December 2, 2011 / 6:10 PM / 6 years ago

Expanding oil exports top priority: Canadian minister

TORONTO (Reuters) - Canada believes the United States will ultimately approve TransCanada Corp's proposed Keystone XL pipeline, which Washington put on hold last month amid fierce environmental opposition, Natural Resources Minister Joe Oliver said on Friday.

The $7 billion oil pipeline to Texas from Alberta, as well as a new pipeline to Canada's West Coast, are crucial to preventing a costly bottleneck in export capacity over the next four to seven years as oil sands production jumps, Oliver said.

Keystone XL, which would carry oil sands-derived crude to numerous refineries on the Gulf of Mexico, still makes enormous economic sense for the United States, he told a Reuters editorial board in Toronto.

"I think it will go through, but obviously later than we had hoped," Oliver said.

A recent decision by the state of Nebraska to back a shift in the pipeline's route, away from a major aquifer, was "a significant development", he said.

Oliver's comments were among the most bullish from Canada's Conservative government since Washington announced the Keystone go-ahead decision would be delayed at least until early 2013, after next year's U.S. presidential election.

The postponement was a big blow to Ottawa, which has made bolstering exports of crude from the tar sands - the world's third-largest oil deposit - a top policy priority and one that has kicked off a lobbying effort spanning three continents.

"This delay is not a happy event for us, but we're going to continue to talk about the advantages of the pipeline," Oliver said. Those include jobs, economic activity and reliable energy supplies, he said.

Washington's move followed protests by environmental campaigners and Hollywood celebrities, who warn that exploitation of the oil sands is causing a huge spike in greenhouse gas emissions.

The demonstrations intensified after a U.S. environmental impact assessment concluded that the pipeline, which would carry 700,000 barrels a day, would have limited ecological impact, Oliver said. He said much of the opposition in the United States was from groups opposed to all hydrocarbon development.

Oliver said the delay showed the importance of diversifying Canada's oil exports, in particular by developing pipelines to the Pacific Coast, which would allow major shipments to Asia for the first time.

The concept, which he called a "nation-building exercise", is already sparking friction with aboriginal groups and environmental activists, who say such pipelines would present oil-spill risks in environmentally sensitive areas in the British Columbia interior and in coastal waters.

More than 60 British Columbia aboriginal groups flexed their muscles on Thursday by saying they had formed a united front to oppose all exports of crude oil from the Alberta tar sands through their territories.

Such a ban would create a roadblock for Enbridge Inc's planned C$5.5 billion ($5.4 billion) Northern Gateway pipeline, which would transport tar sands crude to the British Columbia coast.

Oliver would not speculate on what the legal implications for the government might be if native communities maintain their opposition to the Northern Gateway or subsequent proposals.

Enbridge has said it is still in talks with native communities, offering a 10 percent interest in the project and as much as C$1 billion of community development money. One group, the Gitxsan First Nation, said on Friday it had agreed to support the pipeline, saying it would get C$7 million in benefits.

"It has to be built in a way that takes into account the environmental impact and the needs and the wishes of the aboriginal community," Oliver said. "I think that can be done. I'm not saying it will be easy."

West Coast oil routes represent "an enormous opportunity" for aboriginal groups, offering badly needed economic development, education and jobs, he added.

The Canadian Association of Petroleum Producers, the industry's main lobby group, has said production could approach export capacity as early as 2015 without new pipelines and that could slow investment.

Oliver said expansions to current systems could push that out to 2018, but the issue remained crucial and showed the need to move forward with his plans to streamline approvals major projects.

"This decade we're going to confront that issue," he said. "It's a really big issue. That's the key reason why I think improving the regulatory process is a key objective."

($1=$1.02 Canadian)

Editing by Peter Galloway and Rob Wilson

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