The Real Reason Alberta Lacks Pipeline Capacity

The wine embargo is on. The rhetoric flies. Fingers point to the provincial NDP and the federal Liberals. Fair enough. That is what they agreed to when the formed a government. Interestingly, though, the lack of pipeline capacity can clearly be traced to the Provincial Conservatives under Ralph Klein’s leadership.

Let’s go back in time. I first started working in the McMurray area and on it’s Geology in about 1998. At that time, industry in the area was comparably modest. Suncor and Syncrude were the only big players in the area, with normally producing approximately 180,000 bbl/day of crude oil. At that time, licenses were already approved to double the output of both operations (Syncrude North Mine and Suncor Millenium projects). Also approved in the late nineties was CNRL Horizon, Suncor Aurora, Shell Muskeg and early in the 2000s what would become Esso Fort Hills. By the year 2000, approvals were in place to increase the area’s production by 10 fold!

Anyone involved back then will remember that McMurray heavy oil was below the radar of most environmental groups. There was very little controversy regarding the heavy oil, in fact, until the initiation of all of these projects (practically simultaneously) led to a hyperactive period of large-scale development throughout the McMurray area. One has to wonder why the Klein Tories failed to identify the need for a pipeline when they were approving these projects? And, it is my opinion that a pipeline project in 2003 would have passed without any of the controversy that has occurred today.

The long and short? The government has an important role to play in predicting infrastructure needs. And the Tories were simply too blinded by the money of the super projects to simply recognize what was right in front of them. What fools.

27 thoughts on “The Real Reason Alberta Lacks Pipeline Capacity”

  1. It is without a doubt that the Klein Tories should have had the foresight to invest in infrastructure at the time, especially since the economy was booming and it was the ideal time to invest. Also, if we consider the apparent lack of controversy and push back from environmental groups, not investing was a massive mistake. The Tories lack of foresight and inability to capitalize on a vital opportunity is one of the many reasons our economy is currently in turmoil and why we can’t take steps forward to recovering.

    1. In fairness, industry should have figured this out too… However, the province could have made a lot of money by building and operating the pipeline as a crown corp…

  2. Hindsight is 20/20. The main concern of the government under the Klein leadership was to reduce the provincial debt and modernize the Albertan oil industry, which they succeeded in doing. Had the Tories known that the environmental sanctions and pressure from environmental groups was going to exponentially increase in the coming years, perhaps they would have made more of an effort to provide effective transport methods for our natural resources. But alas, they did not.
    More than a decade later we are here, in a childish standoff over an issue where we know that Alberta must eventually be the winning side. For the national interest, Alberta needs pipelines to export its heavy oil to make Canada a viable player in the global oil markets. The coal phase-out is crucial for federal climate goals, but we require a strong economy to accomplish this task by its 2030 deadline. Without pipelines and commitment to environmentally-friendly solutions from Alberta, our national GHG emissions goals will not be met.
    In short, yes, the Klein Tories were fools to have approved so many projects without having a plan to export Albertan heavy oil, but the country needs to be united in realizing that oil will not be phased out overnight. If we want to fund environmentally-friendly projects, we need a strong Canadian dollar, and an efficient method of transporting Alberta’s oil is the best way to achieve it.

  3. In hindsight, I agree, not seeing the need for a pipeline with that much production about to come online is definitely a short sited decision. I also think it would be interesting to know whether or not the Tories simply didn’t think of the idea or if they just decided not build one because at that time they could afford to be inefficient. Also, it is interesting to see how the oil sands situation has unraveled in the last fifteen years and whether or not the Tories could have predicted the massive environmental movement and all the bad press associated with the oil sands. But regardless, we are in the situation now and I think that, unfortunately for BC, there is more than one way to skin a cat and they may just miss out on an economic opportunity. Alberta’s economy relies on oil and gas and I believe that we are going to find a way to eventually get something done, with or without them.

  4. The lack of foresight from the Klein government to consider the distribution of the product from the projects they green lighted has caused not only the industry but the provincial and federal government a number of problems today. I agree that if the pipeline had been proposed 15 years ago it would have had a greater chance of completion than it does today, largely due to the fact that the BC liberal government at the time would not have been as far left as their current NDP government. A government who have their concerns about oil spills and voice opinions that Albertan economic needs are being placed before BC concerns, but the fact that the heavy oil industry benefits not only Albertan but the economy of the country seems to have been forgotten. The focus has to be on what can be done that will be most beneficial to industry, government and Canadian citizens. Without access to emerging markets that could be provided by the pipeline, Canada as a whole will experience major setbacks, being unable to be as competitive on a global stage.
    Alberta and BC has had drastically differing view in ideology and principles for a long time but it seems to be culminating now with this contested pipeline. Even though both parties are under NDP leadership at the moment, both governments seem to be playing true to the perspective of their respective provinces, causing a feud, starting with the wine embargo and now Notley threatening to cut off oil access to BC. It is difficult to say exactly which side will come on top with current economic state and progression of environmental activists but it seems the Notley government at least is willing to put up a fight.

