Justin Trudeau and Jason Kenney are peddling a fantasy when it comes to fossil fuel development in Canada. Both play to Alberta’s desire for the boom years to return, rather than dealing with the likely future.
There are at least three serious flaws underlying the fantasy of the pipeline for Alberta’s economic resurrection. The first is this idea that lack of pipeline space is holding back long term investment.The truth is that the oilsands are not competitive with U.S. shale oil so the world has left the oilsands for better opportunities. If that weren’t enough, in the current price environment, even shale oil is seeing a slowdown, and if a recession hits, there will be even less pressure for growing supplies.
Beyond the reality of US fracking in the next while there are other major factors making the world demand for Canadian oil even softer. Next year large projects start up in the North Sea, Ghana and Brazil while Canada continues to grow oil from projects underway before prices really softened, this will exacerbate a poor outlook for oil demand due to economic slowdown.
And the shift from marine bunker to low sulphur fuel worldwide for the marine industry will force millions of barrels of day of the worst refining material (which bitumen is mostly made up of), back into the refineries instead of it just being burned, meaning less demand for oil overall but also much poorer prices for our bitumen based crude.
A pipeline will not bring back the boom days, ever.
The second flaw is the idea that a pipeline, either to the West Coast (Trans Mountain expansion) or to the Atlantic Coast (Energy East), is needed to bring the Alberta market back to world price. The temporary partial fix is already there with the production curtailments that former Alberta premier Rachel Notley brought in and Jason Kenney has continued. But on the horizon are a number of expansions that will solve Alberta’s issues for years to come.
Enbridge has over 800,000 barrels per day (or 800 KBD) of identified opportunity for increased pipeline capacity by way of its Line 3 replacement — which is moving along slowly through the U.S. regulatory system but is likely to go ahead — as well as some optimization and expansions of current systems. There’s another near-term 100 KBD of additional opportunity by other companies. TC Energy, the new name for the old Transcanada, has a 50 KBD optimization for the current Keystone pipeline. And Plains, which owns the Rangeland pipeline that runs from Alberta down to Montana. is moving forward with an expansion for another 50 KBD.
All told, a little less than a million barrels per day of identified pipeline projects that are all likely to happen in the next couple of years. That’s enough capacity to supply the Alberta industry’s needs out through the latter part of the next decade, at least. And this not to mention the 830 KBD Keystone XL, which TC Energy continues to move along. A recent injunction has been removed in Montana and pre-construction work has begun again. That pipeline alone, when in place, pushes the need for any more pipelines out to the foreseeable future, and likely eliminates the need for some of the Enbridge options.
There is simply no need for Trudeau’s pipeline, and the resulting ships off the West Coast, nor for a pipeline corridor to the Atlantic. The industry is solving this on its own; no need for political fantasies.
The third flaw is that the proposals ignore the reality of climate change action. The corner has to turn on fossil fuels, the world demand for oil has to flatten and then decrease if climate change is going to be limited to severe consequences instead of catastrophic. The oilsands are a high-cost, poor-quality last layer of supply: it’s already of little interest to most of the international players looking to grow supply in today’s world, never mind a de-carbonizing world.
During Imperial Oil’s Q2 investor call Benny Wong, vice-president of research at Morgan Stanley, made this very clear while discussing Imperial Oil’s Aspen project. “…in a world that does not value growth like it used to, I think some investors would argue they prefer Aspen being deferred further, indefinitely.”
That’s not a story either Trudeau or Kenney wants to tell.
Time for radical acceptance of the way things are. Oilsands production doesn’t stand to grow much more. It isn’t economical. No need for Trans Mountain or an energy corridor to the Atlantic from Alberta. Buying the pipeline was a bad decision. Promoting fossil fuel development isn't the right course for fighting climate change.
Canada must move forward instead of pretending that moving backward is progress.
Comments
Ross, your arguments are clear and strong; and they can be found in various other forms, in other publications. Your article would, under normal circumstances, be sufficient to convince even many of the pro-pipeline proponents to take a second look; and rally those of us who see this project as wrong, wrong, wrong.
However, I am advised that because of FIPA, and other agreements signed with China, Canada is obligated to build the TMX. It appears that our politicians allowed our negotiators to sign away most of Canada's manuvering room. I hope I am wrong; maybe a subsequent commenter can correct me.
Steve, I believe FIPA only has an impact if the governments or courts block the project and it causes Chinese firms economic hardship. If there is sufficient pipeline capacity to the Gulf Coast which now has the ability to load very low cost VLCC class ships I think it would be hard to prove damage. So I don't believe FIPA is a factor. The TMPL purchase was pure political miscalculation at best.
