While Enbridge Inc. is happy the National Energy Board's Joint Review Panel has recommended the federal cabinet approve its Northern Gateway project subject to 209 conditions, it's not yet ready to celebrate.
"That's because while the regulatory approval is a very important element of the project and it's a critical step, it's just one step," Al Monaco, Enbridge chief executive officer, said in a conference call.
"The way I think about this is that's been a long climb up the mountain so far," he said. "We made good progress on the climb but we have more climbing to do. We feel we can get there."
The first thing Northern Gateway Pipelines Limited Partnership has to do is work through the 209 conditions one by one, said Monaco.
Based on a preliminary look, "they are tough but they should be, given everybody's goal that we deliver a safe project and protect the environment," he said.
The Enbridge CEO acknowledged that Northern Gateway has to do more work with Aboriginal communities, many of whom have expressed strong opposition to the project.
The company and its partners "are going to put our best foot forward to further build trust," added Monaco. "We have learned well that listening is critical and that is what we are going to do and we are open to change and making the project even better."
He believes Northern Gateway needs to continue to collaborate with the stakeholders. "We want to reach out to them in a respectful way . . . and try to engage the communities, the Aboriginals and others who are concerned here for additional input," said Monaco. "We are going to continue to work hard to try and address the concerns."
The Joint Review Panel report, though, "should give people comfort around the technical and the safety aspects of the project," he suggested.
As part of the process, the company also will be working to meet the five conditions set out by the British Columbia government to obtain its support for the project.
Northern Gateway also is updating its 2010 cost estimate to include newer information and any costs associated with the conditions in the report. Monaco expects to see a higher cost when work is complete in the first quarter of next year.
Following 18 months of hearings, the panel chaired by NEB member Sheila Leggett determined that the $6.5 billion project was in the Canadian public interest and could be built and operated safely without significant adverse impacts.
"We find that the project's potential benefit for Canada and Canadians outweigh the potential burdens and risks," said the panel.
"In the end, we were persuaded that the Enbridge Northern Gateway project would meet an economic need by diversifying Canada's oil markets and condensate supply," it said. "We found that the project would produce economic and social benefits for Canadians."
The panel also determined that Northern Gateway's proposed measures would reduce, eliminate or offset the potential negative environmental effects. "Our conditions require monitoring, scientific research and adaptive management to continue addressing other negative effects," it said. Regulatory oversight would continue throughout design, construction and operation of the project.
Now that the federal government has received the report, "we will thoroughly review it, consult with affected Aboriginal groups and then make our decision," Natural Resources Minister Joe Oliver said in a statement in which he also urged Canadians to read the report.
"Our government will continue to improve the safe transportation of energy products across Canada," said Oliver. "No project will be approved unless it is safe for Canadians and safe for the environment."
The federal cabinet has 180 days to issue a final decision.
Northern Gateway's 36-inch oil pipeline would transport an average of 525,000 bbls per day from Bruderheim, Alberta to Kitimat, British Columbia for shipment to Asian markets by late 2018. A parallel 20-inch pipeline would ship an average of 193,000 bbls per day of imported condensate back to Alberta for use as bitumen diluent.
Unless the NEB otherwise directs prior to Dec. 31, 2016, the certificate will expire on Dec. 31, 2016, unless construction of the pipeline or the Kitimat Terminal has commenced by that date.
In its decision, the Joint Panel said that the British Columbia government and many hearing participants had argued that most of the project's benefits would flow to Alberta, the rest of Canada and foreign shareholders in oil and pipeline companies.
However, the panel concluded that its conditions and Northern Gateway commitments, "would likely lead to positive net economic benefits to local, regional and national economies and could provide positive benefits and opportunities to those local, regional and Aboriginal individuals, communities and businesses that choose to participate in the project."
Among the conditions of approval is that Northern Gateway submit to the NEB its plans for implementing training, employment and educational opportunities for Aboriginal and local residents and its plans to track and measure their success.