  5. The governments failure to implement infrastructure for potential export in Canada’s oil and gas industry has cost us in the long term. Potential pipelines that could’ve been built back then, now have too many complications. This shows that the previous government’s motives were short term and not for long term growth. In my opinion, building new pipelines is inevitable, but there is enough backlash to stall what we need. As Canada needs a larger capacity pipeline to remain competitive with oil market. The alternatives of transporting bitumen by trucks and trains will only be another short term solution to a problem that will occur again. Additionally, pipelines are the most efficient and safest way to transport oil. As the proposed pipeline (Alberta-BC) is the logical solution to remain competitive. Understandably, the pipeline will need to be built through areas with much controversy, but its happened in the past and will happen again to progress. In conclusion, the Tories poorly thought out plan has only caused a snowball effect of problems with no simple solution. If the infrastructure was put in place back then, there wouldn’t be as much backlash now. Poor planning has only created more problems and the responsibility should be on the federal government to find a compromise to satisfy everyone involved. Just my two cents.

  6. I believe the Klein government should have pushed much harder to get pipelines approved in the early 2000’s. Trying to get pipelines approved in today’s day and age is much harder to do. This stems from the fact that the general public is extremely uneducated regarding pipelines. If Canadians were more educated about pipelines they would realize that pipelines are the safest alternative to transporting oil and gas.

    That being said, when Klein became Premier of Alberta he believed that “Freeing up the industry would increase private investment in the oil sands and generate well paying work for Albertans”. While this was potentially the best option for Alberta at the time, I believe Klein should have put more pressure on companies to develop pipeline infrastructure. As a result Alberta would have been much better off in the long run.

    This issue reminds me of a Chinese proverb that states: “The best time to plant a tree was 20 years ago. The second best time is now.” Based on this I believe that it is crucial for present day Canadian citizens and Government to make the proper decisions now so that Canada can reduce these issues in the future.

  7. I have a speculation about the context surrounding this situation. However, since I am not as well versed in policy and regulation as I wish I was, there may be some flaws to my statement.

    I have been told by others that there are companies that currently have pipelines – and therefore access to building on the land that the pipeline is occupying – running down to the United States. I have also been told that this means that the company(ies) that have this leverage have now limitations on them when it comes to building more / larger pipelines in that same corrador of land.

    If this is true, I would have to say that if there were measures taken in the past to develop pipelines and acquire the rights to do so in the past, that developments and expansions of pipelines could very well be done without much attention given to it since they would have already been present.

    Furthermore, if what I stated above is in fact true, then the company(ies) with possession of currently existing corradors to the USA with currently existing pipelines, have a huge advantage in the event of a sustained increase in demand in the USA.

    I understand that this is a bit of a side-note compared to what is being discussed in the blog, but I thought I’d mention it anyways since it might help to add another layer to the thought process surrounding this topic.

  8. The lack of pipeline capacity in Alberta is a burden on the oil and gas industry in our province. The benefits of increased oil moving capability would no doubt have widespread economic benefits beyond the Alberta border, although the common reaction lends itself to the “not in my backyard” mentality. Despite the increased upfront costs of pipelines it is well known that they are the cheapest and safest way to transport natural resources. Interestingly, the Canadian Association of Petroleum Producers predicts that the supply of a western Canadian crude oil will increase by 39% by 2030 to 5.4 million barrels per day. Existing pipeline capacity in western Canada can only transport 4 million barrels per day (https://www.capp.ca/~/media/capp/customer-portal/publications/303440.pdf?modified=20170821162329). Clearly there is a huge gap between these numbers that is hurting our economy. The lack of pipelines to tidewater is also a missed opportunity as 99% of Canada’s oil exports head south to the U.S. and fail to reach markets outside of North America (http://www.nrcan.gc.ca/energy/facts/crude-oil/20064). Insufficient pipeline capacity impacts investment into Alberta’s oil and gas industry. Investing in a product with limited ability to reach markets does not have appeal and may force potential investors to look elsewhere. In light of these thoughts it is quite surprising that Alberta has been falling behind in the expansion of its pipeline system.

