This week we are in the throes of growing panic as oil prices plummet and General Motors announces the closure of the GM plant in Oshawa.

No one would minimize the deep distress of workers losing their jobs in Oshawa. But the idea that the jobs must be saved because we must keep making the internal combustion engine is as tone deaf to global reality as deciding we have to buy a pipeline because oil prices are low.

We are subsidizing whale oil and buggy whips to delay the inevitable. And in that delay, we may lose our future.

It is clear that the basic elements of oil pricing are not understood by pipeline boosters. The constant repetition of claims that we lose $40 million per day, based on a Scotiabank report, has lately been boosted to claims of losing $100 million per day. The claims are absurd. Yet they are repeated by national media as a received wisdom.

The initial claim from the Scotiabank report was easily dismantled by B.C. economist Robyn Allan. Her detailed analysis was published in the Vancouver Sun on March 4: “Scotiabank's oil report a work of fiction.” Allan did something that seems beyond the reach of anyone in our mainstream press. She checked the facts.

The Scotiabank claim of daily losses was buttressed by a simple calculation. What is the price of oil globally, described as West Texas Intermediate, (WTI) versus Alberta bitumen described as heavy (Western Canadian Select, or WCS)? Then Scotiabank multiplied that differential by the total number of barrels produced in the oilsands. This was not only a simple calculation, it was simplistic and wrong.

Allan went through the production numbers and quickly disproved the claim. It's worth quoting at length:

“Scotiabank didn’t ask the obvious question: How much Canadian crude sells at a price subjected to the light to heavy differential? If it had, it would know it’s only about 10 per cent.

“Suncor is one of Canada’s largest bitumen producers. CEO, Steve Williams recently said: ‘We have virtually no exposure to the light/heavy differential.’ Canvassing Canadian Natural Resources Ltd., Cenovus, Imperial Oil, and Husky reveals similar information. Here’s why:

“Canada produces about 4.2 million barrels a day of crude, including three million barrels a day of heavy oil, with bitumen representing nine out of every 10 barrels of heavy produced. Forty per cent of the bitumen produced is upgraded to Synthetic Crude Oil (SCO) in local facilities owned by oil sands producers. SCO has been selling at a premium to WTI, not a discount.

“Another 15 per cent of heavy goes directly to domestic refineries for processing into petroleum products. A quick look at the pumps tells us Canadian refiners charge at retail as if they paid world prices based on North Sea Brent. No loss there.

“A further 15 per cent of heavy is sold to integrated refinery operations in the U.S. Suncor delivers to its refinery in Colorado, Cenovus supplies its joint-venture facilities in Illinois and Texas, Husky delivers to three of its mid-west U.S. refineries, and Imperial directly to its parent’s (ExxonMobile) refineries.

“About 15 per cent of Alberta’s heavy makes its way to the U.S. Gulf Coast. Suncor says these deliveries are not hit by a discount. The Gulf is a ‘global market … where (diluted bitumen) attracts a Maya (Mexican heavy oil) differential.’ Once diluted bitumen reaches tidewater access in the Gulf, the WTI to WCS differential becomes irrelevant.”

Of course, Scotiabank did not disclose its own conflict of interest as a bank that had decided to loan Kinder Morgan billions, but only if it could raise $2 billion in capital. Those who rely on the Scotiabank numbers never seem to notice that motivation to boost the project either. I was so disgusted with Scotiabank that I finally did what I had been meaning to do for years: shifted all my banking to my local credit union.

As I have written before in the National Observer, the sensible plan for Alberta’s economy would have been to keep investing in upgraders and refineries. That had been Peter Lougheed’s plan, but it was jettisoned, along with the Heritage Fund, by Ralph Klein. Why Rachel Notley preferred to pursue Klein’s plan and ignore Lougheed’s is something for NDP members to ponder. When she was in opposition, she knew Alberta needed more refining, just as she knew that having the lowest royalty rates in the world was folly.

