Time's running out!
Prime Minister Justin Trudeau has admitted what many Canadians believed for some time—the approval of Trans Mountain’s expansion was always a foregone conclusion.
Trudeau told National Observer earlier this month that he relied on Ottawa’s power to grant Trans Mountain’s approval as a bargaining chip so Alberta would be “as ambitious as we needed Alberta to be” to get on with the National Climate Change Plan.
This is not what Trudeau said during the election campaign. There was no mention of the project being used to leverage climate change policies big oil would accept. Just the opposite.
He promised Trans Mountain’s review would be redone—period. He assured Canadians his Cabinet would not rely on the torqued review conducted by an industry captured, and fundamentally compromised, National Energy Board (NEB).
He led Canadians to believe that if the project was approved it would be based on facts and science. Now we know this was never his intention. Trudeau’s recent admission explains why his staff and B.C.-based MPs began back pedalling on Trans Mountain’s redo immediately after the election.
Trudeau broke his promise, but until now, he never explained why.
It is no wonder public protests and vitriolic outbreaks stalked Trudeau during his recent cross-country Town Hall Tour. When people have been betrayed, it makes them angry. As Trudeau made his way west under increasing pressure, his behaviour became volatile.
Until Trudeau’s ultimatum, it was not completely clear that spending more than $1 billion of Canadian taxpayer money on the OPP was solely to underwrite the risk of the tanker traffic triggered by Trans Mountain’s expansion. His threat to cancel the program if he doesn’t get the pipeline, is an open admission that the program is directly related to the project. The OPP is nothing more than a Canadian taxpayer-funded subsidy handed to Kinder Morgan so Kinder Morgan can expose west coast marine waterways to the extreme spill risk of more than 400 diluted bitumen laden tankers a year.
Canada adheres to the polluter pays principle. This principle tells us that if Kinder Morgan’s project is the beneficiary of the OPP, then Kinder Morgan, not Canadian taxpayers, should pay for it.
In other words, if Trans Mountain’s expansion proceeds—as Trudeau emphatically states it will—Ottawa must make Kinder Morgan foot the bill.
Staggering risks, for uncertain economic gain
Trudeau says that, "The national objective is—protecting the environment and growing the economy at the same time.” It is difficult to believe he grasps even a rudimentary understanding of the environmental risk when he follows with, “We’ve been having diluted bitumen go out through the Burrard Inlet for the past 30 years without significant issues…And that’s something that we know that we can continue to protect.”
Less than 25,000 barrels a day of diluted bitumen currently moves along the Trans Mountain pipeline. The expansion represents an increase in diluted bitumen transport to at least 540,000 barrels a day. That’s a 20-fold increase in the transport of highly toxic heavy oil across B.C. waterways, wetlands, and along marine coastal environments.
The increased environmental risk exposure from this product—whose spill response and environmental impact is still not understood—is staggering.
And then there’s the unsupported economic claims.
Trudeau says, “we know that Canadian oil is discounted because we only have access to the U.S. market right now, and creating more access to overseas markets will actually get a better price for jobs, for workers, for the Canadian economy on our resources. So that’s one of the reasons why Alberta is so keen on not being landlocked with our oil resources.”
When Trudeau refers to Canadian oil, he means diluted bitumen, not conventional light oil or synthetic crude oil. Diluted bitumen sells at a discount to the North American benchmark light oil, West Texas Intermediate (WTI). This discount is not because Canadian oil producers only have access to the United States. It sells at a discount because bitumen is an ultra-heavy hydrocarbon full of complex molecules that has always fetched lower relative prices than light oil. And always will.
Bitumen costs more to upgrade and refine and more to transport, that’s why there is a discount.
Recently the price discount for diluted bitumen has increased, but not because of a lack of pipeline capacity, or lack of tidewater access. It’s because TransCanada’s Keystone pipeline that delivers mostly diluted bitumen to the Gulf Coast sprung a leak in South Dakota on November 16, 2017. The line was shut down taking almost 600,000 barrels a day of export capacity offline. When the pipeline restarted twelve days later, it was done so under restricted operating pressure. This means about 120,000 barrels a day of pipeline export capacity has been removed—indefinitely.
Bitumen’s natural price discount widened recently because pipeline operators can’t keep the pipelines they have safe.
Trudeau is also wrong when he says that access to U.S. markets is the only access that exists. Tidewater access at Trans Mountain’s Westridge dock has existed since 1956, but it’s barely used. In 2016, less than 30 per cent of the dock capacity available to Alberta’s oil producers was taken up. Of the 15 tankers that loaded at the dock that year, all were destined for U.S. markets. Tidewater access demand was a little higher in 2017, but Westridge dock capacity was still significantly under-utilized. Canada’s heavy crude goes to the U.S. because that’s where the market is and that’s where low quality crude commands the best price.
Access to overseas markets will not “get a better price” for Alberta’s heavy oil
Mexico’s National Oil Company, PEMEX, has been trying for some time with little success to make inroads into the heavy oil market in Asia with its Maya crude—a heavy oil often compared to Alberta’s benchmark diluted bitumen Western Canadian Select. The price PEMEX receives for Maya in overseas markets is well below the value it commands in the US.
If Trans Mountain’s expansion goes ahead and dumps 540,000 barrels a day of diluted bitumen into the offshore market, economic theory and market realities tell us prices in those markets will be depressed further—not rise. The higher price in Asia narrative makes no sense. And neither does the narrative that we can buy ourselves a transition off fossil fuels by building into them with Trans Mountain’s expansion.