pipeline space is potentially being misused. Most pipelines allocate space based on long-term contracts, while the Enbridge Mainline divvies up space on a monthly basis. 

Analyst Samir Kayande, a director at RS Energy Group, said Laut’s recent complaints around a dysfunctional pipeline nomination process are serious. 

And he has his own questions about how the system is working.

Looking at National Energy Board data, he said Mainline pipeline flows in the third quarter of 2018 appear lower than in the second quarter “by just a little bit” — around 100,000 barrels per day.

A spokesperson for the Alberta led by Premier Rachel Notley said it’s ‘unacceptable if the process for booking pipeline space is resulting in producers having their oil turned back unnecessarily.’ (Jason Franson/Canadian Press)

“But of course we’re in a very tight market and so small differences in flows actually make a big difference in price,” Kayande said.

“The logical question we should be asking ourselves is: why are Enbridge pipeline flows down when there’s all this oil production everywhere and storage is bulging at the seams?”

Government priority

Alberta Premier Rachel Notley has said her government is examining the issue, something the provincial government confirmed Wednesday.

“We think it’s unacceptable if the process for booking pipeline space is resulting in producers having their oil turned back unnecessarily,” said spokesperson Mike McKinnon.

“We’re in close discussions with companies who are working to develop support for an industry-led solution to this issue and we’ll consider if any further actions by government are needed.”

In an emailed response to questions by CBC News, Enbridge said it is working with customers and the provincial government to maximize takeaway capacity out of the province, but said its Mainline system “is essentially full.” 

“There is no material capacity to be gained by changing the apportionment and supply verification procedures,” spokeswoman Tracie Kenyon said.

She said Enbridge’s nomination process is the result of customer consultation and regulatory proceedings, adding “it is a robust process, with a number of checks and balances.” 

For an industry facing an oil price crisis, every ounce of space is critical.

Increasing oil production, coupled with limited space on oil export pipelines, has created a backlog of oil in Western Canada. This oil glut has weighed heavily on the price of Alberta crude, most of which is sold into the U.S.

Past concern

Besides Canadian Natural, other companies have also raised concerns about air barrels, also known as over-nominations.

Devon Energy, for one, wrote to the National Energy Board in June stating its issues with over-nominations or the process of companies booking more space than they actually need. 

“Over-nominations inflate the demand for pipeline capacity and pipeline apportionment on the Enbridge Mainline and negatively impact the ability of producers to access pipeline capacity to sell their monthly oil production,” Devon wrote.

Pipeline company Enbridge says the Mainline system ‘is essentially full.’ (Kyle Bakx/CBC)

“Producers and other industry participants suffer significant economic harm every month as a result of ongoing over-nomination on the Enbridge Mainline.”

The issue of air barrels is not new, but is now under scrutiny due to financial pressure facing the oilpatch. 

“There can be people given space and they don’t necessarily use it,” said Dennis McConaghy, a former executive with pipeline firm TransCanada.

He said there is always going to be some elements of “gamesmanship” in the process of booking space on the Enbridge line.

“There is always some possibility that you will have an individual shipper getting an allocation of space and how they choose to use that allocation through the month can sometimes result in air barrels,” he said.

Enbridge tried to revise how it allocates space on its pipeline system earlier this year, but quickly scrapped the plan.

The company said in recent months it spoke to shippers about potential changes, but it “determined there is no consensus” on how to modify current procedures. 



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Suncor warns oil cutbacks mandated by Alberta government pose safety, operational risks

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Forced Alberta government crude oil production cuts next year will result in “unintended consequences” that could include increased safety hazards for its employees, Suncor Energy Inc. warned Friday.

Despite the cuts that begin Jan. 1, Canada’s largest integrated oil and gas company forecasts production will grow by 10 per cent in 2019 on a stand-pat budget of between $4.9 billion and $5.6 billion.

Integrated companies like Suncor, Imperial Oil Ltd. and Husky Energy Inc. are opposed to the curtailments which are supported by bitumen producers like Cenovus Energy Inc.

The cuts announced by Premier Rachel Notley earlier this month are intended to bring industry output in line with pipeline capacity to drain trapped oil from the western Canadian market and reduce resulting steep discounts for crude oil.

“In the short term, the government of Alberta action has resulted in winners and losers in the market, shutting in valuable upgrading throughput and has made transporting crude oil out of the province by rail uneconomic,” Calgary-based Suncor said in a news release.

It added it is co-operating with the government and Alberta Energy Regulator and “working hard” to minimize associated contractor layoffs.

“Suncor has made long-term strategic investments to mitigate risk and create economic value and jobs for Albertans and Canadians,” Suncor president Mark Little said in the news release that pointed out the company is largely insulated from low local prices by its Canadian upgrading and refining assets and firm pipeline contracts.

