CANADA A family plan to pump ’s oil Keystone, a pipeline to carry Canadian oil through the U.S., is in limbo. Oil producers are betting on an alternative.

BY RICHARD VALDMANIS AND DAVE SHERWOOD

NOT STANDING STILL: , the company founded in 1924 by K.C. Irving (statue pictured), is pushing ahead with an ambitious energy project. REUTERS/DEVAAN INGRAHAM

SPECIAL REPORT 1 CANADA A ‘PLAN B’ FOR KEYSTONE

SAINT JOHN, , 27 MARCH , 2014

eystone XL, a pipeline proposal to pump Canadian through Kthe heart of America, has alarmed environmentalists and become one of the most contentious issues of the Obama presidency. But there is a “Plan B” to cut the out of the picture, and it is championed by one of Canada’s wealthi- est business dynasties. Since 2012, the billionaire Irving fam- ily has been advocating a proposal called COMPANY TOWN: The Irvings dominate New Brunswick’s economy and operate Canada’s largest . The 2,858-mile (4,600-km) in Saint John, source of nearly 1 in 3 tanks of gasoline imported to the U.S. East Coast. pipeline would link trillions of dollars REUTERS/DEVAAN INGRAHAM worth of oil in land-locked fields in the western province of to an Atlantic port in the Irvings’ eastern home province breathed new life into it. of New Brunswick, north of , creat- The family’s industrial empire in New ing a gateway to new foreign markets for Brunswick, a century in the making, can Canadian oil. C$1.2 help make it possible: Here in Saint John, The C$12 billion ($10.8 billion) line, their flagship company, Irving Oil, runs the which would pump 1.1 million barrels per billion East Coast’s only ice-free, deepwater oil day, would include about 1,865 miles of Projected annual savings for port capable of receiving the largest crude existing natural gas pipeline converted to Irving Oil if Energy East tankers. It also operates Canada’s largest oil carry oil. The rest would be new construc- goes ahead refinery - the source of nearly one in three tion, most of it along the banks of the Saint tanks of gasoline imported to the East Lawrence River and into New Brunswick. Source: Deloitte Coast of the United States. The industry is keen. Pipeline company The Irving advantage extends beyond TransCanada Corp, which is also back- say. If it is built, it will stop with them, too, infrastructure. The family’s companies gen- ing Keystone, unveiled plans in August to at a C$300 million marine terminal they erate two-thirds of New Brunswick’s global build and operate Energy East by 2018. are planning to build in Saint John, New exports and are the province’s largest private Customers as far away as India are lined up Brunswick, to service the project. sector employer. Their buildings dominate to take the oil, according to New Brunswick The Irvings also would be among the the Saint John skyline: Irving’s Atlantic provincial officials. Canadian oil compa- top beneficiaries. A study commissioned by Wallboard, , Irving Pulp and nies, frustrated by Washington’s dithering TransCanada and prepared by Deloitte cal- Paper, Irving , the Irving refin- on Keystone, say they have seized on it as culated that the pipeline’s access to cheaper ery; many of them chuffing white smoke a viable alternative to the route through the crude from the west would save as much as into the winter air around downtown. That United States. C$1.2 billion per year for a refinery owned commerce – and a strong grip on the prov- “The genesis of this is really the Keystone by the Irvings, while creating 121 direct ince’s media - gives the Irvings significant XL pipeline, and the continuing political long-term jobs in sparsely populated New political influence in a heavily indebted obstacles to getting approval for it,” said Brunswick. part of Canada where one in 10 people are Frank McKenna, former New Brunswick The idea of a pipeline from west to without a job. premier, Irving family friend and vocal ad- east was not new: TransCanada had been Irving Oil’s CEO, Paul Browning, said at vocate of the project. looking at a possible route that would the formal announcement of Energy East The Energy East proposal began with stop in , but that plan had not left that the company was “extremely pleased the Irvings, people familiar with the project the drawing board. The Irvings’ proposal to be partnering with TransCanada.”

SPECIAL REPORT 2 CANADA A ‘PLAN B’ FOR KEYSTONE

From west to east Irving Oil and TransCanada are planning to build a C$12 billion pipeline that will carry 1.1 million barrels of crude oil per day from Alberta to Eastern Canada. The 2,858-mile Energy East Pipeline will consist of a combination of newly constructed pipelines and existing natural gas pipeline that will be repurposed to carry oil.

