Pipelines

Much of the talk in Alberta centers around the two proposed pipelines intended for the shipping of bitumen out-of-country. Broadly, two issues are discussed. Outside of Alberta, the concerns revolve around environmental issues, mostly those associated with oil spills (pipeline leaks). Within Alberta we should be asking ourselves if we really want to ship unrefined bitumen outside of our borders.

Regarding environmental concerns: these are legitimate. Pipelines do leak. Nearly all pipeline pumping stations are characterized by very small spills due to equipment leakage and maintenance spillage. Over time these add up. More catastrophic spills are the result of pipeline pressure coupled to corrosion of the pipe, which can lead to pipe failure. One would think that with modern materials and pressure-sensing equipment… not to mention centralized computer monitoring stations, that pipeline spills could be eliminated. The reality is that pipeline spills still occur. An important truth of pipeline spills is that they tend to be more spatially limited and smaller in scale than offshore spills. Is this yet another “to make an omelet you have to break a few eggs” issue?

Shipping bitumen out of Alberta is definitely erosive to future industrial expansion in Alberta. Every refinery we feed is one refinery less in Alberta. Supporters can point to labor shortages in Alberta, protecting ourselves from industrial pollution, and the presence of oil-starved refineries in the USA. Fair enough. But where I come from, the availability of more (highly paid) local jobs is considered to be a good thing. At least regarding the shipping of oil to the USA, a major driver is that the bitumen producers in part own the proposed refinery destinations. I get that. An economic decision on their part. But, not an economic decision on Albertan’s behalf.

14 thoughts on “Pipelines”

  1. I am first to admit that I do not have all the facts on this issue, but it seems to me that there are certain advantages to exporting unrefined bitumen to other countries rather than exporting the upgraded products. From an economic point of view, it seems the increased price of refined products would effectively price Canadian oil out of the market as the United States and other importers would opt for oil imports from other, lower cost sources. Unfortunately, in a market economy demand is often driven by the ability of middlemen to produce a profit, which is diminished if they are only able to purchase refined products. Ultimately, this means that refining within our own borders could actually hurt rather than help our economy as reduced demand would lead to a reduction in our upstream and midstream activities.

    Alberta should definitely be refining enough to meet our own national demand to avoid buying back value-added products from refineries in the United States; however, it seems to me that refining for the purpose of sale to other nations may not be economically feasible at this point in time. Maybe a solution is full vertical integration, where the refineries in Alberta also own the distribution companies within the United States?

    1. Very well thought out and worth thinking about. The royalty scheme is an important mechanism of redistributing the wealth… and regulating development. This is a tool creative governments use to society’s advantage. And a pipeline to the eastern provinces? I am sure that the Irving Refineries in New Brunswick would appreciate the opportunities.

      1. even refurbishing the virtually mothballed montreal refinery would be a boost, there is plenty of potential to solve this issue all while increasing national productivity, developing strategic infrastructure, and an optimized means to distribute the wealth throughout the nation. I’m just shocked that the federal politicians don’t think on a broader spectrum, they worry about how to regulate the development of the oilsands here in Alberta, instead of coming up with ways to develop these prolific reserves in a national sense. Its obviously a huge issue in the states with the keystone XL debacle, as with them we to have plenty of unemployed in the east who should be speaking up about having the chance to get in on the oil bonanza, should we not? I’m pretty sure the moderate range supply/production increase trend can be consumed by the east’s demand. being able to supply our entire energy needs from within would make our country an economic basilisk in an increasingly volatile world. with no need for foreign oil, we can buffer ourselves from supply shocks, and price shocks which severely hamper economic growth and investor confidence. Along with our solid financial institutions, this type of national strategy, I would think would catch the attention of many more global investors than present. Not to say our economy has the potential to be bulletproof, but given a fighting chance we would prosper and bear the affects of an economy soon to be built on scarcity. when you sit back and look at it, it seems ridiculous the huge potential our country has. The global community needs all the commodities in which Canada has a seemingly bountiful store of, from arable land, to potash, to our discovered fossil fuel reserves, to forestry and minable ores. The materials of greatness are at our disposal, its up to us to grasp the wrench and get to work!

        1. I think that it would not be as easy to set up a Canada wide pipeline to eastern provinces as you might think. A pipeline out east would have the same hoops to jump through and same issues brought up (such as destroying provincial parks, going through native reserves, etc..) that the Keystone XL pipeline is already going through. I realize the point that Gareth brings up in that it might hurt our economy rather than help it if we refine within our boarders, but wouldn’t it be better to set up refineries in Alberta where transportation cost are low and where the work force is already in place instead of playing with fire and building a cross Canada pipeline?

          1. Both are legitimate ideas. You can certainly argue, though, that Alberta has enough employment already? Is another solution to permit only slower growth in new developments?

            Still, imagine all of the jobs in Alberta if we never permitted ANY crude to be refined outside of the province. over the last 60 years, that is a lot of jobs and money.