The panel also decided that in the event of a large oil spill (14,100 bbls) Northern Gateway must provide a total of $950 million in financial assurances to cover the costs of clean-up, remediation and damages. In addition to the financial instruments providing primary coverage of $700 million, the company would be required to put in place backstopping arrangements of at least $250 million to cover any shortfalls in the primary coverage.
Northern Gateway had indicated that it would compensate for the damages which it has caused, regardless of whether its insurance would cover losses and liabilities of third parties. The panel said it finds that this is confirmation that Northern Gateway has accepted the "polluter pays" principle.
"The responsibility for these losses and damages must be borne by Northern Gateway and not by third parties or the public," it said.
The panel also had concerns about capacity for spot shippers on the pipelines.
When Northern Gateway seeks NEB approval for tolls and tariffs once it has signed transportation service agreements in place, it will be required to describe how reserve capacity has been set aside for non-term shippers on the pipeline.
The company also has to explain how it has addressed the panel's view that not less than 10 per cent of the pipeline's nominal capacity should be set aside for those shippers. The panel said its view is based on evidence presented to the hearing about the scale and strategic importance of Northern Gateway.
The company is proposing to reserve 25,000 bbls per day (five per cent of the term shippers' volume of 500, 000 bbls per day) on the oil pipeline and 17,500 bbls per day on the condensate pipeline (10 per cent of the term shippers' volume of 175,000 bbls per day).
Although pipeline companies usually sign up shippers before seeking board approval for a project, Northern Gateway found regulatory uncertainty about a West Coast greenfield project was a barrier to securing shipping commitments, said the panel. The company concluded that it first needed to obtain regulatory approval and that additional financial support for project development was required.
Northern Gateway successfully placed 10 units at $10 million each with a combination of Canadian oil producers and Asian market area interests (funding participants) who may enter into long-term transportation service agreements (TSAs).
Shippers have not yet signed the agreements because they still need information on when the project will receive regulatory approval; Class III capital cost estimates and the estimated in-service date of the project, said the report.
In the meantime, the panel has approved toll principles -although not specific tolls -- for Northern Gateway that include a differentiated toll structure based on the shippers' differing commitments.
First tier shippers include the funding participants who would become founding shippers (and term shippers) by signing the TSAs while the second tier is non-funding participant term shippers. Both groups would commit to service agreements with a minimum 15-year term.
The third level would consist of non-term or spot shippers who make neither volume nor funding commitments and who pay a toll nearly 80 per cent more than that of funding participants.
The panel said it is unclear at this time whether that premium might become a significant impediment to spot shippers using the system. As a result, it directed Northern Gateway to use a monthly auction process to allocate uncommitted non-term shipper capacity to spot shippers.
If the project is approved, the Joint Panel has decided that it would be designated as a Group 1 pipeline and must comply with the more stringent NEB filing requirements for Group 1 pipelines.
The panel found that Northern Gateway has the potential to become a major, high capacity oil pipeline system dedicated to exporting crude oil from Canada to new, foreign markets.
"Because of its large capacity and potential importance in Canada's energy infrastructure for accessing new markets for oil, the panel is of the view that additional regulatory oversight is required to ensure that shippers are granted reasonable access to the oil pipeline and that tolls do not impede access," said the panel report.
In addition, "close monitoring of the project's market and financial performance would provide useful information about these emerging markets and related hydrocarbon transportation system needs," it said.
The Alberta Federation of Labour and the Communication Energy and Paperworkers' Union had expressed concern that exporting raw bitumen by pipeline has a detrimental effect on domestic investment in upgraders and refiners.
However, the panel said "no evidence was presented that led it to conclude that the development of new infrastructure to significantly increase access to growing crude oil markets will hinder the functioning of the Canadian upgrading and refining sector. It said it agrees with the Alberta government that if domestic refining and upgrading capacity does materialize, pipelines can be reconfigured to transport a range of hydrocarbons, including refined petroleum products.
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