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Build the pipeline – but which one? Part 2

Last week I began with a primer on why building oil export pipelines are so important, touching on the Enbridge Line 3 Replacement, TransCanada Keystone XL and Energy East pipelines.

Last week I began with a primer on why building oil export pipelines are so important, touching on the Enbridge Line 3 Replacement, TransCanada Keystone XL and Energy East pipelines. 

Now I’ll pick up with the West Coast pipelines, and why this all matters. 

Northern Gateway was approved, with conditions (as they all have). A B.C. court quashed that approval, calling for additional consultation with First Nations, the same process that is currently happening with the Trans Mountain Expansion.

Northern Gateway was supposed to be built by 2018. That’s important, because as it was an outlet to Asian markets, it would have allowed Canada to take advantage of typically higher oil prices compared to West Texas Intermediate (WTI). 

Our bitumen and heavy oil typically trades at a differential (i.e. lower) price to WTI. This past winter, those differentials became extreme, to the point where it was a discount of over $45 a barrel. We were essentially giving our oil away because we had nowhere else we could sell it. 

If Northern Gateway had been in service, as it was supposed to have been, Alberta would not have lost billions of dollars, and Saskatchewan, hundreds of millions, in the last year.

Northern Gateway was killed when Trudeau declared that the Kitimat region of British Columbia, which only in recent years has been dubbed the “Great Bear Rainforest,” was no place for a pipeline. One of his first acts as prime minister was to order his transport minister to ban tankers off the northern B.C. coast. 

Bill C-48 is the implementation of that ban. This bill bans oil exports off northern B.C., but does nothing about oil imports on the east coast. More on that later. 

The last pipeline in play is the Trans Mountain Expansion. This would twin an existing 65-year-old pipeline and add 590,000 barrels of oil per day in capacity, principally for export. While some of that oil might end up going to California, the real prize is overseas exports for all the above reasons – we are no longer captive to the American market, and can sell our oil based on the usually higher Brent price, instead of a discounted differential to the lower WTI price.

Now, why is it so important to be able to sell our oil overseas, when we currently sell almost every drop of oil we don’t use ourselves to the Americans?

It’s because the Americans may not need us much longer. 

When I started writing for Pipeline News nearly 11 years ago, North Dakota was producing 150,000 bpd, and Saskatchewan was producing 425,000 bpd. Now Saskatchewan produces 485,000 bpd, and North Dakota produces 1.4 million bpd, on their way to 2 million bpd in a few short years.

Since January 2010, Texas has added over 3.8 million barrels per day, going from 1.1 million bpd to 4.9 million bpd. Let me put that into perspective for you. Canada, as a whole – oilsands, Hibernia, Bakken, Weyburn – everything, produces about 4.2 million bpd, and we’re one of the largest oil producers in the world, accounting for four per cent of global production. Texas added the equivalent of nearly all of Canada in less than a decade, and they’re not stopping, either. 

American production is currently 11.9 million bpd. It is expected to average 13 million bpd in 2020, adding the equivalent of two Saskatchewan’s worth of production in that time. 

Current projections are seeing the United States reaching energy independence status by 2020. The U.S. Energy Information Administration just forecast America would become a net exporter of crude oil and petroleum products on a monthly basis later in 2019 and on an annual basis in 2020.

That means that, theoretically, they won’t need our oil. But they are buying it. Why? Because they buy our oil at a discount, and now export their own oil and refined products at world price. 

One thing Canada has discovered is that, with the exception of approving Keystone XL, President Donald Trump has proven to not be Canada’s friend on trade. Look at the tariffs he imposed on Canadian steel and aluminum. And he claimed it was on a national security basis.

So what happens when the U.S. is producing so much oil, it decides it really doesn’t need our oil anymore? What if Trump decides getting our oil on the cheap isn’t enough, but he wants to impose a tariff on it, too, just because he feels like it? What do we do then?

We have no options. Zero. Today, because of Prime Minister Justin Trudeau’s policies, we cannot export our oil overseas except for a very small volume via the existing Trans Mountain pipeline. We’re stuck, completely and utterly. 

If Northern Gateway and Energy East had been built and in service by now, we would have enough capacity to theoretically export up to 1.6 million bpd (assuming all of Energy East’s capacity was used for export instead of supplying Canadian refineries). With Trans Mountain, that number would be 2.3 million bpd. But right now, we have next to nothing for export capacity.

Oil is the lifeblood of Canada’s economy. Oil is what makes the federal equalization program possible. And that pays for things like hospitals and schools. If we can’t sell our oil, what will happen to us?

That, my friends, is why building export pipelines – plural – is so important. We need Trans Mountain Expansion, Northern Gateway and Energy East, and we need them yesterday, which happens to be when they were supposed to be in service in the first place.

 

Brian Zinchuk is editor of Pipeline News. He can be reached at brian.zinchuk@sasktel.net.