Identifier
Created
Classification
Origin
05CALGARY656
2005-11-04 03:56:00
UNCLASSIFIED
Consulate Calgary
Cable title:  

CALGARY ENERGY ROUND-UP: OCTOBER 2005

Tags:  ENRG EPET ETRD PGOV SENV CA CH UK 
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UNCLAS SECTION 01 OF 05 CALGARY 000656 

SIPDIS

STATE FOR WHA/CAN, EB/ESC/ISC, EB/PPD

USDOE FOR IA (DEVITO, PUMPHREY, DEUTSCH)

E.O. 12958: N/A
TAGS: ENRG EPET ETRD PGOV SENV CA CH UK
SUBJECT: CALGARY ENERGY ROUND-UP: OCTOBER 2005

UNCLAS SECTION 01 OF 05 CALGARY 000656

SIPDIS

STATE FOR WHA/CAN, EB/ESC/ISC, EB/PPD

USDOE FOR IA (DEVITO, PUMPHREY, DEUTSCH)

E.O. 12958: N/A
TAGS: ENRG EPET ETRD PGOV SENV CA CH UK
SUBJECT: CALGARY ENERGY ROUND-UP: OCTOBER 2005


1. Alberta Minister Melchin Warns Ottawa to Keep Energy out of
Softwood Lumber Dispute: "Hands off Our Oil"

2. NEP2 on the Horizon?

3. Alberta Energy Company Buys North Sea Developer

4. New Terasen-Pembina Partnership Proposes Condensate Pipeline

5. New Oilsands Regulations Raise Environmental Concerns

6. Kitimat Chosen as Western Port for New Pipeline System

7. CEPA Head Warns That Lack of Regulatory Reform Threatens
Mackenzie Pipeline

8. Revenues from Oil and Gas Promise to Make 2005 Banner Year
for Saskatchewan

9. Saskatchewan Officials Strengthen Business Ties in China,
Hong Kong

10. Alberta Considering Building Refinery Facilities

11. Retiring EnCana Founder Lauded as "Visionary"

12. Gas Output in US Rockies to Overtake Western Canada's,
Predicts Think Tank

13. Enough Natural Gas for Everyone, Claims Melchin

14. New Road Aids Flow of Labor Between Saskatchewan and Alberta

15. Albertans Not Surprised at Findings that Province is Top
Polluter

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1. ALBERTA MINISTER MELCHIN WARNS OTTAWA TO KEEP ENERGY OUT
OF SOFTWOOD LUMBER DISPUTE: "HANDS OFF OUR OIL"
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Alberta Energy Minister Greg Melchin made public in October his
opposition to using energy policy as a bargaining chip in the
softwood lumber dispute, after meeting with top US energy
officials. The provincial government has been dismissive of
those in Ottawa calling for the linkage of energy and lumber,
reminding Canadians that Prime Minister Martin can "talk all he
wants, but the fact is the resources~are owned by the
provinces". Tariffs imposed by the United States on Canadian
softwood lumber continues to be the major point of contention in
the Washington-Ottawa relationship, with Secretary Rice's recent
talks with Martin bringing the issue to the forefront. With
Canada supplying an increasingly large portion of the United
States' seemingly insatiable energy consumption, energy

resources are seen as one of the few areas of trade where Ottawa
is negotiating from a position of strength. Support for
restricting energy exports has grown exponentially since August,
when the United States called for further talks following a
NAFTA ruling ordered Washington to compensate Canada for the
US$5 billion in tariffs levied against the Canadian lumber
industry.

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2. NEP2 ON THE HORIZON?
--------------

The 25th anniversary of Canada's National Energy Program (NEP)
this month saw an Alberta eerily similar to its 1980s
counterpart; the province is booming as a result of high energy
prices, a Liberal government in Ottawa is beginning to see a
smaller and smaller part of a larger and larger royalty pie, and
a Conservative government in Alberta is beginning to get
suspicious. Although a repeat of the NEP is almost universally
considered impossible, Alberta Premier Ralph Klein has been
public about his concerns that another "threat is on the
horizon". Several highly visible events over the past two months
have combined to form the proverbial perfect storm in the
oilsands: Alberta's almost obscenely large budget surplus,
budget deficits in some of the eastern provinces, and the
softwood lumber dispute with the United States. Ottawa has
mentioned utilizing Canada's booming energy trade as a
negotiating tool in the softwood lumber fight, infuriating
Albertans who still remember the last time the federal
government encroached on what is legally the property of the
provinces. Premier Klein has lead the fight against a possible
politicization of oil and gas, telling Ottawa to "keep its hands
off" Alberta's resources. While a revival of the NEP is
unlikely, several proposals which Albertans say has the same
effect are on the table. One such idea, which would increase
Ottawa's resource revenue take without violating NAFTA or
provincial property rights, would link energy directly to
Canada's commitments under the Kyoto Protocol. Although the
details of the plan are still sketchy, proponents suggest a tax
on carbon, directly affecting Alberta's "dirty energy" oilsands
industry. This proposal was pushed to the forefront in October
when a report by Environment Canada found that Alberta is now
the top provincial air polluter in Canada, surpassing Ontario
for the first time in eight years. Whether a grab is made for
Alberta's energy revenue or not will ultimately depend on
popular support for the federal Liberals.