Oil sands Alberta Sask. CANADA Edmonton HARDISTY Proposed Energy East Quebec Winnipeg pipeline New Brunswick

Proposed Keystone Keystone XL pipeline Ottawa pipeline SAINT JOHN Chicago Omaha U.S.A. STEELE CITY Washington D.C. PATOKA

CUSHING Keystone 500 miles Gulfcoast pipeline Atlantic 500 km NEDERLAND Ocean HOUSTON Sources:TransCanada; MEXICO Thomson Reuters.

Representatives of both the Irving family on New Brunswick’s northern coast. A service station, and the hundreds that fol- and Irving Oil declined comment for this Scottish immigrant named James Dergavel lowed, became the center of a conglomer- article. Irving built a saw mill and a general store in ate. Though K.C. died in 1992, many here A TransCanada spokesman said the the late 1800s near stands of spruce and fir. still refer to the man rather than to the Energy East project was the culmination of But it was J.D.’s son, Kenneth Colin, born business empire, a feature of the company- hard work by “many different parties.” in 1899, who drove the family’s success. town feel of this Canadian province. In his early 20s, K.C., a car salesman, “If it moves in New Brunswick, the MEET THE IRVINGS convinced his father to let him open a gas Irvings are involved,” says Donald Savoie, a The Irving empire got its start more than station in front of the general store to sell New Brunswick historian. 130 years ago, in a fishing village huddled fuel for the Model Ts he retailed. That Today, the Irving holdings span 162

SPECIAL REPORT 3 CANADA A ‘PLAN B’ FOR KEYSTONE

companies in the Atlantic provinces. Two of K.C.’s sons, Arthur and James, are now the family’s most powerful members. They own Irving Oil and forestry giant J.D. Irving, respectively, the group’s two largest companies. Forbes Magazine’s 2014 bil- lionaires list placed Arthur’s net worth at around C$6.1 billion and James’ at C$6.7 billion. Irving-owned companies build warships, sell French fries, run a railway network and operate a private security firm. The family is also a huge landowner. Its 1.2 million acres of timberland in Maine made it the No. 5 U.S. landholder in 2012, according to the Land Report. In Canada, the Irvings own more than 2 million acres, and operate timber licenses on another nearly 2.5 million acres of public land, ac- ALL IN THE FAMILY: James Irving (pictured) controls the Irving business dynasty with his brother cording to a 2013 audit by KPMG. Arthur. Their combined net worth has been estimated at C$13 billion. REUTERS/SANDOR FIZLI Canadian Business Magazine’s 2014 edition ranked the Irving family third on its Top 25 most wealthy Canadians list, If it moves in New Brunswick, And they were listening keenly. placing its riches at some C$7.85 billion – the Irvings are involved. “It was like a light bulb turned on,” said nearly the size of the province’s total pro- Leonard. “It was very clear from the reac- jected revenues for the year. Donald Savoie tion that this was an idea that had tremen- Historian dous potential.” PLAN ‘B’ According to Leonard and others at the The Keystone XL pipeline was proposed government traveled to the western meeting, Mike Ashar, at the time the CEO in 2008 as a way of getting 830,000 barrels Canadian oil hub of Calgary to present of Irving Oil, outlined how a pipeline east per day of crude from Alberta to the U.S. their alternative: a west-east oil pipeline across Canada to Saint John could help get market. It would start near the Canadian that would go all the way to the Atlantic. Alberta’s oil efficiently to the world market, town of Hardisty, Alberta, and terminate in Irving Oil had asked for the meeting, ac- paving the way for higher prices and the Steele City, Nebraska. There, it would link cording to a person who attended. Waiting potential for expanded production. up to an existing pipeline network termi- for them in a conference room were Ashar said the pipeline could provide a nating in Nederland, Texas, near the coast Canadian provincial energy officials, execu- reason to build Canada’s first oil sands up- of the . tives from TransCanada, and representa- grader - a facility that processes tar sands TransCanada says the project would be tives from industry heavyweights Canadian into a product that can be more easily re- “the safest and most advanced pipeline op- Natural Resources, , Suncor, fined into gasoline, diesel and other fuels eration in North America.” U.S. environ- and Shell Canada. - on the Atlantic coast. There, lower labor mental groups say it will threaten American Representatives of all the companies in- costs and easy access to imports could re- groundwater resources and hasten climate volved declined to comment on the record duce the facility’s multi-billion dollar price change by fuelling expansion of Alberta’s about the meeting. tag by 40 percent, according to an attendee oil sands. The Obama administration has Alberta’s oil minister, Ken Hughes, who asked not to be named. delayed making a final decision that could whispered into the ear of his counterpart The need for a new route for Canada’s oil anger environmentalists, a key constituency from New Brunswick, Craig Leonard. was acute, say industry experts. While the of the Democratic president. Never before, Leonard remembers Hughes United States delayed Keystone, Canadian In October 2012, representatives saying, had he seen so many of the major supply mounted and prices dropped. The from Irving Oil and New Brunswick’s oil sands players together in a single room. Canadian Imperial Bank of Commerce

