Are Canada’s big oil pipeline projects needed?
Stefan Baumgarten
10-Jun-2016
A former government official pushes private investment
for three lines tied to Alberta’s oil sands, while others
champion climate promises. (Global Warming
Images/REX/Shutterstock)
TORONTO (ICIS)–Canadian experts disagreed this
week over the need for additional pipeline capacities to
transport growing production from the oil sands in Alberta
province to markets.
Joe Oliver, a former finance minister, argued that three
planned pipeline projects – Energy East,
Northern Gateway, and Trans Mountain – are the
best way to drive the country’s GDP growth going forward, and
to get a better price for Canada’s oil.
But officials at an Alberta-based research institute counter
that new pipelines are not needed as massive oil sands
expansions are not compatible with Canada’s climate
ambitions. Parkland Institute notes that Canada pledged in
last December’s conference in Paris to reduce its greenhouse
gas emissions to 30% below 2005 levels by 2030.
However, Oliver argues that the new pipelines would open
up new export markets and reduce Canada’s dependence on the
US as the largest market for its oil.
Canada’s economy is losing billions of dollars because of the
unfavourable oil price differential for Canadian crude on the
US domestic market vis-à-vis world market prices.
The pipelines would help export Canada’s oil, at
better prices, elsewhere, he said.
“As long as the US is the only export market for Canadian
oil, this sector is dependent on a market that is itself
producing more and more oil,” Oliver said in a research
paper.
Oliver, a former federal finance and natural resources
minister under a conservative government that was ousted last
year, is now senior fellow at Montreal-based L’Institut
économique de Montréal (IEDM). His paper was co-authored
by the economic institute’s research director.
Importantly, the oil pipeline projects, totaling an estimated
Canadian dollar (C$) $34bn ($27bn), are private investments,
Oliver said.
As such, their impact would be much more meaningful in
stimulating the economy than the public investments
– financed by deficits – that the
incumbent Liberal government under Prime Minister Justin
Trudeau is proposing, Oliver said. For the current fiscal
year alone, Canada’s projected budget deficit is almost
C$30bn.
Public investments, Oliver said, are mostly aimed at
fulfilling promises of job creation, and their purpose is
first and foremost political.
Public infrastructure investment projects regularly run into
difficulties, such as cost overruns and delays – at the
expense of taxpayers. He added that the economic activity
generated by private investment contributes to government tax
revenue.
Furthermore, when government competes less with the
private sector in the recruitment of workers and the use of
capital, private investment takes over, Oliver said.
“Indeed, economic research shows that public spending cuts
have positive effects on economic growth.”
Despite relatively low oil prices and setbacks such as last
month’s devastating wildfires in Alberta’s Fort McMurray oil
sands region, the province’s oil sands
production is projected to grow in coming years.
Some studies project output to nearly double.
However, in its own study this week, Parkland Institute
argues that Canada could not double oil sands production,
along with rising emissions, if it is serious about meeting
its climate change commitments.
The institute also disagreed with claims that new pipelines
would significantly increase the prices Canada receives for
its oil.
Rather, researchers said, Canada’s primary oil export,
Western Canada Select (WCS), is a lower quality grade of oil
that requires more effort to refine and comes with higher
transportation costs than the West Texas Intermediate (WTI)
benchmark.
Canadian oil therefore commands a lower price, and this
discount will occur regardless of whether the oil is sold in
the US or to international markets in Europe or Asia, the
institute said.
Protesters gather outside Northern Gateway hearings
in Prince Rupert, British Columbia, on 10 December 2012.
(JONATHAN HAYWARD/REX/Shutterstock)
All three pipeline projects have run into opposition from
environmental and other groups.
However, Canada’s federal energy regulator last month
approved Kinder Morgan’s proposed massive expansion of its
Trans Mountain pipeline in western Canada
– subject to 157 conditions.
Capacity of the Trans Mountain pipeline from Edmonton in
Alberta to an export terminal in Burnaby, near
Vancouver, would be nearly tripled to 890,000 bbl/day.
Meanwhile, Energy East would ship oil from Alberta to markets
in eastern Canada and to an export terminal in New Brunswick
province, and Northern Gateway would run from Alberta to an
export terminal in northern British Columbia.
There are also plans for a big natural gas pipeline project
from the Mackenzie Delta in Canada’s Northwest Territories to
Alberta. However, that project is not likely to be realised
in the near term, given the market outlook for natural gas in
North America.
($1 = C$1.27)
INSET IMAGE: Joe Oliver, House of Commons on Parliament Hill, Ottawa, Canada – 12 May 2014 (Canadian Press/REX/Shutterstock)
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