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3. ALBERTA ENERGY COMPANY BUYS NORTH SEA DEVELOPER
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Calgary-based Talisman Energy Inc. announced Friday that it
would buy Britain's Paladin Resources PLC for C$2.52 billion,
giving a huge boost to Talisman's oil reserves and exploration
potential. Nearly three-quarters of Paladin's reserves and
production are in the North Sea, where the company produces
145,000 bbls per day. Talisman has aggressively pursued growth
in the region since its acquisition of Bow Valley Energy Inc.
over a decade ago. The purchase also gives Talisman 600,000
acres of properties in the Norwegian sector of the North Sea,
greatly enhancing the company's opportunities for exploration.
The buyout was surprisingly unpopular with investors.
Jarislowsky Fraser, Talisman's largest shareholder, believes the
company's dropping share value is a result of their lack of
long-term vision: "When the price of oil is high, you pay a high
price~the rule of buying low and selling high is not being
observed". In good news for petroleum consumers worldwide,
Talisman told reporters that before the end of the decade,
production by Paladin's oil facilities is expected to increase
by half, to 70,000 bbls per day, before the end of the decade.

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4. NEW TERASEN-PEMBINA PARTNERSHIP PROPOSES CONDENSATE PIPELINE
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Calgary-based pipeline companies Terasen and Pembina made public
the creation of a new partnership between the two to oversee the
possible development of a new condensate delivery system. The
C$1 billion Spirit Pipeline would transport offshore condensate
from a deepwater port in Kitimat, British Columbia to Edmonton.
Condensate is an ultra light oil used to dilute the heavy crude
oil produced in the northern Alberta oilsands, allowing it to be
transported by traditional oil pipelines. Demand for condensate
in Alberta has been increasing along with development of the
oilsands, while its supply from natural gas wells has dropped.
The pipeline will be designed to transport 100,000 bbls of
condensate a day, considerably less than the quarter-million
bbls a day expected from Enbridge's proposed delivery system.
Terasen and Pembina believe they have one advantage over rival
pipeline designs however: timing. The Spirit Pipeline is
expected to be in place by mid-2009, a full year earlier than
that of Enbridge. Also working in the partnership's favor is the
proposed route of Spirit, which will avoid most of British
Columbia's greenfield, requiring fewer regulatory approvals and
falling mainly under provincial jurisdiction. The construction
of the pipeline will occur simultaneously with new condensate
import facilities in British Columbia, with several energy
companies planning to expand terminaling and port capacity in
Kitimat.

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5. NEW OILSANDS REGULATIONS RAISE ENVIRONMENTAL CONCERNS
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A newly published Alberta Government plan would give oilsands
development highest priority in northern Alberta. The new
regulatory scheme creates a development zone around Fort
McMurray, promising oil companies they now have the right to
mine anywhere in the region. Previously, oil companies had to
compete with producers of other resources, such as the lumber
industry. The new plan, called a "Mineable Oil Sands Strategy"
(MOSS) is still in the process of being drafted by the Oil Sands
Ministerial Strategy Committee. While new mining projects are
still required to pass environmental assessments, as well as
receiving approval from the Alberta Energy and Utilities Board
(EUB),critics say the new plan will lead to the destruction of
the pristine forests of northern Alberta. Chris Severson-Baker,
director of the energy watch program at the Drayton Valley,
Alberta-based Pembina Institute, an environmental think tank,
claims the new regulations will essentially demolish 2,800
kilometers of old-growth forests. The plan also has the
potential to generate friction between Edmonton and local First
Nations; the development region surrounds the Fort McKay
reserve, and it is possible that hunting and fishing by
aboriginals will be prohibited inside the zone.

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6. KITIMAT CHOSEN AS WESTERN PORT FOR NEW PIPELINE SYSTEM
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Calgary-based Enbridge Inc. announced this month that the
company had chosen Kitimat, British Columbia as the western
terminus for the proposed C$4 billion Gateway pipeline project.
Kitimat's deep water port will enable easy loading for the oil
tankers, which will carry heavy crude from Gateway to markets in
Asia and California. Gateway would consist of two pipelines, one
transporting up to 400,000 bbls of heavy crude oil a day, and
the other a 150,000 bbl a day condensate supply system.
Condensate is used in the oilsands to facilitate flow of the
heavy crude through traditional pipeline systems. If the
National Energy Board (NEB) accepts the proposal, Enbridge hopes
to complete construction by 2010. Discussions are underway
between the company and several entities concerning use of the
pipeline, including China government-owned Petro-China, which
last April finalized a preliminary deal with Enbridge for half
of Gateway's daily shipping capacity.

