Alberta’s landlocked oil producers facing pipeline bottlenecks to the south, west and east are welcome to ship their product north, according to Northwest Territories leader Bob McLeod.
McLeod, 60, said the territorial government would consider proposals to ship crude from Alberta oil sands producers, which include Suncor (SU) Energy Inc. and Canadian Natural Resources, to the Arctic. The territory would consider piggybacking on any new infrastructure to ship its own oil and gas, he said.
“If somebody comes forward with a proposal to go north, we would assess it like any other project,” McLeod said in an interview at Bloomberg’s offices in Ottawa. “If it goes through, we would be able to export our oil and gas as well.”
Canadian producers and policy makers are encouraging new pipeline construction to reach coastal refineries and overseas markets and relieve a glut of supply that has constrained prices. Environmental and political opposition has delayed TransCanada Corp.’s Keystone XL pipeline to the U.S. Gulf Coast and Enbridge Inc.’s Northern Gateway project to the Pacific Coast.
“The reality is, it’s doable,” McLeod said. “With climate change, the Arctic ice pack has melted significantly.” Asked if Alberta’s difficulties getting oil to market presents an opportunity for his region, McLeod said: “We think so.”
“The Northwest Passage is open,” he said, referring to a route between the Atlantic and Pacific Oceans that reduces the distance traveled between Shanghai and New Jersey by 7,000 Kilometers (4,305 miles), compared with the route through the Panama Canal, according to federal government estimates.
McLeod said such a plan would require building a port on the Beaufort Sea, and his government has been lobbying the federal government about the idea.
“Alaska is in a similar situation,” McLeod said. “We need to find a way to take advantage” of our oil and gas potential.
A lack of pipeline capacity to ship increasing volumes of crude to higher-paying markets means Canadian heavy oil prices are discounted. Surging U.S. production from reserves such as the Bakken shale formation in North Dakota and less demand due to more fuel-efficient vehicles have exacerbated the drop.
Bottlenecked pipelines and processing costs have cut the price of Western Canada Select, a blend of oil-sands bitumen produced in Alberta, to about $30.50 below U.S. benchmark West Texas Intermediate oil.
The Northwest Territories, the largest of the country’s three territories with GDP of about C$3.5 billion ($3.5 billion) in 2011, has seen its economic output shrink by about one fourth over the past four years amid declining revenue from diamond production.
The territory relies more on mining and oil and gas than any other region in Canada except Newfoundland, with those industries accounting for about 34 percent of its GDP in 2011.
McLeod said his territory, a region almost twice the size of France with a population of 43,000 people, is negotiating the transfer of powers from the federal government that will give it control over resource royalties, in a move he said will help reduce uncertainty for investors.
“We’ll be in a situation where we’ll be making more of the decisions,” McLeod said, adding he expects negotiations to be completed in coming weeks for an April 2014 transfer of power. “The more development we have, the more resource royalties we’ll collect.”
The Northwest Territories and neighboring Yukon territory sit on 408 million barrels of conventional oil reserves and about 500 billion cubic feet of natural gas reserves, according to the Canadian Association of Petroleum Producers.
The territory would also be home to the proposed Mackenzie Valley Pipeline project that would transport natural gas to pipelines in Alberta from the Beaufort Sea. The C$16.2-billion project has stalled amid weak prices for natural gas. Imperial Oil Ltd., Exxon Mobil Corp., ConocoPhillips and Royal Dutch Shell are partners in the project.
The pipeline would tap fields estimated to contain almost 6 trillion cubic feet of recoverable gas.
“We’re just waiting for conditions to be there for the construction to start,” McLeod said.