          2. I figure on an economic basis, pipelines to the East would remove them from the need to import oil, and they could mobilize their vast amounts of unemployed to Allow Alberta to ramp up production without potential bottle necks. there are many ways around pipeline, perhaps CN wouldn’t mind shipping thousands of cars to kitimat on a regular basis, or maybe we could see a company such as Enbridge going to CN and requesting construction rights for cash? I don’t know if that is possible, but from what I know about CP, and CN im pretty sure they can do whatever their hearts desire along their right of way. In B.C. they use the environmental risk card, but in reality it comes down to risk/benefit, I’m pretty sure if you talked about dropping a couple of refineries down in Kitimat and Prince George then the project would be rubber stamped tomorrow. B.C. to has oil that needs to get to marked from the north east, adding the benefit of refining within that province would probably be enough to engage the politicians to back the pipeline proposal. Now for a pipeline east, the provinces that would benefit would all but surely accept any pipeline proposal. Saskatchewan is going to be a major oil producer in time, so they would probably be quite happy to tap into an Alberta hearted coast to coast distribution system to get their oil to market. The eastern provinces of Quebec and Ontario could supply a knowledgeable workforce capable of constructing new refineries, all without the wage, and construction inflation that we currently experience here in Alberta. Oil companies don’t warrant the construction of refineries in Alberta as economical due to the price differential between light and heavy crude, but whose to say they wouldn’t be in an economy that isn’t over inflated, and construction cost are much lower?

          3. I agree with Torrey. We should begin to refine our own resource in Alberta. As cruel as it sounds people need to move where the work is. Not expect it to come to them.

  2. we need not necessarily refine our oil in Alberta, nor abroad. Every job we export results in the loss of a potential Canadian job, which in turn results in a lower national GDP, tax revenue, and private investment(real-estate, goods…..). I don’t understand why the government’s (provincial and federal) have yet to open their eyes to this loss of wealth. In the states, the Republicans are pretty cut throat about getting our raw oil, all while our politicians are eager to rubber stamp more exporting of raw bitumen.
    I believe the first thing that needs to be addressed is a royalty regime that provides incentive to refine their product here, or at the very least within Canada. I don’t know the ins and outs of how royalties work, but how hard would it be to set up a refined goods quota? It seems that the oil companies favor the current royalty regime(oilsands), where they pay 25% once their project reaches net profitability, so why not develop an absolute rate using the % of total refined domestically from total production as the determining variable? for example, if said oil company refines >85% of their production domestically(Alberta, or at the very least Canada) then for every one unit % above this threshold, their rate drops by 0.5%. Conversely, for every unit % below the 85% threshold the oil company will pay an additional 0.5% in royalties?
    Second, Instead of refining all of our oil(particularly oilsands) in labour crunched Alberta, a national energy strategy should be developed that supports the flow and processing of oil within our national boarders. I cant see why the federal government doesn’t encourage the construction of oil pipeline to the eastern provinces where construction prices are lower and unemployment is much higher, also, most of those provinces I would imagine import their oil, minus maybe NFL&L. The eastern provinces of Quebec and Ontario could support the construction of many refineries without causing costly high inflation, all while putting people to work, and increasing Canada’s GDP. As for Alberta the federal government could set up a skew in equalization payments that returns the province more funds per person than the original system. In this economic climate provinces such as Quebec, and Ontario gain a domestic supply of petroleum products all while increasing their provincial GDP’s which in turn decreases their reliance on equalization payments which are bulk funded by Alberta….So this way Alberta gets a cut, and has to pay less in equalization transfers, since the “have not” provinces would have lower unemployment(more people paying taxes), with many new high paying permanent jobs, all while adding another dimension to these provinces economy.
    Either one of these two set ups or a mixture of them should reduce raw oil exporting, and increase Alberta’s and Canada’s wealth

  3. I completely agree with most of Patrick’s statements outlined above. More to this point, I think the lack of vision from our elected politicians (federal and provincial) regarding hydrocarbons in Canada is definitely scary. The fact that Alberta is running deficits as a province is an embarrassment in itself, especially given the wealth oil should bring a petroleum producing province! One should only look to Norway and their national petroleum fund ($550 billion and growing since 1991) to Alberta’s paltry $6 billion (since 1976) as a perfect example of political mismanagement! So I think discussion on Alberta’s oil sands should also be about proper management and future sustainability, not just trying to build pipelines so we can sell off a natural resource for a quick buck.

    The potash debate in Saskatchewan a couple years ago is a perfect example (BHP Billiton tried to take over Saskatoon-operated Potash Corp). In short, Premier Brad Wall successfully helped block the take over as it was bad business long term for the citizens of Saskatchewan (many good articles online)!! So going back to the pipeline debate, the fact that Alberta seems so “desperate” to sell off its oil sands, instead of regulating them, raising royalties, and preserving them for future generations, seems short-sighted.