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7. CEPA HEAD WARNS THAT LACK OF REGULATORY REFORM THREATENS
PROPOSED
MACKENZIE VALLEY PIPELINE
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The recent announcement that an agreement has been reached with
Conoco Phillips to build a US$20 billion oil pipeline in Alaska
has raised doubts that the proposed Mackenzie Valley natural gas
pipeline will be completed on schedule, if at all. David
MacInnis, President of the Calgary-based Canadian Energy
Pipeline Association says the Alberta assumption that Mackenzie
has a two or three year head start on the Alaska pipeline is
inaccurate. The US$20 billion pipeline would deliver 4 bcf of
natural gas from the North Slope oil fields to US markets in the
Midwest. The State of Alaska will hold an equity share of about
US$4 billion, or 20%. The state government is also considering
two competing pipeline proposals; TransCanada is bidding for a
similar pipeline, and another proposal would parallel the
existing trans-Alaska line, delivering LNG to the port of
Valdez. Energy officials argue that the delays in processing the
Mackenzie project demonstrate the need for regulatory and fiscal
reform. Although Ottawa has spent C$75 million on improving
regulatory capacity in the Northwest Territories, where the
pipeline would originate, none of the 24 benefiting regulatory
bodies are fully staffed. A recent study found that a two-year
delay in construction of a pipeline in the region (either the
Alaska or Mackenzie pipelines) would cost Canadian consumers
C$57.7 billion in higher natural gas prices over the next 20
years.

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8. REVENUES FROM OIL AND GAS PROMISE TO MAKE 2005 BANNER YEAR
FOR SASKATCHEWAN
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Strong interest in Saskatchewan's oil and gas resources promise
to make 2005 a record year for the province. With one sale still
to go this year, 2005 is already one of the province's top seven
years in terms of revenues from the sale of crown lands and
resource rights. Sale of petroleum and natural gas rights has
reaped Saskatchewan a total of C$114 million as of October 31st.
The largest single sale was for a permit allowing Canadian
Landmasters Resource Service Ltd. to work over 156,000 hectares
near Chamberlain, costing the company C$3.5 million.

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9. SASKATCHEWAN STRENGTHENS BUSINESS TIES IN CHINA, HONG KONG
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Saskatchewan Premier Lorne Calvert and provincial Industry and
Resources Minister Eric Cline wrapped up their meetings with top
Chinese and Hong Kong businessmen in October. The pair
reportedly used the meetings as a forum to promote
Saskatchewan's growing energy and agricultural trade with the
Far East. Premier Calvert reminded his audiences that China is
now Saskatchewan's largest trading partner, besides the United
States. Two-way trade between China and the province has
increased in recent years, especially in potash shipments and
agricultural commodities. Saskatchewan is the world's largest
producer of potash, and is China's fourth largest trading
partner in Canada. As a result of the meetings, China National
Petroleum Corporation (CNPC) gave Saskatchewan high priority as
a future strategic partner in energy related investment. The
premier also applauded the close ties between Chinese and
Saskatchewan universities; Calvert presided over the signing of
two Memorandums of Understanding (MOUs) while in Beijing: one
between the University of Regina and the CNPC, and one between
the University of Saskatchewan and the Beijing Institute of
Technology. Premier Calvert and Minister Cline concluded their
four-nation tour with trips to Kazakhstan and Tokyo this week.

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10. ALBERTA CONSIDERING BUILDING REFINERY FACILITIES
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While Alberta Government officials have downplayed rumors that a
C$7 billion refinery project will soon receive regulatory
permits, they have confirmed that the province is spending
C$200,000 to study the proposal. The study, commissioned by the
Hydrocarbon Upgrading Task Force, is also funded in part by a
group of industry sponsors interested in adding value to
Albertan bitumen before being shipped to American markets. The
task force initially looked simply at upgrading bitumen to
synthetic light oil, but soon expanded the study's scope to
review a broad range of value-adding petroleum products.
However, provincial officials have attempted to minimize news of
the project, saying it is still several steps removed from even
becoming a feasibility proposal. Cindy Goodyear of Alberta
Economic Development stated, "It's a hypothetical refinery used
to illustrate the potential benefits of integrating a refinery
with existing plants". Alberta Economic Development is
organizing a group of 16 corporate participants in the study. If
completed, the proposed refinery would be the first in North
America in over a quarter century, and with a 300,000 bbls per
day refining capacity, the largest in Canada.