  9. In some ways I feel like the issue of trying to get the pipelines approved, and the backlash from citizens is really just stemming from a “need for change”. People are just looking for something to complain about, and the Alberta economy seemed like the easiest train to get people to blindly hop onto. If the Klein government had been on top of this, and built a pipeline in the early 2000s, I don’t think it would have changed how people would react to it today. Mind you, if it had been built back then, maybe the economy wouldn’t be in such a huge hole at this point. In some ways I do see the lack of building a pipeline in the early 2000s as a hugely missed opportunity for Alberta, but why is it such societal/political issue now rather than an economical issue?

    1. Well, I think it is simply because times have changed. Twitter, Facebook… iPhones. Everyone has a voice now, so the environment is more politically charged than ever!

  10. I agree with you in that if they had tried to construct a pipeline a couple of decades ago, it would have passed through without any problems. Looking back on mistakes or poor strategies of past institutions is an important exercise in making sure current politicians don’t fall into the same traps as their predecessors. Unfortunately, the Tories failing to act and be pro-active about Alberta’s energy infrastructure needs isn’t the first case of politicians being blinded by corporate greed, and it won’t be the last.

  11. The dilemma of Alberta getting it’s oil to market was without a doubt a massive underestimation that unfortunately has made today’s circumstance much worst that it needed to be, or could have been avoided it entirely. In the wake of the oil crash, the fiscal irresponsibility, and overall poor management of some aspects of the Klein government as well as many Tory governments before became exposed for all to see. In the years that oil was high no one doubted leadership because consumer spending was high, wages were climbing, and Alberta was starting to be a region of Canada that showed very strong promise as other provinces were begin to stagger or slow their growth, especially with the advent of the 2008 financial crisis.

    When times were good, everyone was happy to ride the gravy train without asking where it came from, or where it was going. This shortsightedness not only applies to the government, but also to the individuals who used high pay stubs to get massive loans assuming there was no end in sight for sky high oil prices. The end result of all of this was that there was no real infrastructure or investment in the essential aspects that would actually make our resource financially sustainable and fit to weather the storm of low prices and price fluctuations. There was also very little money put aside for the other considerations such as what the eventual clean up of all of this massive projects would cost and who would foot the bill long after the resource was exploited and the company had left town. Poor government management has left Alberta with poor capacity to produce its own resources in a way that is competitive on the world market, and arguably also left Alberta with a major PR problem and lack of social license. Sure, most Albertans might not have any qualms about oil and gas production, but when we need to sell to other nations and markets across the world, the concept of social license goes far beyond our own backyard.

    My concern is that Alberta is once again barreling towards another short sighted endeavor in an attempt to bring back all the investment we have lost. The NDP government is desperate to appeal to its more conservative voter base by pushing the pipeline, but alienating and threatening BC is not a proactive way of getting our product the elusive tidewater port that would help struggling Albertan families. Perhaps an approach that would help BC see the benefit of the project and increased financial incentive could help move the project forward and finally get what should have been done 20 years ago finished.

    1. I miss the gravy train…. Why should BC get financial benefit from our exports beyond the price of shipping. A lot of product moves from BC through Alberta.

  12. Same as what happened in Leduc No.1 back in time (might not be accurate), while everybody are desperate because 133 wells are dry, suddenly oil pumped out and fall like gold water fall. That’s how Alberta become one of the largest oil and gas farm. It comes the result that oil is actually trapping as Nisku Formation and drain down toward Leduc. The story (fact) tells us you never under estimate the potential of what you actually working on. However, never blame on what happened in the past. They are experiences not fault. People are getting smarter in the play than in the past. Look things in the long term is always not bad instead of little bit more works. This is just my opinion.

  13. In fact, I am not very familiar with the political environment in Alberta and what happened in the past but it is obvious that the economy of a area will benefit by a good infrastructure construction will bring. Then, the people livelihood and culture in that area will be greater because of the economic growth. Thus, I agree with the opinion that the government should invest more to build the pipeline. For pipeline itself, it is a more safe, cheap and environmental friendly way to transport the oil and gas. Also, more jobs will be created by building the pipeline. There is no doubt that this is good for the province, especially the the economy of Alberta is under recession. Why not build more? Finally, for me, it is really ridiculous for BC’s wine embargo policy. I think it has more disadvantages for themselves.

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