Canada’s national pipeline dream

What sort of dreams should we propose for ourselves as a nation? What would stir our imagination? Certainly elimination of poverty, social justice or building peace in Afghanistan would be worthy goals but are they really practical or attainable? Certainly, we built a national railway, but that was a hundred years ago or more. What challenges of magnitude have we undertaken lately?

Canada, a self-proclaimed energy superpower is self sufficient in oil production. Our 2004 annual usage was 1.8 Million barrels per day and domestic production was 2.5M b/d of which 90% is from Western Canada. 65% of our production is exported to the United States mostly via the pipeline systems shown below.

One might conclude that north to south exports is virtually the whole energy game. Presently Central and Eastern Canada import 900,000 b/d of oil from offshore. With Alberta conventional oil in decline by 5% per year, non-conventional supply (oilsands) is receiving large investments and overall production will increase in coming years.

 overall-pipeline-network-rev2.jpg

 Pipeline map from NEB website

 A brief history of pipeline construction 1941 – Pipeline built from Portland Maine to Montreal as a wartime security measure and to provide year-round access when shipping is closed by ice.
1950Interprovincial Pipeline built to transport oil from Edmonton to Superior, Wisconsin. First shipment arrived in Superior in early December.
1953 – Interprovincial Pipeline extended to Sarnia, Ontario

1953 – Trans Mountain Pipeline (oil) completed from Edmonton to Burnaby, BC (225,000 b/d)

mid 1970’s – Following the first oil embargo, the government of Canada supported the construction of line 9 (300,000 barrels a day) between Sarnia and Montreal to provide additional energy security. Over time, the problem became a faded memory and the line now feeds east to west with crude oil from offshore.

Oil is delivered by ship to Saint John-250,000 B/d, Halifax-85,000 B/d, and Newfoundland by tanker from offshore producers. A pipeline feeds the refineries in Montreal and in Ontario from Portland, Maine.

As the tar sands are exploited, additional increases will lead to a production rate of between 3 and 4 million barrels a day. By 2015, over $100 billion dollars of investment in oil producing projects will be complete.

To get this new production to market, Enbridge plans building the “Gateway” pipeline, 1200 km, 400,000 Barrel/day from Edmonton to Kitimat BC to send oil to California and Far East markets. They also propose to reverse the south-north flow of an existing pipeline from Chicago to Cushing, Oklahoma and will require expansions to the main line in Canada. Terasen has a proposal to increase production capacity to BC called TMX. These examples point out an expansion of production destined to serve other customers south of the border and elsewhere.

The development of the Canadian pipeline system has been a natural evolution of the distance to major markets and the low cost of oil. Oil at $10 dollars a barrel couldn’t finance a pipeline that cost $5 a barrel to transport it. As the cost of oil has risen substantially, it may be time to evaluate the benefits of adding some sections of pipeline to permit the sale of Western Canada oil to the center and east of the country:

  • As overall world oil production will decline in the future, many countries will be tempted to nationalize their oil industries to achieve better return on resources and perhaps conserve supplies for the long term. Witness the efforts of Russia, Venezuela, Bolivia, etc, to either re-negotiate or nationalize industry.
  • The availability of oil on the world market may not be just a function of the free market. China is making investments and signing agreements with many suppliers to furnish the rapidly growing Chinese market (Nigeria, Iran, Venezuela, Canada, etc.) This production may not be available to others at any price.
  • The NAFTA and IEP agreement uses our highest shipments of oil to the US as the baseline to maintain when there are shortages. Worldwide shortages of 10% would impose demand reductions on Canada so increasing shipments to the East would not be possible if offshore supplies were not available to Central and Eastern Canada. Winters in Canada will always be cold and unforgiving to those with a shortage of oil. If the West has oil and the East does not, then the federal government would be accountable for a lack of foresight. Should we all move to Alberta to stay warm?
  • Any increase in oil exports will benefit the Canadian balance of payments. Similarly, a 600,000 b/d pipeline toward the east would improve our balance of payments by $16 Billion per year at $75/b
  • The oil industry is rapidly changing and not for the better. The expected shortage of resources elsewhere in the world may lead to oil wars. Indeed, some have suggested that Iraq is an example. A prudent policy would evaluate whether a high capacity Trans Canadian pipeline from west to east should be built before any more pipelines to export oil are approved. Given the chance, most Canadians would much prefer that their oil dollars go to Alberta as opposed to offshore.

    At a cost of between $1-3M per km, it is expected that the total cost of the pipeline would be between $5 and $10 billion. We’re almost talking money here. At the upper price of $10 Billion, this annual costs amounts to approximately $5 per barrel delivery charge. If oil is $100 / barrel when the pipeline is in service, this is a 5% transportation cost which is not too excessive. After all, it costs money to ship oil from the Middle East or Venezuela. Oil for Atlantic Canada refineries would be shipped from Quebec City, the end of the pipeline or from Portland Maine.

    This is a very brief analysis of a complex issue with inadequate pipeline estimates. Would a pipeline make a sufficient national challenge for this decade? Should the rest of Canada be allowed to buy Alberta oil? If new pipelines of many thousands of kilometers can be built in the near future from Edmonton to the BC coast or to the United States to export oil, can we not first build one from the west to the center of Canada through Canada? Do our political leaders have a plan to insure our energy future?

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