A commitment to ship out raw bitumen for refineries in other countries manages to be simultaneously dangerous for the climate and poor economics. The stuff is simply low value in the market, yet very costly to produce. It will never — whether it reaches magical tidewater or not — fetch the same price as oil that is ready for refining without the additional costs of upgrading. Meanwhile, those oil producers who do upgrade bitumen and then sell it are reaping a premium, just as Allan reported.

Andrew Nikiforuk noted this reality about pricing on November 23 in The Tyee: “Alberta’s Problem Isn’t Pipelines; It’s Bad Policy Decisions.”

In a detailed analysis, Nikiforuk pointed out that an internal Alberta government report had warned of the risk of over-producing low-value bitumen and counting on exports.

Meanwhile, the major producers Suncor, Husky and Imperial, have all had very good years, benefiting from the premium received for synthetic crude. Nikiforuk concludes that, “All three firms have succeeded this year because they own upgraders and refineries in Canada or the U.S. Midwest that can process the cheap bitumen or heavy oil into higher value petroleum products.”

But what should really be our focus — shutting down fossil fuels in order to keep planet Earth liveable — is being sacrificed in the quixotic pursuit of votes in Alberta.

The idea that Rachel Notley has adopted a useful carbon goal is laughable. The Alberta plan is to boost its greenhouse gas emissions from 70 megatonnes a year to 100 MT. Alberta’s plan to shut down coal by 2030 could result in a dramatic reduction in GHGs since coal-fired electricity in Alberta produces 70 megatonnes per year. But Alberta plans to replace coal plants with natural gas plants. And the plants are not required to meet best technology for efficiency. Since the source of natural gas is likely to be fracked gas, the GHG benefits of this fuel change will be negligible.

What we need is a rapid end to fossil fuel dependence. If we are to take the October 8 report from the IPCC seriously, we need it fast.

Historically, we have seen one energy source displace another. The driver is usually a disruptive technology. One example was the end of whale oil as a source of lighting. It was used almost universally in the mid-1800s. The invention of kerosene by Nova Scotian Abraham Gesner changed everything. We did not stop hunting and slaughtering whales because we suddenly cared about whales, but because kerosene burned more cleanly and was cheaper.

Fast forward to today. We are acting as though propping up whale oil to keep kerosene out of the market would be a shrewd move. If the Canadian policy-makers of today had been around in the 1920s, they would have poured money into the horse and buggy industry to try to keep the Model T at bay.

The handwriting is on the wall – the era of fossil fuels is over – but we keep erasing the writing.

We must get a fair and independent assessment of the economics of pursuing the pipeline expansion, previously owned by Kinder Morgan. We must not spend a single penny toward the $10-13 billion project to build an additional pipeline to ship diluted bitumen (dilbit) by tanker, primarily to the U.S.A..

The economic goal of building more pipeline capacity is to boost bitumen production, driving up GHGs. The only way to cut GHGs is to start with the obvious commitment to reject any expansion of fossil fuel supply. Refining at current levels of production can replace foreign imported oil. We can charge more for it, but gain the economic benefit of paychecks to Canadian workers.

We must develop robust programs for worker retraining. “Just transition” strategies are part of the Paris Accord. So, as we move to assure our children a world no more than 1.5 degrees hotter, we must do so in ways that provide workers with meaningful jobs in related fields.

But for now, we are subsidizing whale oil and buggy whips to delay the inevitable. And in that delay, we may lose our future.

Comments

Good article. I agree with your overall argument. Note: Robyn Allan's most recent analysis indicates about 20% of oilsands supply is affected by the light-heavy differential.
https://www.nationalobserver.com/2018/11/26/analysis/false-oil-price-nar...

That's right but, just to be clear Duncan, there's no discrepancy between the numbers - approx 20% of heavy oil affected by the differential; 10% of all oil

Amazing that our mainstream media does such a poor job of discovering the untruths in what we are told by businesses with clear interest in telling lies.

It is always refreshing to read the lovely dismembement of some of the more hysterical boosters of Canada's Dilbit Oil Sands industry. It is good to debunk the loss figures that Scotiabank spewed into the atmosphere and kudos to the companies that upgrade their oil - except, of course that consumes vast amounts of energy unleashing more GHG's into the climate.

