November 21, 2011 / 8:26 PM / in 6 years

Canada oil sector must keep cleaning up act: Prentice

CALGARY, Alberta (Reuters) - The U.S.-imposed delay of TransCanada Corp's Keystone XL oil pipeline shows Canada's energy industry cannot relax efforts to improve its environmental record, a former top minister in Prime Minister Stephen Harper's government said on Monday.

The U.S. move has also helped build consensus that the oil industry must lessen its near-total export reliance on the U.S. market, said Jim Prentice, who left the Conservative government last year to become vice-chairman of Canadian Imperial Bank of Commerce.

As environment minister in 2010, Prentice stirred some controversy in his home base of Calgary by telling an industry audience that the national and international perception of northern Alberta's oil sands was "profoundly negative" and that companies developing the resource, the world's third-biggest reserve of crude oil, must boost efforts to improve environmental performance.

"I think there's been substantial progress made, but I think as events have unfolded, both in the United States on Keystone and on other issues, it highlights how important it is that Canada be not only a producer of energy, but an environmentally responsible producer of energy," he said in an interview. "That has to be the space that we occupy."

That will require constant investment in improving technology to reduce the oil sands' impact on air, land and water, he said.

"It's not a final destination that you can say we've reached and then just carry on. It doesn't ever end, really," he said.

This month, the U.S. State Department pushed back its review of TransCanada's $7 billion Keystone pipeline to Texas from the oil sands by more than a year to study a new route away from the environmentally sensitive Sand Hills region of Nebraska.

Green groups claimed the delay as a major victory in their fight against increased development of the tar sands, which they see as a threat to the fight against global warming. TransCanada and the Canadian government have said they still expect the project to proceed because a U.S. environmental study has shown it would have only limited impact and because it would create thousands of jobs.

Canada is also battling a move by the European Union to label oil sands crude as being inherently polluting.

Ultimately, energy buyers and regulators vetting major projects will decide if the industry is serious about efforts to reduce its impact on the environment, said Prentice, who was also minister of Indian Affairs and Northern Development as well as Industry minister during his tenure in the Harper government.

"We're hearing demand from consumers that we be environmentally responsible, and we can. It's actually one thing we're good at as Canadians, and I think it applies whether you're talking about bringing on new hydro capacity or bringing on new oil sands projects," he said.

The Canadian energy industry's next big push is Enbridge Inc's C$5.5 billion ($5.3 billion) Northern Gateway pipeline to the West Coast from Alberta, on which regulatory hearings will start in January.

Prentice said there is now broad agreement that it is in the national interest to open up a new supply route to Asia, which a project like Northern Gateway would do. Currently, the United States is Canada's only export market for oil.

Environmentalists and some Hollywood celebrities who had publicly opposed Keystone XL, including Robert Redford and Kevin Bacon, have now turned their attention to Northern Gateway. Several native groups whose lands make up a large part of the proposed route have also said they will not support it.

Canadians can rely on the National Energy Board and Joint Review Panel to examine all sides of the issue, Prentice said.

Whether British Columbia aboriginal communities can benefit will be the result of their talks with Enbridge, he said.

"The measure of that will be whether or not Enbridge will be able to reach an agreement with the First Nations on access and benefit-sharing arrangements and other issues that they're negotiating," he said. "But certainly that work is under way. It's not as though their haven't been discussions about those things."

Prentice told the Edmonton Chamber of Commerce on Monday that building new plants within in Alberta to process the oil sands crude into refinery-ready crude and other products would also help diversify markets.

He pointed to the planned C$15 billion North West Upgrader, which will process the royalty oil from the Alberta government, as an important step in that process.

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