SPECIAL REPORT 4 CANADA A ‘PLAN B’ FOR KEYSTONE

The Irving empire The family’s wealth is concentrated in Saint John, NB, where most of its businesses are headquartered.

IRVING OIL (REFINERY) BUSINESS IRVING LUMBER KENT LINE Oil/gas KENT Forestry/paper ATLANTIC WALLBOARD products TELEGRAPH- JOURNAL Media COBALT PROPERTIES IRVING PAPER Other

NB&M RAILWAYS

IRVING PULP & PAPER IRVING TISSUE

SAINT JOHN New Brunswick

Partridge Island

1 mile 1 km CANAPORT OIL & LNG TERMINAL Note: Kent Line provides bulk and project cargo services. Kent is ’s largest retail chain for home improvement products, with 42 retail locations in New Brunswick, , Prince Edward Island, and Newfoundland. Sources: J.D. Irving, Irving Oil, Statistics Canada, Reuters

estimated the glut and lack of pipeline ca- who is now on the board of oil sands pro- office-holders in 2012 than in the two pre- pacity had cost Canada C$25 billion in oil ducer Canadian Natural Resources. vious years combined, according to federal revenues in 2012. As Irving Oil prepared to make its sales lobbying disclosure documents reviewed by “The value destruction as a result of not pitch to TransCanada and the oil sands pro- Reuters. These included repeated meetings getting our crude to market is a staggering ducers, it stepped up its lobbying efforts in with Joe Oliver, then Canada’s natural re- cost to Canada. It needed a solution,” said Ottawa. Irving Oil executives held more sources minister, the ministry’s director of oil former New Brunswick premier McKenna, meetings with Canadian regulators and sands, advisors to Prime Minister Stephen

SPECIAL REPORT 5 CANADA A ‘PLAN B’ FOR KEYSTONE

Harper, and environment ministry officials. Now Energy East has the public sup- port of Canada’s conservative government and the government of New Brunswick, where much of the new pipeline construc- tion would take place. The project has also moved much more quickly, from concep- tion to requesting regulatory approval, than its all-Canadian rival, Northern Gateway, which would transport oil over the Rocky Mountains to the Pacific Coast. The Northern Gateway project, an- nounced in 2006, took four years to file its request and still does not have approval due to questions about how it would install and operate the line in an environmentally sen- sitive region. By comparison, TransCanada filed a preliminary request for Energy East with the in FIERCE OPPOSITION: Environmental groups have pressured the Obama administration to reject February and plans to submit the full re- Keystone, worried that it will increase greenhouse gas emissions. REUTERS/ STEPHEN LAM quest this summer, just over a year after the project was announced. according to Statistics Canada. ‘BRING IT ON’ It isn’t clear that the Energy East proj- New Brunswick has also moved fast. Just ect would do much to help, though. The two months after the initial Calgary meet- Deloitte study estimated that the pipeline ing, the provincial legislature was ready to would create 1,427 direct jobs in the devel- 10% New Brunswick’s unemployment act. The assembly voted unanimously to en- opment and construction phases in New dorse “construction of a west-east crude oil rate is above the national average Brunswick, but only 121 jobs long-term. pipeline to bring western crude oil to Saint Mark Tunney, former editor-in-chief John” eight months before the project was Source: Statistics Canada of Irving’s flagship Saint John Telegraph- officially unveiled. Journal, attributes local support for the If the Energy East pipeline is built, pipeline in part to the Irving family’s con- it would be a blow to those who oppose every detail scrutinized by U.S. media and trol of media in the province. The Irvings’ oil sands development on environmental environmental groups, who have fervently owns all the province’s grounds: Energy East would pose no less questioned the project’s promises for job English-language daily newspapers and a threat than Keystone. It could even be a creation, spill-prevention and climate three-quarters of its weeklies – 20 news- bigger problem, Canadian environmental change impacts. papers in all. They also own Acadia groups say, because the line would be longer Supporters of Energy East say the eco- Broadcasting, which operates 10 radio sta- and carry more oil. Their opposition hasn’t nomic environment in New Brunswick tions in three provinces. gained much traction. explains local eagerness: The province’s A March 4 editorial in the Telegraph- “Unlike in other provinces, we just said, 10 percent unemployment rate is 3 points Journal called on provincial politicians to ‘bring it on,’” said David Coon, leader of above the Canadian national average. stand united in support of Energy East and New Brunswick’s Green Party, which has Saint John could also use a boost. against the “small minority” who oppose no seats in the assembly. “There was no Municipal records show a population de- it. The editorial was written in reaction to serious debate. No serious discussion. No cline of 25 percent since the early 1970s. It a small public protest against the pipeline inquiry,” he said. has the 6th highest concentration of low- days earlier. Keystone, by contrast, has seen virtually income residents among cities in Canada, Patricia Graham, the ombudswoman

