Irving’s Case for the Energy East Pipeline
11 June 2016
National Post – (Latest Edition)
Story by Claudia Cattaneo in Saint John, N.B.
Playing the piper
IN AN EXCLUSIVE INTERVIEW, ARTHUR IRVING, THE SPOTLIGHT-SHY HEAD OF IRVING OIL, MAKES THE CASE FOR ENERGY EAST — A PROJECT HE BELIEVES ISN’T JUST GOOD FOR HIS COMPANY, BUT IS IMPORTANT FOR ALL OF CANADA
New Brunswick is an unlikely place to build an oil refining and marketing powerhouse, but Arthur Irving has managed to do just that by earning the respect of his customers, hiring loyal employees and shrewdly using his family’s power to get what he and his company needed, all the while managing to stay out of the media spotlight.
But his latest and perhaps grandest plan yet, the proposed Energy East pipeline, may have more hurdles than even Irving can handle. To see it succeed, he’s prepared to change his tactics. “We have to make the right moves to stay in the game,” the 85-yearold patriarch of the Irving dynasty’s oil branch said in a rare and exclusive interview, his confident voice filling the wood-panelled boardroom of Irving Oil’s modest Saint John, N.B., headquarters, once a garage where his dad, K.C. Irving, used to paint Fords.
Irving Oil Ltd. has partnered with Calgary-based TransCanada Corp. on the proposed $15.7-billion Energy East project. It would give Irving Oil — which has grown from a single service station that opened in 1924 in the coastal town of Bouctouche — a national presence and a big role in the export of Western Canadian crude from the East Coast.
But pipelines are not in public favour and the opposition to Energy East has been building as the National Energy Board grinds ahead with its regulatory review of the 1.1-million-barrelsa-day project. Prime Minister Justin Trudeau is staying on the sidelines for now, Quebec and Ontario have built political roadblocks, and environmentalists just want it gone.
And so after a lifetime of shunning the spotlight, Irving Oil and its chairman are stepping up to publicly make the case for why the country needs Energy East, and why Irving Oil is well positioned to help bring the project to fruition.
“Nothing would please us more than to get Alberta oil in bigger quantities than we are getting now,” Irving said. “And there isn’t a day that we don’t think about that pipeline coming to Saint John, because guess what? It’s got to come. Alberta needs it, Ottawa needs it, New Brunswick is all behind it, and Canada should be supporting it until we get it.”
For Irving Oil, the idea of Energy East surfaced around 2011, when one of its teams happened to be in Calgary to work on a plan to bring large quantities of oil to Saint John by rail. The group discussed with TransCanada other opportunities to work together.
TransCanada was just beginning to float the idea of Energy East and Arthur Irving quickly got behind it. He felt a pipeline was more sensible and much safer than hauling oil by train. But he believed TransCanada’s original vision, which saw the pipeline end in Quebec, fell short of its potential.
Irving, one of Canada’s wealthiest people, argued with the Calgary-based company, a long-time partner since building a power plant inside his refinery, that using the smaller ships necessary on the St. Lawrence River would mean higher freight rates.
By pushing the pipeline all the way to Saint John, Energy East would benefit by getting access to the Bay of Fundy, where the world’s largest ships could come and cheaply haul western Canadian crude to markets far and wide.
It would also benefit from Irving’s long history of safely moving tankers in and out of the Bay of Fundy, which has the world’s highest tides. Irving’s refinery, meanwhile, would also process some of the Alberta crude to increase its value.
“We will go 50- 50” on the terminal, Irving suggested to TransCanada. “We will build the dock, we will run the dock. We have a lot of experience — since 1970 we have been bringing ships to the Bay of Fundy with crude,” he said. “You own the pipeline and you own the tank farm.”
Eventually, with some handholding by Frank McKenna, the former New Brunswick premier and one- time Canadian ambassador to the U. S., the companies clinched a deal in 2013. Irving Oil agreed to ship 50,000 barrels a day for 20 years and would partner with TransCanada to build its terminal near Saint John and then operate it.
Energy East was officially announced on Aug. 6, 2013. At that point, a second terminal at Cacouna, Que., was proposed. Western producers were concerned about depending entirely on a single export point, and being beholden to the powerful Irving family. But that terminal was shelved due to opposition in Quebec over the potential impact of tankers on beluga whales in the St. Lawrence.
In the project’s final application, submitted by TransCanada to the National Energy Board this past May, Energy East connects to two refineries in Quebec and the Irving facility, but ultimately flows into a single terminal at the Canaport Irving Oil site near Saint John, giving Irving Oil a big piece of one of the largest energy projects on the continent.