The province said it will order the suspension of 325,000 barrels per day or about 8.7 per cent of overall oil production for about the first three months of 2019 before reducing the cuts for the rest of the year. The cuts only affect producers with more than 10,000 bpd of output, limiting curtailments to about 25 companies, mainly in the oilsands.

Suncor said it will suffer from a “disproportionate allocation” of production cuts, adding it assumes the curtailments are in place for three months before falling to 30 per cent of initial levels for the remainder of 2019.

In an email, Suncor spokeswoman Sneh Seetal refused to release the company’s cutback number for competitive reasons as it would reveal too much detail about anticipated first quarter production.

Throttling back production during the coldest months of the year — when it typically operates full out without stopping for maintenance — could increase risks to safety and reliability, the company warned.

“Suncor will not put the safety of our employees and contractors at risk,” it stated.

Suncor said the cutbacks will result in higher operating costs per barrel, could affect the supply of crude oil to Alberta upgraders and refineries, may raise issues with its contracted pipeline commitments and could cause problems with the in-house consumption of diesel produced at its oilsands mines.

The company said it is also concerned with how its constraint number will account for an unplanned outage at its 58 per cent owned Syncrude mine and upgrader earlier this year and the gradual ramp up of production at its new 194,000-bpd Fort Hills oilsands mine throughout 2018.

The company said it expects average upstream production of 780,000 to 820,000 barrels of oil equivalent per day next year, up from about 730,000 boepd in 2018.

Suncor’s guidance matched analyst projections, with researchers at Tudor Pickering Holt & Co. saying in a note it is “the ‘just right’ bowl of porridge for an uncertain outlook.”



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Oilpatch stays home from B.C. conference after Whistler mayor calls for climate-change compensation

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Oilpatch pushback to a letter written by the mayor of Whistler, B.C., has led to the cancellation​ of the energy-related portion of a high-profile investment conference held in the mountain community.

In a recent letter, Whistler Mayor Jack Crompton asked the head of oilsands giant Canadian Natural Resources to commit to pay for its “fair share of the costs of climate change being experienced by Whistler.”  

After the missive became public this week, a number of companies decided they would not participate in the investment conference, hosted in Whistler by Canadian Imperial Bank of Commerce.

CIBC then told oilpatch clients Friday it wouldn’t make them choose between the conference and “doing what is right.”

“Over the past days, we have been in dialogue with many of you regarding the letter recently sent by the Mayor of Whistler to one of your industry peers,” Roman Dubczak, CIBC’s managing director and head of global investment banking, wrote in an email obtained by CBC News.

“In recognition of your collective and justified frustration, we do not want to put you in a position of choosing between our conference and doing what is right. We are therefore removing the oil and gas presentation stream from our conference agenda.”

Dubczak indicated that CIBC is also looking at “the longer-term location of our Western Canadian-based institutional investor conference.” (Normally called the Whistler Institutional Investor Conference, the gathering is in its 22nd year and attracts institutional investors and companies from across a variety of sectors, not just the energy industry.)

‘Taxpayers are paying 100% of the costs’

The controversy emerged this week when Crompton’s letter went public.

“Currently taxpayers are paying 100% of the costs associated with your product,” Crompton wrote Canadian Natural Resources president Tim McKay in a letter dated Nov. 15.

“Communities around the world are increasingly expecting you to take responsibility for your products.” 

In a Facebook video posted Thursday, Crompton said he’s regrets if the letter made anyone felt unwelcome. He acknowledged the community depends on fossil fuels and has its own responsibility to respond to climate change.

Canadian Natural Resources confirmed Friday that it had withdrawn from the conference in the mountain community, slated for Jan. 23-26.

McKay said he would welcome the opportunity to sit down with Crompton to discuss his letter.

“We take these concerns very seriously,” McKay wrote Friday in a three-page letter provided to CBC News.

“Canadian oil and natural gas is an important part of the solution to reducing global GHG emissions.”

Earlier in the day, other companies confirmed they would not be travelling to Whistler for the conference.

  • Cenovus Energy said in a statement that it would not be attending because “we need to take a stand against these non-stop unfounded attacks on our industry that fail to acknowledge the huge focus the oil and gas industry places on reducing emissions.”
  • A spokesperson for Gibson Energy told CBC News the company “has elected to withdraw from the Whistler conference in 2019 in a show of solidarity with our industry and our customers.”
  • Cam Proctor, chief operating officer of PrairieSky Royalty, said Friday his firm would not take part as well.

“We think that there’s a great deal of misinformation out there about the energy business in Canada,” Proctor said.

“There’s not a lot we can do just from our own company’s perspective to try to educate Canadians, but one thing we can do is basically vote with our feet, so we’ve decided not to go to Whistler this year.”

Rocky relations

Relations between B.C. politicians and Alberta’s oil sector have been rocky recently, due largely to opposing views on the construction of the Trans Mountain pipeline expansion to the West Coast.