An exemplary précis of the current and likely future scenario of the oil sands and TMX.
Much of this ground was covered over the past few years by thinkers like Andrew Nikiforuk, Robyn Allan, Thomas Homer Dixon, David Hughes and Jeff Rubin. Even mainstream Globe columnists like Barrie McKenna and Eric Reguly have opinionated on this topic in the Report on Business.
All of this has failed to move the dial on Alberta’s economic and climate action intransigence and the incoherent Morneau-Trudeau economy-climate pipeline nexus, something that has utterly failed to appease the dinosaurs (not for lack of trying) nor offer a rational, evidence-based justification to those who have done the math independently often using industry’s own data, and found it wanting.
A recent McKenna column reiterated the latest International Energy Agency report (released earlier this month) that radically shifted their estimate on the world peak demand for oil forward to 2030, so what is Alberta/Canada going to do about it? The IEA has a long history of chronic conservatism in its analysis and has predictably underestimated the influence of renewables by about 10% year-over-year. Given their fear of upping the estimates to better meet historic data, and their overlooking of the tens of billions being invested in producing electric cars by all the major car makers en masse well before the end of the next decade, the peak in oil demand will probably occur years earlier. The internal combustion engine is Alberta’s most important dependency, and it is about to start disappearing.
This is all so sad for Albertans who appear to be taken in by Kenney’s politics of division & blame and the oil industry agenda so deeply embedded in their government. The things they should fear most with respect to maintaining the carbon economy are not the ludicrous “billionaire foreign-funded” environmentalists conspiracy theory or a lack of pipeline capacity. The appearance of an electric car priced under $30,000 on Calgary car lots in about five years (Volkswagen will probably be first to offer it), and the hundreds of billions in unfunded environmental liabilities looming over the horizon as leftovers from the 3/4-century long carbon orgy should turn every Alberta economist’s hair white.
These liabilities are never accounted for in the Alberta economic hegemony and ‘national interest’ meme, but that doesn’t mean they don’t exist and won’t cause a reversal of fortune of the $600+B contribution to Canada Alberta has made over the years from oil revenue, namely when the liabilities are transferred to public accounts years after the private profits have been absorbed. Every Canadian must resist paying for the foolishness of one province to fail at basic accountancy for so long. That is the danger of putting life-cycle, full-cost accounting in a vacuum.
And the icing on this highly distasteful cake is offered by commenter Steve Corrie who outlines the fact that the FIPA agreement with China could be the real but unspoken reason the feds are pushing pipelines so hard despite the odds and contradictions in rhetoric. Stephen Harper capped off his Dark Decade by signing FIPA despite the heated admonishments — even by right-wing pundits like Diane Francis. Now, the likely scenario would be yet another win against TMX by the T’sleil-waututh in the Federal Court of Appeal, possibly followed by a win in the Supreme Court of Canada by BC and its original reference case, which was submitted in June after losing in the BC Court of Appeal. That decision was roundly criticized by lawyers and indigenous intervenors whose Constitution-based submissions appeared to be completely ignored by the lower court.
FIPA vs. the Constitution over an unneeded pipeline. What has this country become?
Alex, I think our political class is well aware that Alberta is severely challenged in any future where the world decarbonizes. People in the industry are also well aware of Canada's precarious future in fossil fuels. But the Canadian public is another story. Especially those living in Alberta. I've written before that we make fun of the Americans for believing Trump's nonsense about bringing back coal but it turns out we are no different when it comes to the oil sands. btw I think FIPA is a red herring. Trudeau did this for his own political reasons and has thrown billions away for no good purpose. The idea of buying the line was pure stupidity, Jim Carr in an interview said the minute he heard the line was for sale he was excited because he knew they should buy it. Why? It isn't clear, but pretty sure they wanted to and were not forced by FIPA.
I wondered about FIPA in all this too as none of the rest seems to be reason enough to move forward on the TMX but I guess one should never discount political expediency in election years. To a large degree, former Alberta politicians have created today's stark reality in the province. Alberta hasn't had a provincial sales tax, something the ROC manages to live with, thank you. A provincial sales tax would have raised billions in revenue to fund public services in Alberta and the tax revenue could have be used to diversify the economy away from its dependency on oil. Now the Alberta government finds itself in the red and is crying foul. Even at this late date, better the province should create a provincial sales tax than continue to depend so much on the fossil fuel industry for revenue.