Alex Pourbaix, TransCanada’s chief operating officer, said Irving drove a hard bargain, and TransCanada would have pursued its own terminal in Saint John if a deal with Irving couldn’t be made, but negotiations were always respectful since the two companies had a long existing relationship and they had a common goal.
“They have a very longterm experience in processing, transporting, shipping oil in and around that port, and having them as a partner gives TransCanada a great deal of credibility in the community,” he said.
The proposed 4,600- kilometre line involves converting a gas line from Alberta to Quebec and building a new one through New Brunswick. In addition to providing an export outlet, the project aims to replace the 550,000 to 600,000 barrels of offshore oil used daily by Eastern Canada’s refiners with Western Canadian oil.
Irving could envision the full potential of linking Alberta’s oilfields to New Brunswick’s coast because he knew Western Canada’s oilpatch — and its challenges with exporting to the U. S. and to Canada’s West Coast — better than it knew Irving Oil, one side of a familyowned empire that dominates New Brunswick’s economy.
( The other major branch is run by Arthur’s older brother, J.K. Irving, and specializes in forestry, shipbuilding and potato processing.)
Indeed, Irving Oil has generally operated in its own orbit. Its business spans Eastern Canada and is also well established in New England. The western Canadian oilpatch, meanwhile, is generally linked toward the south by pipelines to the U. S. Midwest and the U. S. Gulf of Mexico.
Yet Arthur Irving is by many measures Canada’s most successful oilman. Bloomberg estimates his personal wealth at more than US$ 6 billion. The estimate is likely conservative, but is still larger than the individual oil fortunes built in the West where competition abounds. His brother’s fortune is estimated at US$5.3 billion.
Although Irving has agreed to talk about Energy East, he still doesn’t want to talk about his family’s fortunes.
“We are not interested in showing off what we have or we don’t have,” he said. “We just do what we have to do and it’s been a lot of fun and it still is.”
The Irving Oil name is ubiquitous in New Brunswick. It blares on gas stations, buildings, uniforms and oil tanks, ships and trucks. The company employs more than 3,000 fiercely loyal direct employees and thousands more at its partners and suppliers depend on it.
Many employees are lifers who embrace Irving’s values, including giving back to the community. Irving’s many causes include health care, education and even preserving historic landmarks, such as the Loyalist graveyard next to its headquarters.
“We have always, always made sure that our gasoline, our jet fuel, our heating oil, our diesel fuel, our marine gasoil, our asphalt, our quality will be right,” Arthur Irving said. “We’ll be price competitive, and we’ll deliver on time, and if we owe you any money, we will pay you on time — and earn respect.
“And if we tell anybody we will do something, it’s guaranteed that we’ll do it. If it takes our shirt, it will take our shirt. The aim is that we never let up on doing what we do and everybody who works for the company has that same mandate.”
That relentless drive has also given the Irving companies unrivalled clout in New Brunswick, a fact that tends to discourage new entrants, said William Parenteau, a University of New Brunswick professor who specializes in environmental history and the political economy of the Atlantic region.
“In terms of major industry, there is not much left other than the Irvings,” Parenteau said, adding it’s hard to gauge their full economic impact because the family’s businesses —perhaps as many as 250 different companies — are closely held and don’t disclose financial information.
Although much of t he family’s operations are based in New Brunswick, Irving Oil has looked at growth based on Alberta oil before.
In Jacques Poitras’ book, Irving vs. Irving, chronicles the family’s conflicts over the splitting of the fortune of founder K.C. Irving, Arthur and J. K.’s father, which resulted in the oil company being separated from the conglomerate in 2008. He points out that the Irvings were invited by Ottawa in 1958 to import Alberta oil. At the time, they were not interested because they could import cheaper oil from the Middle East.
What’s changed since then is that Energy East would allow Irving Oil to tap western oil that is now heavily discounted.
But the company now recognizes there is lack of awareness about its business and its safety record outside Eastern Canada, and that’s not helping to get the public onside with Energy East.
The company has “literally courted people to come down” said Mark Sherman, Irving Oil’s chief operating officer, and a former executive in the Syncrude oilsands project in Alberta.
“No one was really aware of the facility and the situation here,” he said. “People can hear that we might be the largest refinery in Canada, but they didn’t really appreciate the quality of the facility and the quality of the people in the organization.”
Leading western Canadian oilmen — including TransCanada’s entire board — have visited Irving Oil’s facilities, an employee newsletter has been launched, and president Ian Whitcomb, a former Deloitte LLP partner and longtime member of Irving’s inner circle, last month spoke about the company at the annual investment symposium of the Canadian Association of Petroleum Producers.
