Canadian energy will remain landlocked and the industry will lose potential overseas customers if the country doesn’t build new pipelines, says a new DBRS report.

More than 90 per cent of Canada’s crude oil is exported to the United States, but American demand for imports has been dropping for several years as the U.S. boosts its own production, according a report released Monday by the credit-rating agency.

With Canadian crude oil production expected to rise to 5.5 million barrels a day in 2030 from four million barrels a day last year, the country must increase sales to India, China and other growing Asian markets, the report says.

But that requires more pipeline capacity through such projects as the TransMountain and Northern Gateway routes to the West Coast and Energy East to the East Coast, which face strong political, environmental and regulatory opposition.

“Energy transportation challenges throw a big question mark over Canada’s energy future, as these hurdles need to be overcome before a successful export push can materialize,” the report says.

“If pipeline infrastructure is not built, Canada’s energy sector increasingly risks the eventual loss of global market share and will remain confined to a North American market that is increasingly dominated by U.S. producers.”

Last week, the three top National Energy Board reviewers overseeing public hearings for TransCanada Corp.’s $15.7-billion Energy East pipeline proposal stepped down amid allegations the panel’s decision-making process had been tarnished.

Public hearings were postponed in Montreal last month after protesters interrupted the proceedings.

Final federal approval is pending for Kinder Morgan’s $6.8-billion TransMountain proposal, which has drawn environmental and legal concerns from the B.C. government and First Nations groups.

Meanwhile, conditional federal approval for Enbridge’s $7.9-billion Northern Gateway plan was overturned by a federal judge in June, sending the scheme back for federal cabinet reconsideration after First Nations consultations.

So far, pipeline companies haven’t felt a significant impact from low oil and gas prices.

But firms could eventually see their credit ratings change without more overseas access, making it harder to sign new deals with customers at current terms, the report says.

“In the medium to long term, concentration in a single market and slower demand growth could lead to increased re-contracting risk when existing transportation contracts roll over.”


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