April 26, 2013 / 6:03 PM / 4 years ago

Land-locked Alberta mulls oil pipeline to Arctic port

3 Min Read

* Price for Alberta oil has dropped on supply problems

* Arctic pipeline would face some serious challenges

By David Ljunggren

OTTAWA, April 26 (Reuters) - Canada's oil-producing province of Alberta, trying to deal with a lack of pipeline capacity to the Pacific Coast and the United States, is mulling the idea of building a line north to an Arctic port, the province's energy minister said on Friday.

Ken Hughes said he has been talking to the government of Canada's Northwest Territories, which lie directly north of Alberta, about a pipeline to a port such as Inuvik or Tuktoyaktuk on the Beaufort Sea, a section of the Arctic Ocean.

The government of landlocked Alberta has hired a Calgary-based consultant to produce a feasibility study on such a pipeline. It expects the study to be delivered by the end of the year.

Delayed pipeline projects and an excess of supply mean Alberta's heavy crude often has been selling at a deep discount to world prices, although the price gap has narrowed recently.

"We need access to tidewater, to the ocean, in order to secure world prices ... any rational economic option will be explored, and this is part of our oil market diversification strategy," Hughes told Reuters in a phone interview.

Another possibility might be to ship oil by rail to the Valdez oil terminal in Alaska, he said.

An Arctic pipeline would face serious challenges from environmentalists as well as possible resistance from aboriginal communities along the route. There would also be the threat that unpredictable ice conditions in the Beaufort Sea could block ports.

"It's quite possible that at the end of the day a pipeline for oil to the Arctic Ocean doesn't make sense in the immediate next decade or two," Hughes said. "But I'd rather be well-informed based upon science and economics."

He denied the Arctic oil plan had been prompted by the delays facing TransCanada Corp's proposed Keystone XL pipeline from Alberta to refineries in Texas, which is still awaiting approval from U.S. President Barack Obama.

"The Gulf Coast in America is simply one point of access ... we need to be more diversified," Hughes said.

Canada's Conservative government, keen to boost oil exports to China and other Asian markets, backs private-sector plans to boost pipeline capacity from Alberta to ports in the Pacific province of British Columbia. These proposals, however, are also facing problems.

Green activists and aboriginal bands strongly oppose Enbridge Inc's proposed Northern Gateway pipeline to the West Coast, and there are increasing doubts about whether the project will ever be built.

And this week, the leader of the opposition party most likely to win next month's election in British Columbia expressed major doubts about Kinder Morgan Energy Partners LP's plan to more than double the capacity of its existing Trans Mountain pipeline from Alberta to Vancouver.

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