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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.