The head of one of Canada’s largest midstream oil and gas operators says attracting private capital for another pipeline will require permitting reform and clearer assurances from Ottawa. Pipeline operator Keyera Corp. is set to become a national-scale natural gas liquids (NGL) company when its $5.15-billion acquisition of Houston-based Plains All American Pipeline LP’s Canadian NGL business closes early next year. NGLs include condensate — the blending agent that keeps oilsands barrels flowing out of Western Canada — as well as fuels such as propane and butane, used in everything from home heating and cooking to petrochemical production. By acquiring Plains’ NGL pipelines and assets, Keyera will extend its reach into Eastern Canada and the United States, creating a cross-country corridor for Canadian NGLs. Chief executive Dean Setoguchi said the deal also puts strategically important energy infrastructure into Canadian hands. The company is betting that steady oilsands growth will continue to underpin long-term demand for condensate. Here, he discusses consolidation in Canada’s oilpatch, why regulatory uncertainty has driven up the cost of major pipelines, and how Ottawa’s new deal with Alberta could shape future investment. Financial Post: The Ottawa–Alberta memorandum of understanding (MOU) is being described as a catalyst for growth, even if it doesn’t immediately produce a new pipeline. What matters most to you in that agreement? Dean Setoguchi : What’s most exciting is we’re headed in the right direction. For a long time, it’s been very frustrating, and I’m not just saying that from a Keyera or industry perspective, but just as a born-and-raised Canadian. We’ve had a lack of direction. It starts with a vision and I like what the prime minister is saying. And, yes, it’s just an MOU, but we’ve got to start somewhere. Alberta hasn’t had a great relationship with the federal government, and if we’re going to be successful, we have to work as one country. We’ve got to start thinking about what is best for Canada. For us to attract more investment in Canada, we have to really reform our policies and our regulations. Investors see it as risky if they don’t have clarity on where carbon taxes are going: clean electricity regulations, emissions caps, tanker bans and things like that. There has to be 100 per cent clarity on what those policies are. No one is going to build a pipeline without that certainty. It’s just not going to happen. Part of that is regulatory and permitting reform, too. We always think it’s a lot of money to build a pipeline like Trans Mountain or Coastal GasLink. Those pipelines would cost a lot less if we had the right regulatory and permitting processes. Trans Mountain should cost less than half of what it cost. But we have too many headwinds that we create for ourselves in Canada. If we can get that policy reform, it would lower the hurdle rates for someone to make an investment to build another pipe. FP: How important is clarity around carbon pricing in that equation? DS: There has to be clarity around the carbon tax rate. Our industry wants to be responsible. I’m very proud to say that in 2020, we set a target to reduce our carbon intensity by 25 per cent by 2025, and we actually achieved it a year early in 2024. But you have to remember that there’s no other major producing country that has a carbon tax like ours. While a carbon tax is good, if it’s too high, it’s going to make us uncompetitive. We can only withstand so many headwinds before it affects competitiveness. FP: Why are NGLs, especially condensate, so important for the oilsands? DS : One of the important components of the NGL mix is condensate. Oilsands production is very viscous; it’s almost like peanut butter at ambient temperatures. You need a light substance to blend with it in order for it to flow in a pipeline. That’s condensate. As oilsands production grows, so does the demand for condensate. We’re seeing a tremendous amount of condensate being drilled with natural gas, especially in the Montney and Duvernay formations in northwest Alberta and British Columbia. We provide that service of delivering that condensate from the wellhead, processing it and moving it through our system. About two-thirds of the condensate used as diluent comes off our system. We provide that essential service for oilsands companies to enable their growth. When we think about the oilsands, there’s over a trillion dollars’ worth of reserves sitting in the ground. The world is going to consume oil for many years to come. So, why shouldn’t Canada be a responsible supplier to the world and allow Canadians to prosper from it? For Keyera, the first thing we want is what’s good for Canada and what’s good for Alberta’s industry, and we’ll make sure we provide services around that. We are a big supplier of condensate and diluent to the oilsands, so we help enable that growth. And as producers produce more of this condensate to feed oilsands demand, they’re also producing a lot of propane, butane and ethane with it as well. Those are other products that we also handle and get to high-value end markets so that we can enhance the netbacks — the margins — for our producers. FP: Why did the deal with Plains make strategic sense to Keyera and why does it matter that these assets will be under Canadian control? DS : They’re a company that has most of their assets in the U.S.; the focus is down there. The Canadian asset base was more of a cash cow, and so they weren’t making a lot of big investments in Canada. If you think about the prime minister’s vision of making Canada an energy superpower and leveraging our natural resources, a lot of that has to stem from us being a competitive supplier to the world. With the Plains platform, we’re going to be a much more efficient aggregator of those NGLs, and our distribution system to get those products to market will be far superior. Our assets are centred in Western Canada, while theirs extend across the country. That will enable us to efficiently access consuming markets across the Prairies, into Sarnia, and into the northeastern United States, including Michigan and Wisconsin. As a Canadian company, we’re going to reinvest in Canada. We’re going to pay more taxes here. We hire more people here. We also do a lot of work in partnership with Indigenous groups. One of the pipeline projects we sanctioned this year awarded more than 90 per cent of its contracts to Indigenous-owned or Indigenous-affiliated entities. It’s a win-win for all Canadians for a Canadian company to have this asset base. FP: Do you see the Plains deal as part of the consolidation trend we’ve seen in other parts of the energy industry? DS : I think, generally, there will be more consolidation. And it’s the exact same thing that’s happening in the United States. It’s just all about efficiencies. You’re trying to create the most efficient system. The producers are doing it. The infrastructure companies are doing it. Service companies are doing it. And when you look at it from a collective perspective, it makes our industry as a whole more competitive, so we can compete globally. When we talk about the ambitions to build more pipelines, more LNG, more export capabilities off the West Coast of Canada, yes, pipeline egress and having that capacity are important, but you also have to have a very competitive supply cost to be able to compete in those global markets on the water. And we are doing our part to make our industry more competitive. FP: The timing of this deal increases Keyera’s exposure to frac spreads — the margin between natural gas prices and the value of natural gas liquids — just as gas prices are recovering after several weak years. How concerned are you that those spreads could remain under pressure? DS : First of all, there’s still going to be some variability in natural gas pricing, and it’s because we have so much supply in Western Canada and limited takeaway capacity. That’s always been our bottleneck. That’s why there are times when you get too much supply relative to takeaway capacity, and prices are soft at times. The good thing about our business is that it’s centred around natural gas liquids. For producers, that’s where they get a lot of their economics, and a lot of times they don’t make a lot of money off the natural gas itself. When we think about frac spreads over the long term, we think those are going to be relatively strong. And we believe that’s going to benefit us, but also the producers as well because they rely on the economics associated with the NGLs. Why Tim Hodgson thinks energy is Canada's ace card in a changing world orderWorld watches as Ottawa's bullish shift on LNG puts wind at the back of two major projects • Email: mpotkins@postmedia.com