Whitcomb took over as president last year, succeeding a couple of outsiders who left abruptly — Mike Ashar and Paul Browning — as well as Arthur Irving’s oldest son, Kenneth, who ran Irving Oil for a decade before leaving, also abruptly, in 2010 over a disagreement on his inheritance.
Arthur Irving, however, remains in charge of major strategic decisions and goes to the office regularly. It’s unknown how much of the company he owns.
Irving Oil’s core business is still the 320,000- barrel- a- day refinery in Saint John. It sits like a steel fortress on high ground outside Saint John and is announced by a row of whitewashed oil tanks, each one shouting the Irving name in giant letters. From locker rooms to offices and grounds to roads, the facility is spotless. Office workers have refused to trade their collared shirts and ties for the casual clothing that has cropped up in many other organizations, arguing that looking professional inspires confidence.
“We are a hometown company and we want to put the best foot forward every day,” said general manager Dale Cooper.
The refinery started as a modest 40,000- barrels- a- day operation in 1960. The first big expansion was in the 1970s and that took it to 180,000 barrels a day. The next growth spurt was to 265,000 barrels a day in 1998 to 2000. Its current size was achieved through debottlenecking — or making the facility more productive — over the past 10 to 15 years.
Plans to build a second, $ 7- billion refinery nearby in partnership with BP PLC to double capacity were scrapped in 2009, a casualty of the global financial crisis and worries about the weakening demand for gasoline.
Irving Oil feeds the refinery with crude imported by tanker from offshore Newfoundland, the North Sea, and as far away as Venezuela, West Africa and Saudi Arabia. Irving has had a close relationship with the latter since the refinery’s early days, and it wants that to continue even if Energy East moves forward.
Rail shipments from the West started in 2011 but have since fallen off, squeezed by high transportation costs — $15 to $18 a barrel — and low oil prices.
“The advantage of being a coastal refinery and having full access to waterborne crude is we are able to pursue the most economically advantaged crudes for us,” Cooper said. “So, as prices have changed, we have moved back to some of the most traditional sources … to displace barrels coming out of Gulf Coast or Western Canada.”
Irving Oil can already process 50,000 barrels a day of heavy crude from Western Canada, but its upgrading capacity could be increased if Energy East becomes a reality.
Jeff Matthews, chief business development officer, said heavy oil processing could be boosted by adding coking capacity rather than building a standalone upgrader, but there are no firm plans for now.
“It’s a big investment and we will have to really think about that at some point,” he said. “When (Energy East) becomes more of a certain thing, we will put some effort into working with some of the shippers on the pipeline and some of the companies with Western Canada to see if there are more opportunities.”
More than 100 of the world’s largest ships, with capacities ranging from 500,000 to two million barrels of oil, moor every year in the deep waters a stone’s throw away from Irving Oil’s Canaport Terminal. They attach to a floating buoy and pump crude into a hose that aims for another row of white tanks bearing the Irving name.
Many oil companies describe refining as a tough and volatile business. But Irving Oil’s chief operating officer, Mark Sherman, said the company has made it profitable by buying crudes from all over the world, investing continuously to stay competitive, operating a large refinery that gives it economies of scale, and being next to New England, a market of 100 million people where it places 80 per cent of its product.
It helps that as a private company, Irving Oil has lower profit expectations and a longer time horizon than its publicly traded competitors.
“We are only 60 miles from the U. S. border,” Irving said. “It’s a huge market in the U.S., New England, and we are close by, and we run a lot of cars in Boston.”
The refinery accounts for 75 per cent of Canada’s gasoline exports to the U. S. and 19 per cent of all U.S. gasoline imports.
But running a safe operation is just as important to Irving, a proud New Brunswicker who has resisted moving to bigger centres because of his roots in the city and his love for its busy waterways and gentle countryside.
“My dad would always say, and people would say, ‘Why do you hang out here, Mr. Irving?’ ” he said. “But my grandfather never left, my father never left, and we are not moving. This is headquarters, this is home, and we have thousands of people working for Irving, and we are happy to be able to do it.”
Safety is the reason Irving insisted on being in charge of Energy East’s proposed terminal and its marine operations. The terminal would be located on vacant forested land near Canaport, which already houses a liquefied natural gas (LNG) facility in partnership with Spain’s Repsol SA that is underutilized because of poor market conditions for LNG imports and exports.
The company said its safety record so far is unblemished.
“We never had any oil spill in the Bay of Fundy or major incident around importing oil,” Sherman said, despite bringing in more than 100 oil tankers and more than 400 products ships a year. “It’s why in our partnership with TransCanada we feel we are the best to manage the marine end of that business, because that is what we do.”