    1. To the point of everyone moving here to work. If provincial politicians took the point of restricting unprocessed crude exports, then they will have sealed this province into a cycle of seemingly permanent long term inflation. First the oil companies would cut back on plans on new development to curtail the need to build refineries to process the oil. If these companies do not curtail their production projections then it forces our economy to overheat, then house prices and everyday goods and services cost you and I a ridiculous amount more. Second point to spreading the refining capacity around the country. In reality if we were to build refineries and pipelines in the eastern provinces and B.C. then we are given the flexibility as a nation to buffer our economy from market shocks. Also pipelines allow us to access other markets, ones I consider quite large, like China, India, and the E.U.. right now oil companies cant build refineries in a fiscally responsible fashion in Alberta, due to the ridiculous labor and materials inflation. So in a Canada where we spread out the construction responsibilities, this will in turn take heat off of the Albertan machine, which may in turn make it worthwhile for oil companies to start constructing refineries here at an increased rate. At least to me it would make more sense, to contemplate the construction of multi-billion dollar projects with the knowledge that the local economy isn’t in a state of continuous flux. So in turn, we can share the wealth with provinces that take the highest risk for getting our product to market, fix regional rifts between East and west, we would be able to ramp up project development to increase national production, thus making Canada a global energy super power in short order, and put in place infrastructure that allows for quick and easy addition of reserves from the many unexplored regions spread across the country. If you don’t agree with the laws of supply(pipelines and production) and demand (market access) then you should ask one of the been counters running one of the major oil companies why oil refineries aren’t popping up all over Alberta, then ask them what it would take to get a few more of them built here. I’ve got a good bet that the regional economics will have huge affect on said been counters response. To further the “everyone should move here front” it’s a nice prospect for Alberta to horde and have total control over it’s product from bitumen to diesel, but the problem is inflation. to put things into perspective I live in a house that was worth $265000 ten years ago, now a bank(YES a bank) appraises it at almost $1000000. now hopefully becoming a geologist some day I too would like to afford a modest house such as the one I live in. Oh wait though, even if I excel quickly in the company and can make $150000 a year, ill just be able to afford a house like that. First my total tax on what I would make is 46% leaving me with little over half of what I make, second I still have to eat, pay utilities, car payments, house repairs, APEGAA fees, entertainment, all on top of a 20 year mortgage that I hopefully could get at current rates which would leave me with roughly a $4500-$5000 monthly mortgage. In this situation I would be left with roughly $2300-$1700 left over per month. Oh, and if you think a $1000000 dollar house gives a lot, well…. typically a 15 year old 2600 square foot house in a upscale neighbourhood is a common buy at that price here in Edmonton, but in Calgary not so much, going by how my buddy working for shell dumped $285000 on a 1000sq ft condo off of 17 ave. The point of this lousy dollars and cents description is to outline that the majority of Albertans cant possibly afford to live a high quality life in this province, people are suffocating trying to keep their heads above water here. This is why trying to jam more people into our province to develop our resources locally doesn’t make sense, it just seems easier to build a pipeline to a huge national population center instead of moving 25, 30, 40, maybe even 50 thousand people into an already strapped province to construct refineries and secondary supply lines.

  4. Three things probably need to happen in order for the country to prosper to the fullest. 1st, the feds need to set aside immigration residence specifically targeting peoples with trades and professions that Alberta needs to continue rapid expansion of the oilsands, with the stipulation that they get streamline acceptance if they choose Edmonton or Calgary as their major center to settle. 2nd, coast to coast pipelines and refineries to allow for easy access to global markets, and the capacity refine an increase in production, such as Saskatchewan oilsands and crude, as well as B.C.s increasing production. and third, Our provincial government needs to create a creative royalty regime to provide the most incentive for regional refining and development, but not to the point that it inhibits growth. The latter may be able to be avoided if the provincial government could work out an agreement with the federal government dealing with equalization payments, that is if there is no domestic refining penalty for companies that meet the requirement within national boarders. furthermore, with greater post equalization returns the province can bolster public services such as health care, education, and infrastructure spending, which in turn would allow for more savings in the heritage fund instead of spending more royalty collections on these services.
    There is a plan out there that can work, the embarrassment of riches our country has should be providing us with the best standard of living of any country on the planet, just think about it, seemingly endless resources, and a pretty small population. what country can produce more forestry products than the most forested country on the planet? or what will surely be quantified as the largest national oil reserves of any country on the planet, lets not forget to mention the worlds largest potash, and uranium deposits, coupled with the most arable land on the planet. If you think Canada is a great and prosperous place today, just sit and think about what a little vision could bring. The world needs Canada to survive, and its our price to pay.

  5. “The Conservatives took 65% of the popular vote in Alberta in the 2008 feeardl election”…but only 53-ish% of the population showed up on voting day. Something about being continually beaten keeps the centre/left voters away from the polling stns. I’m sure there is an evolutionary theory analogy in there somewhere…Providing anecdotal evidence of voices of reason in AB is such a tempting tangent L-girl. However, in keeping with the topic of the post, I suppose in fairness, I should mention that the only drop-your-gloves type fight with a co-worker occurred over evolution in AB and lasted the entire summer job. Here’s the short-short version: me: I’m studying archaeology and I accept well reasoned, well obtained scientific evidence; him: I’m a life long Christian and can’t imagine any other worldview. Evolution??! I’m a “non-believer”! He wasn’t so much beef guns and god as golf clubs, oil and [amateurish] biblical rhetoric.

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