The oilpatch and Alberta’s provincial government believe the pipeline is needed to ease bottlenecks and provide more options — and better prices — for Canadian crude.

Opponents’ concerns include the risk of shipping more bitumen on tankers, and about the impact that growing oilsands production would have on climate change.

In his letter, Crompton said climate change is a great concern to the community. He said climate modelling shows that temperatures are expected to increase in winter and result in more rain in the valley.

“And less snow on the lower half of the ski areas,” he wrote. “Our modelling also shows that summer seasons are becoming longer, hotter and drier, resulting in increased risk of forest fires.”

Thousands of people march together during a protest against the Trans Mountain pipeline expansion in Burnaby, B.C., last March. (Darryl Dyck/Canadian Press)

Because of the fire risk, the municipality budget includes a $1.4-million investment in community wildfire protection — a commitment it expects to have to make for at least the next four decades. 

‘We depend on fossil fuels’

In the video statement Thursday, Crompton said Whistler was one of 15 other B.C. municipalities who participated in the public relations campaign led by an environmental group.

“Our intent was to join that call to action; our aim was never to make anyone feel unwelcome in Whistler,” he said.

“We recognize that there are hundreds of thousands of Canadians who work directly and indirectly in the oil and gas sector and they are very proud of the work they do. We know that you are facing challenging times.

“As so many have said to me over the last couple of days, we are a user of Canada’s energy. Whistler acknowledges as a community that we depend on fossil fuels.

“We have a responsibility to respond to the climate change challenge ourselves and do it locally.”

The environmental group that began the campaign last January says the aim is not to collect money, but start a conversation.

Steel pipe to be used in the oil pipeline construction of the Trans Mountain Expansion Project sit on rail cars at a stockpile site in Kamloops, B.C., earlier this year. (Dennis Owen/Reuters)

“At the end of the day, I think it’s fiscally irresponsible if a municipality is incurring huge costs due to climate change and they’re not having this conversation, because otherwise they’re just passing those costs entirely onto taxpayers,” said Andrew Gage, lead lawyer with West Coast Environmental Law.

Albertans want to push back, Solberg says

Monte Solberg, a former Conservative cabinet minister from Alberta, said he was “a little surprised” to hear companies are opting out of the Whistler conference but was glad to see companies pushing back and defending their industry.

“I think a lot of people have wondered why some of these companies have gone along with this up until now,” he said.

Solberg said Albertans are slow to anger, but are at the point where they want to push back.

“We certainly have been a big customer of British Columbia’s,” he said.

“So one of the few ways that we can really make the point, apparently, is to say you know we’re not going to buy your things. We’re not going to come to your resorts anymore and that’s what some people are doing.”



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Hyatt Place Hotel Proposed near Pearson Airport

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With all of the expansion coming to Toronto’s Pearson International Airport in the coming years, the area surrounding the hub is expected to flourish. Although the area is currently Canada’s 2nd largest employment zone (Downtown Toronto is the largest), the area still largely carries itself as an airport-anchored district. Increasing demand has lead Manga Hotels, which currently owns and operates the Toronto Airport Crowne Plaza at the same site, to submit documents to repurpose some of the surface parking lot to build a Hyatt Place Hotel on the property at 33 Carlson Court.

33 Carlson St, Manga HotelsThe parking garage on site at 33 Carlson Ct

The 8-Storey Hyatt Place will bring 196 guest rooms to an area that currently already has 45 hotels nearby – the demand is quite a testament to the sheer volume of travellers using Pearson daily. The Hyatt Place brand focuses on the future of  ‘select-service’ – a typically ‘no frills’ style of Hotel that Hyatt has upgraded for mid- to upper-income business and leisure travellers. A hotel under the same brand name was recently announced to be built onsite at Canada’s Wonderland.

The massing of the Chamberlain Architect Services Limited-designed hotel itself is broken up into a number of distinct volumes, each with a unique cladding style. Grey Lexastone and brown Equitone panels frame the majority of the building’s vision glass windows.

In addition to the construction of the new hotel, the developer has proposed an open air garage to replace the surface parking spots lost in the construction of the new hotel. The garage will add 277 spaces and uses a similar design language to the newly constructed hotel.

33 Carlson St, Manga HotelsThe parking garage on site at 33 Carlson Ct

The existing Crowne Plaza Hotel onsite will will be updated with an addition along the west side of the building. Clad primarily in curtain wall glazing, metal panels and wooden support beams, the addition will house just under 4,000 ft² of meeting space and conference facilities. 

Drawing of the conference centre addition to the Crowne Plaza, image courtesy of Manga Hotels

We will be back with updates as this proposal progresses through the planning process. In the meantime, additional information and images can be found in our database file for the project, linked below. Want to get involved in the discussion? Check out the associated Forum thread, or leave a comment in the field provided at the bottom of this page.

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UrbanToronto has a new way you can track projects through the planning process on a daily basis. Sign up for a free trial of our New Development Insider here.




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