As per usual, it seems that much of the public and therefore the governments that represent them cannot make the leap of imagination required to adjust to the end of the petroleum fuelled economy we have lived with since the late 1800's. Just like the dinosaurs were unable to adjust and so became extinct - so shall we become extinct, but possibly not before catastrophic civic disruption.

Humans are, or should be, smarter than this. Industry and Governments - who proclaim themselves the leaders and masters of the free world have failed dismally to take that entrepreneurial leap and are hell-bent on extracting the last miserable drop of profit before scuttling off into the underbruch with their ill-gotten wealth. There are significant elements of con-artistry in this performance whether it is the collusion between oil and government through massive exploitation/profits without provision for damage mitigation or through the model they have facilitated of obscene disparity in incomes through manipulation of markets and egregiously skewing the taxation policies that should have prevented the looming disaster.

Both industry and governments share - to greater or lesser degree the responsibility for the grievous situation facing us and neither has the couraage to make the necessary changes to ensure survival. Even the mega-rich will eventually succumb to climate catastrophe.

What SHOULD have happened, decades ago, was some intelligent planning for the orderly transition to petro free economies. Instead we now have the former leader of the world's combustion engine industry suddenly announcing its rapid abandonment of said petrol engines in favour of electrical powered vehicles.
In the process they are abandoning their aging infrastructure and their entire workforce - to create new, efficient and lower cost manufacturing facilities in low wage countries where they can recruit and train both the robots and humans within a new business landscape that eliminates such frills as benefits and pensions, and takes no resposibility for worker health and safety.

The benefit, to them of this new model is that the electric vehicles they build will once again depend on the public subsidy provided by government enabled electrical energy. - instead of the government subsidized petrol energy.

In a more rational world government and industry would have collaborted to create the transition in an orderly way - instead of which we are now facing the first of the many wrenching dislocations that are bound to follow. General Motors has it seems, deliberately thrown its plans into the North American economy with the malevolent intention of creating the maximum distress. Despite their noble advancement of emission free vehicles one rather hopes they will fall flat on their duplicitous faces.

In the meantime, the Alberta government approved Imperial Oil Ltd $2.6 billion Aspen oilsands project that will add 75,000 barrels per day (bpd) of bitumen production to current output of about 300,000 bpd.
Public hearings in Fort Mc Murray started on September 25 on the Teck Resources $20.6 billion Frontier Oil Sands Mine project that is estimated to produce more than 260,000 bpd with a mine life of 41 years.
These projects and the total oil sands production must be stopped. The land and air can't take it anymore. We can't take it anymore. There's already to much damage done to this planet. We are effectively living "The Age of Stupid" (watch the movie).

Thank you Elizabeth......this is just about a perfect summary of where we are. Many of us already know the blasted 'differential' is a crock of very watery stew, but with this piece we have the exact figures. Where the bitumen goes, who profits from it, and why so many brainstems still think moving a junk feedstock from Alberta to the Vancouver harbour will somehow magically transform it into a more expensive product, is the real mystery. Could this be 'fake news' at work in Alberta??

I still have to wonder? Have the years of being a petro-state allowed something to leak into our water to make many of us stupid? It doesn't take much reading to figure out why the differential is great for the Big players with upgrading capacity....and it sure isn't rocket science to understand that Alberta's revenue problem comes from low to no taxation on those companies that are benefiting from said differential.

So why is it that folks wedded to fossil fuel extraction don't understand their own industry? Is there some kind of maximum IQ requirement that you have to score under to be employed by that industry?

And how do we convince the majority of Canadians....not directly invested in an extinction technology, that there is a better road forward? Perhaps we should ask Elizabeth, and follow her lead. While there is still time.

Thanks Elizabeth. Congratulations on your upcoming nuptials. With respect to our fossil fuel industry, I must say that two wrongs don't make a right. We hear this all the time from the fossil fuel industry: `` we have an amazing technology to capture carbon``. The one and only solution to save Earth is renewable energy. No more oil, coal, natural gas. MIT has developed an airplane technology with no moving parts! Imagine airplane travel and airplane delivery that does not consume fossil fuels. It exists and will supplant fossil travel.

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