Irving Oil’s confidence comes from the region’s centuries of experience. Saint John has been a shipbuilding port since the 1700s. Although the tides in the Bay of Fundy are the largest in the world, they are plied with precision by the six Irving Oil- branded ships that take refined products to customers in Boston, across the Maritimes and Quebec. Some sail as far as Florida or Hawaii.
They take turns loading 265,000 barrels each of oil products from two docks at the company’s East Saint John terminal. The operation is completed within 12 hours, so the ships come in and go out in a single tide.
“The marine aspect is critical to our business, because this area of Canada and the U. S. doesn’t have a pipeline infrastructure,” said Michael Thompson, director of logistics and distribution, aboard the Acadian, as the ship filled its belly with diesel and gasoline.
With the refinery running around the clock, and 90 per cent of its output reaching markets by vessel, Irving Oil’s processes, people and infrastructure work closely together to keep product moving and clients satisfied, he said.
But it’s the retail business that is closest to Irving’s heart. That’s where the company started, and that’s what’s keeping Irving Oil an unusually customer-focused oil company.
Irving is known to drop into service stations to do his own quality control, such as visiting bathrooms to ensure they’re clean. He notes proudly that his father opened the first female washroom in a gasoline station in Atlantic Canada.
“Everybody needs respect, and so that was one way to try to show it,” he said.
The flagship of Irving Oil’s retail business is a Big Stop near the town of Salisbury. It’s a giant complex abutting the TransCanada highway, where truck drivers are pampered like luxury hotel guests.
The company owns 20 of these facilities, part of a chain of 900 service stations (some wholly owned, some branded Irving Oil and owned by independent distributors).
Big Stops are so popular that they are tourist destinations. They feature family restaurants, driver lounges with spotless showers and hotel quality white towels, convenience stores and, of course, filling stations and parking.
At the Salisbury location, the restaurant, run by Paul Lavoie and his son Steve, even gets a surge in patrons after church on Sundays.
Darren Gillis, Irving Oil’s general manager of sales and marketing operations, said the company has invested in its retail business to keep up with customer demand, and growth is continuing.
“When the industry moved from service bays to convenience stores because automobiles were more reliable, Irving Oil had to reinvent itself and focus on convenience stores,” he said. “When the trucking industry exploded in the ’ 60s and ’ 70s, we had to reinvent ourselves again and focus on the drivers who were long- haul and professional drivers.”
Irving Oil’s competitive advantage in gasoline retailing, Gillis said, is “the wow factor.”
It’s that eagerness to please and accommodate that Irving Oil needs to win over a public conflicted about pipelines such as Energy East.
Premier Brian Gallant has championed the project and the province has been lobbying for a role in the NEB’s review. The New Brunswick business c ommunity, of course, is also already onside. A survey recently conducted by the Saint John Region Chamber found 97 per cent are in favour of the plan.
The marine terminal alone would cost $ 400 million to build, resulting in construction and other related jobs, and the arrival of so much western Canadian oil could mean game- changing opportunities for the area, said David Duplisea, the chamber’s chief executive.
New Brunswick, which loses thousands of people a year to jobs Western Canada, could use the economic boost since its unemployment rate is hovering around 10 per cent, he said.
“That is a tremendous brain drain, worker drain,” Duplisea said. “A lot of young people have moved out West.”
But opposition to the project is mounting, much like it did to defeat oil pipelines in Western Canada and in the U. S. as regulatory hearings progressed.
The Conservation Council of New Brunswick, the main local environmental organization, argues Energy East would increase the risk of oil spills, harm whales and the local fishery, and discourage tourism.
The group has partnered with the Natural Resource Defense Council, the New York-based group that led the successful campaign against TransCanada’s Keystone XL pipeline, to bolster the fight.
“Certainly in New Brunswick, (there) is a long story of the various Irving corporations getting their way, sometimes despite overwhelming public opposition,” said Matthew Abbott, marine program co- ordinator at the council.
The pipeline, he added, “is designed to gain access to global markets for western oil and I understand the motivation for that, and locally a lot of the motivation and excitement around it is around jobs, but my contention is the jobs put at risk aren’t being factored in.”
The Council of Canadians, an environmental activist group based in Ottawa, has also held town halls in May where it attacked TransCanada’s safety record.
Irving is aware the project is controversial and said his company could survive without it. But, despite his advanced age, he’s determined to see it through, perhaps as the last, grandest gesture of an extraordinary life.
“There is always opposition to a lot of good things,” he said. “But the right thing to do is to do the right thing.”