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11. RETIRING ENCANA FOUNDER LAUDED AS "VISIONARY"
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The resignation announcement of Gwyn Morgan, President and CEO
of Calgary-based EnCana, one of Canada's largest corporations,
came as a surprise to an energy industry that has watched the
company's share price grow more than 80% this year. Morgan has
been credited with the strong performance of the company since
its inception in 2002, when he brokered a merger deal between
homegrown entities Alberta Energy Company (AEC) and PanCanadian
Petroleum Limited. The resulting company was the largest in
Canada in recent months, a result of high oil and gas prices.
Morgan was responsible for many controversial changes in the
corporation, including the re-focusing of EnCana on North
American energy projects, when the company sold many of its
foreign assets in South America and the North Sea. Morgan
downplayed reports that his resignation was in response to the
rumored acquisition of EnCana by Royal Dutch Shell. Morgan will
remain as an officer of the company until 2006, working in an
advisory capacity for new president and CEO Randall Eresman.
Eresman has been with EnCana and its predecessor, AEC, since
1980, and played a key role in the early development of EnCana
after the 2002 merger.

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12. GAS OUTPUT IN US ROCKIES TO OVERTAKE WESTERN CANADA'S,
PREDICTS
ENERGY THINK TANK
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Highly-respected energy consulting firm Ziff Energy has
predicted that natural gas production in the US Rockies could
overtake western Canadian output as early as 2012, mainly from
increased exploitation of low-permeability rock. Production is
expected to increase by about 2.5 bcf a day to 16 bcf in 2012,
although Dennis Elias, manager of gas consulting for
Calgary-based Ziff, warned that expansion could be seriously
hampered by a lack of pipeline capacity in the region. A number
of new pipeline projects have been proposed to meet the expected
rise in demand for gas transportation systems, including a US$3
billion pipeline from Wyoming to eastern Ohio and a much larger,
1,500 mile project outlined by Kinder Morgan Energy Partners.

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13. ENOUGH NATURAL GAS FOR EVERYONE, CLAIMS MELCHIN
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Alberta Energy Minister Greg Melchin assured Canadians this week
that the expanding oilsands will not consume an overly large
portion of the province's natural gas. Environmental and
consumer groups have been concerned that oilsands production,
which uses natural gas to extract bitumen from the ground, would
eventually take the lion's share of natural gas, raising already
record high prices. Several alternatives to using natural gas in
the oilsands are being studied. One promising proposal is to use
gasified coke, a byproduct of the oilsands mining, as a
replacement fuel for the process. According to Melchin, even if
a cost-effective alternative is not discovered, the northern
Alberta oilsands would require only one-third to one-half of the
natural gas being transported by the proposed Mackenzie Valley
pipeline, which, if built, should be in operation early next
decade.

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14. NEW ROAD AIDS FLOW OF LABOR BETWEEN SASKATCHEWAN AND ALBERTA
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Alberta Premier Ralph Klein and Saskatchewan Premier Lorne
Calvert released plans this September to strengthen
infrastructure ties between the two provinces with a C$45
million all-weather road linking La Loche, Saskatchewan with
Fort McMurray, Alberta. Klein's government will provide the
majority of funding; the cost of the Alberta leg of the proposed
road will top C$40 million, while Saskatchewan's portion is
estimated at approximately C$5 million. The project was hailed
by both premiers, with Klein predicting that "the La Loche Road
will give employers in the Athabasca oilsands access to a
valuable new resource-the labour pool in northern Saskatchewan."
The road is expected to provide relief to Fort McMurray's
strained labor force. The northern Alberta town has boomed in
recent years, a response to exponential increases in labor
demand from local oil and gas companies. Construction on the La
Loche Road could begin as early as the first months of 2006, and
is expected to be completed by 2009.

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15. ALBERTANS NOT SURPRISED AT FINDINGS THAT PROVINCE IS TOP
POLLUTER
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A recent survey conducted by Environment Canada has reported
that Alberta is the nation's biggest polluter in 2003,
surpassing Ontario for the first time in eight years and
accounting for nearly a quarter of Canada's total emissions.
"The numbers weren't a surprise to us because we are such a
heavy petroleum producer in the country", said Alberta
Environment spokesperson Erin Gregg. The provincial government
has begun to address rising environmental concerns by
encouraging companies to use cleaner technologies and enforcing
tougher emissions standards for coal-fired power plants.
However, many environmental groups believe Edmonton could do
better. Chris Severson-Baker, an energy specialist with the
Drayton Valley, Alberta-based Pembina Institute, argues that the
province has yet to make substantial improvements in the
environment; certain emissions, such as sulfur dioxide may be
down, but increases in other hazardous pollutants bring into
question Alberta's commitment to air quality. Severson-Baker
noted, "Those reductions are being outstripped by the sheer
growth of the oilsands". The Pollution Watch report also showed
that Canada was beginning to lag behind the United States in
reducing emissions.



AHMED