SPECIAL REPORT 6 CANADA A ‘PLAN B’ FOR KEYSTONE

HOME PORT: If Energy East goes ahead, the Irving Canaport tanker facility in Saint John will become a gateway to new foreign markets for Canadian oil. REUTERS/DEVAAN INGRAHAM

for Brunswick News, which publishes the LNG terminal for 25 years, in hopes of is also the site of a shelved refinery proj- Telegraph-Journal, said the company was attracting more jobs to the depressed city. ect with energy giant BP, for which Irving committed to providing balanced coverage, According to registry documents the ter- still holds a valid Environmental Impact including of Irving ventures. minal pays C$500,000 in taxes a year, on Assessment. “I am unaware of any facts that dem- a property-value assessment of C$300 mil- Irving Oil has declined to comment pub- onstrate that the number of papers owned lion - the province’s most valuable private licly about the possibility of building an up- equates to poor journalism,” she said. “But real estate. It employs 40 people, according grader on Mispec point. But a former Irving management at Brunswick News is sensi- to its website. official who spoke on condition of anonym- tive to these types of concerns and won’t shy By contrast, the , New ity confirmed the idea was being studied. away from considering or addressing them.” Brunswick hospital is valued at half the price Former premier McKenna said Irving The Irvings are a major employer. They of the LNG terminal but pays five times Oil was assembling the pieces for what decline to say how many people they employ more in taxes and employs 2,899 people. could become a petrochemicals hub. today, but a 2006 Canadian Senate study es- “If we can get a million barrels a day ASSEMBLING THE PIECES timated their workforce at one in 12 of New coming to the East coast, it takes some of Brunswick’s 750,000 people, and concluded By early 2013, at Irving Oil’s headquarters the stranglehold away that the U.S. market that the family’s combination of a large in- in Saint John on the fog-shrouded Bay of has on us,” he said. “Let’s face it, for Canada, dustrial presence and high media owner- Fundy, the plan to ship crude across the developing our raw materials in our own ship concentration in New Brunswick was Canadian continent was proceeding apace. country is probably in our best interests.” “unique in the developed world.” Under a corporation named 658273 In a Reuters interview in December, N.B. Ltd., the family consolidated land FOR MORE INFORMATION Saint John Mayor Mel Norton said the holdings on Mispec point in East Saint Richard Valdmanis, Bureau Chief, Boston Irvings had earned a “social license” - or John, taking small plots of land they had [email protected] popular support - to industrialize the city already purchased from local residents and Ross Colvin, Top News Editor and win public incentives to do so, mainly bundling them into larger lots, according to [email protected] because of their importance to the economy. registry documents. Sara Ledwith, Assistant Enterprise Editor As an example: The New Brunswick leg- Blanketed in forest, Mispec is home to [email protected] islature passed a law in 2006 allowing Saint Irving Canaport, a large industrial facil- Michael Williams, Global Enterprise Editor John to freeze taxes on an Irving/ ity already receiving crude supertankers. It [email protected]

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