The Role of the National Energy Board in Regulating Access to Pipelines
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University of Calgary PRISM: University of Calgary's Digital Repository Graduate Studies The Vault: Electronic Theses and Dissertations 2014-07-10 The Role of the National Energy Board in Regulating Access to Pipelines Hocking, Jennifer Hocking, J. (2014). The Role of the National Energy Board in Regulating Access to Pipelines (Unpublished master's thesis). University of Calgary, Calgary, AB. doi:10.11575/PRISM/28362 http://hdl.handle.net/11023/1616 master thesis University of Calgary graduate students retain copyright ownership and moral rights for their thesis. You may use this material in any way that is permitted by the Copyright Act or through licensing that has been assigned to the document. For uses that are not allowable under copyright legislation or licensing, you are required to seek permission. Downloaded from PRISM: https://prism.ucalgary.ca UNIVERSITY OF CALGARY The Role of the National Energy Board in Regulating Access to Pipelines by Jennifer Hocking A THESIS SUBMITTED TO THE FACULTY OF GRADUATE STUDIES IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS FACULTY OF LAW CALGARY, ALBERTA July, 2014 ©Jennifer Hocking 2014 Abstract This thesis examines National Energy Board (NEB) decisions, legislation and policy documents regarding access to oil and natural gas export pipelines. The NEB approach to regulation of access to pipelines has changed over time as oil and gas markets have changed. Originally, oil pipelines were entirely common carriers. In the last fifteen years, the NEB has approved new oil pipelines in which the majority of capacity is subject to firm contracts, provided that certain conditions are met. Currently, capacity in oil export pipelines is tight. The thesis recommends that the NEB codify its current approach to access to oil export pipelines, with some minor improvements, to provide certainty and transparency. Natural gas pipelines are contract carriers. As there is currently adequate capacity in natural gas export pipelines, no changes to the NEB approach to access to natural gas pipelines are recommended at this time. ii Acknowledgements I could not have completed this thesis without the support of many people. I thank my supervisor, Professor Nigel D. Bankes, for sharing his extensive knowledge with me. Nigel, thank you for your exceptionally sound advice and your encouragement. I am also grateful for scholarships from the Estate of John Petrie, QC, from the Faculty of Graduate Studies, and the Government of Alberta. I thank the oil and gas industry representatives that made time to be interviewed and to provide their views. These interviews were invaluable in helping me to understand the context for the National Energy Board decisions I reviewed. I am profoundly grateful to my family for their support. I thank my husband, Jim Beattie, my parents, Martin and Diana Hocking, my husband’s parents, Janet and John Beattie, my sister, Philippa Hocking, and my brothers-in-law, Kurt Edwards and Doug Beattie. I also thank Dr. Robert L. Mansell of the Department of Economics for his detailed comments, which I received after my examination. iii Table of Contents Abstract ................................ ................................ ................................................................ ............................... ii Acknowledgements ................................ ................................ ................................ ............ iii Table of Contents ................................ ................................ ................................ ............... iv List of Figures and Illustrations ................................ ................................ ........................... x Chapter 1: Introduction and Methodology ................................................................ ................................ .....1 1.1 Introduction ................................ ................................ ................................ ................. 1 1.2 Research Question ................................ ................................................................ ................................ ....... 2 1.3 Importance of Oil Exports to the Canadian Economy ................................ ................. 2 1.4 Additional Oil Export Pipeline Capacity Needed ................................ ....................... 5 1.5 Capacity in Natural Gas Export Pipelines ................................................................ ................................ ...9 1.5.1 TransCanada Mainline ................................ ................................ ........................... 9 1.5.2 BC Westcoast Pipeline ................................ ................................ ......................... 10 1.5.3 Alliance Pipeline ................................ ................................................................ ................................ ..11 1.5.4 Conclusion regarding Na tural Gas Pipeline Capacity ................................ .......... 11 1.6 Research Methodology ................................ ................................................................ .............................. 11 1.6.1 Literature Review ................................ ................................................................ ................................ .12 1.6.2 Review of Decisions ................................ ................................ ............................ 13 1.6.3 Industry Interviews ................................ ................................................................ .............................. 14 1.7 Structure of Thesis ................................ ................................................................ ................................ ..... 14 Chapter 2: Overview: Oil and Gas in Canada ................................................................ .............................. 18 2.1 Introduction ................................ ................................ ................................ ............... 18 iv 2.2 History of Oil Pipelines .............................................................................................18 2.3 History of Natural Gas Pipelines ..............................................................................19 2.4 The Creation of the National Energy Board (NEB) ..................................................20 2.5 The Crude Oil and Natural Gas Supply Chains .........................................................20 2.6 Oil Pipelines as Common Carriers; Natural Gas Pipelines as Contract Carriers ......21 2.6.1 Oil Pipelines as Common Carriers .......................................................................22 2.6.2 Natural Gas Pipelines as Contract Carriers ..........................................................25 2.7 Deregulation of Oil and Gas Prices ...........................................................................28 2.8 Major Long-Distance Oil Pipelines Today ................................................................33 2.8.1 Enbridge Pipelines ...............................................................................................36 2.8.2 Trans Mountain Pipeline ......................................................................................38 2.8.3 Spectra Energy Express – Platte ..........................................................................39 2.8.4 Keystone Pipeline System ....................................................................................40 2.9 Major Long-Distance Natural Gas Pipelines Today .................................................43 2.9.1 TransCanada Mainline .........................................................................................44 2.9.2 Proposed Energy East Project ..............................................................................44 2.9.3 Trans Quebec and Maritimes Pipeline Inc. ..........................................................46 2.9.4 BC Pipeline ..........................................................................................................46 2.9.5 Maritimes and Northeast Pipeline ........................................................................46 2.9.6 Alliance Pipeline ..................................................................................................47 2.10 The Development of Pipe-on-Pipe Competition for Oil Pipelines ..........................48 2.11 The Development of Pipe-on-Pipe Competition for Natural Gas Pipelines ............50 2.12 Conclusions .............................................................................................................52 v Chapter 3: Economic Justification for Regulation of Oil and Natural Gas Transmission Pipe lines as Natural Monopolies ................................ ............................ 54 3.1 Introduction ................................ ................................ ................................ ............... 54 3.2 Economic Theory ................................ ................................................................ ................................ ...... 55 3.2.1 The Benefits of Competition ................................ ................................ ................ 55 3.2.2 Competition Ineffective in Natural Monopolies ................................ .................. 56 3.2.3 Regulation as a Substitute for Competition ................................ ......................... 61 3.2.4 Oil and Natural Gas Transmission Pipelines as NaturalNatural MonopoliesMonopolies