Pipeline Politics, the NEB, Energy East and why so few notice our lack of refineries

On Saturday, September 17th, 2016 in Articles by Elizabeth, Island Tides
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In another stunning development in pipeline politics on September 9th, the three person panel of National Energy Board Commissioners stepped down, recusing themselves from the Energy East pipeline review.  Mike De Souza of the National Observer uncovered the fact that the panel members had met with former Quebec Premier Jean Charest, while he was paid as a lobbyist for Energy East. The first response from the panel members was to deny they had discussed Energy East in their meeting – only to back down and admit they had.

The Energy East hearings are now postponed until new, non-contaminated members can be found.

Media is now speculating that Prime Minister Trudeau will have no choice but to approve a pipeline somewhere. The narrative sounds compelling:  Canada has a “product,” the product must reach markets. This is distilled in the patented cry to “get bitumen to tidewater.”

This mantra “we must get bitumen to tidewater” is #1 in the Hit Parade of industry claims. Why must we?  It goes completely against Peter Lougheed’s plans for the oil sands to insist on the export of raw product in a pre-crude state.  Until the 2008 financial collapse, building pipelines to export raw bitumen was not the plan.  Upgraders were slated for northern Alberta.  When the economic down-turn was being shaken off, building upgraders to add value to bitumen by producing synthetic crude (or syncrude) was replaced with pipelines to ship out unprocessed bitumen as fast as possible.  Why exactly is it better to export unprocessed bitumen?  Exporting raw product, whether raw logs or raw bitumen, ships out jobs.  The major labour unions oppose pipelines for this reason.

It is daunting to untangle the problems and fallacies behind pipeline politics.  ‎A lot of them stem from never having had a conversation about why Canada no longer has the refining capacity we had in the 1970s. It is counter-intuitive that a country that was not a big oil producer (Canada in the 70s) had over 40 refineries and that now that we are heavily invested in production, we have 17. Other than the Co-op Refinery Complex in Regina, none of them have the technology to process bitumen. So all of the pipelines are about exporting bitumen.

The issue is confused in the case of Energy East by claims it is intended to get Alberta bitumen to eastern refineries. But no eastern refineries can process bitumen. Energy East will ship unconventional crude from shale deposits as well as bitumen mixed with diluent from the oil sands. The shale-sourced crude can be refined in Canada. But the vast bulk of what is proposed to be shipped eastward from Alberta will by-pass domestic refining and be loaded on tankers from the Port of St. John, New Brunswick.

As we ship out raw bitumen, we import foreign oil.  Unlike the product we ship out in a pre-crude state, we import foreign oil that can be processed in domestic refineries.  And to ship raw bitumen, we import fossil fuel condensate and put it in rail cars to reach northern Alberta.

I am a strong proponent of expanding our refineries – especially building a large and environmentally best-technology refinery in northern Alberta. It would be a boon to the economy and could produce finished product for domestic use. It could help reduce our current level of imported foreign oil, while transitioning to a post-oil world.  Building pipelines when oil is selling below $80/barrel creates pressure to expand oil sands.  This was a key finding in the State Department Environmental Impact Statement on the Keystone proposal.  So long as oil was above $80/barrel the pipeline would have no impact on investment decisions.  Below $80 and GHG expansion is tied to a new pipeline – hence the Obama administration’s decision to reject Keystone.

If we want to enhance refining in Canada, we may need to invest public funds. Federal investment in a new refinery could only be justified if the oil sands were capped at 2 million barrels of bitumen a day. Steady state production with value added can help meet climate goals and grow the economy.  The jobs created in value-added will help smooth out the boom and bust nature of raw resource development.

One private sector investor is building a refinery in Redwater, Alberta. Ian MacGregor CEO of North West was quoted in an August 2015 Globe and Mail article (Brent Jang “Alberta’s oil patch faces a refining moment.”)

“There’s a huge transfer of value – taxes, jobs and economic activity – to Texas and other places south. If you don’t care about that, maybe that’s okay. But if you want some schools, hospitals and jobs, you want bitumen processed in Canada,”

Greater prosperity, more high paying local jobs, reducing GHG, and domestic energy security are all achieved if we grab this opportunity.   Since the large multinationals are not interested in providing Canadian jobs (and since they want to get raw bitumen to the upgraders and refineries they already own in other countries), it makes most sense to pursue the model of the one refinery in Canada that has modernized to process bitumen.  As noted above the Regina refinery is a co-op.  It is owned by the Federated Cooperatives Ltd.  Why not have another Co-Op refinery?  The major unions in this country want to restore those high paying jobs in refining that were lost as multinationals failed to reinvest and modernize.  Let UNIFOR and the Canadian Labour Congress weigh in on pipelines.

Let’s at least talk about why pipelines make no sense, why shipping out raw bitumen and raw logs undercut our productivity, and how the best way to stop Kinder Morgan and Energy East is to point out there are better ways to help the economy.

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  • BobA

    Elizabeth is so on the money. The whole idea of exporting the very products that give us, as a country, a competitive advantage, is stupid in the extreme. I wrote a blog on this topic some months ago, explaining an epiphany I had in 1959 – and which has influenced my thinking ever since.

    https://rabellblog.com/2015/10/23/alchemy-a-key-to-fixing-canadas-debt-problem/

    • James Bodie

      Yes, “stupid to the last drop”. You’ve gotta read the book by William Marsden. A little outdated perhaps, but full of fascinating anecdotes showing how we got here.

  • Bill Johnstone

    Brilliant! Your lesson in basic economics is exactly right, Elizabeth. And of course there’s the environmental argument. Bitumen sinks in water. Any spill of bitumen from a pipeline or rail cars is horrible, practically impossible to clean up. We saw that with Enbridge’s spill into the Kalamazoo River.

  • http://www.sfu.ca/physics/faculty/huntley.html David_Huntley

    A spill of diluted bitumen is a disaster. A spill of bitumen itself is, as I understand it, like a spill of peanut butter and easy to clean up. This is why shipping plain bitumen by rail seems to make sense.

  • Tony Brogan

    Makes sense to add value before export. also transport of refined products is less threat to the environment should there be a spill.

  • stephane31

    Canada Oil is not locked for late of transportation equipment. The railway is always available. But Business is “cheap” – so they prefers pipeline because it is a “cheaper” mode of transportation. But “cheap” do not end there. If allowed, there would choose a less lower quality pipeline system just because it would be “cheaper”. The regulators should insist on “top of the line” pipeline system and the government should fund innovations and research on making a better pipeline. Pipelines are being built all over the World and Canada could sell new pipeline technology to the World. My suspicion is that given smart regulations and genuine enforcement, the Marketplace could go for railways and refineries as the “cheaper” option.

  • stephane31

    The global giant Oil companies want Canada Oil but do not want to build more refineries because they have already built elsewhere or perhaps they plan to build more elsewhere at lower costs (land,labour and taxes). They are looking after their best interests. So too should Canada look after her own best interests. Canada is in a good bargaining position because our resources are in the ground and not going anywhere without our say so. Unfortunately, it is perfectly legal in our democracy for Business to pressure politicians in more ways than one

  • http://www.manitoulinphotosandpottery.com Jan McQuay

    Trudeau appears ready to run roughshod over native rights and environmental good sense by approving Kinder Morgan. Elizabeth, thanks for your cogent explanation here. And don’t give up!

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