A Voice Against New Pipelines

The recent Trump-inspired uproar about Canada’s relationship with the United States has several dimensions: economic, cultural, political. All of these focus on the heightened importance of reducing our dependence on U.S. trade, diversifying our relations with other trading partners, reducing internal trade barriers between provinces, and taking better advantage of our abundant natural resources.

One of the most widely-held assumptions conveyed by the national media is that we can take much better advantage of the vast oil resources in Alberta and, to a lesser degee, Saskatchewan by shipping it north, east and west to “tidewater” – James Bay/Hudson’s Bay in the north, the Pacific in the west, and the Atlantic in the east. The goal is to reduce our dependence on one customer (the U.S.), and start shipping western Canadian oil to Europe, Asia, and Africa.

Pipeline Problems
This requires oil pipelines because Alberta is “land locked”. But there are important problems with building pipelines in Canada. (Shipping by rail is another option, but we’ll ignore that till another post.)

The first pipeline problem is that they are very expensive to build.

The second is that they typically have to cross provincial boundaries and First Nations lands, and require the agreement of those provinces and tribes, and it is often difficult to get that agreement.

The third problem, and rarely talked about, is that there is no automatic market for this increased amount of ready-to-ship oil. The promoters of the policy we might call “Ship More Oil to the World” (SMOW) give the impression it is simply a matter of digging up the oil, sending it to tidewater ports, and shipping it off to all our new found customers.

But as the proficient Youtuber, Markham Hislop points out over and over again in his videos, SMOW is not quite that easy. Hislop is the front man for the Youtube channel called “Energi Media”. He is based in B.C., but has lived much of his life in Alberta, and his Youtube videos consist of interviews with researchers, reporters, company executives, and indigenous leaders involved in the energy industry in Canada, the U.S., Europe and Asia.

As he often points out the “energy industry” is much broader than just the oil industry. In particular it involves electricity generation – both traditional and “clean” – as well as quickly evolving changes taking place with the “grid”. This especially involves energy sharing and storage using extensive battery installations.

Is There a Market for More Canadian Oil?
Hislop’s primary message is that there is no guaranteed market for more Canadian oil. This is because the world energy market is changing in a radical direction.

First, it takes a lot of money and a significant amount of time to build a pipeline. And currently there are no apparent private companies interested in engaging in such projects in Canada. That means that, unless things change, new projects will have to be initiated and financed by governments. That means you and me. Just like the recent Trans Mountain expansion through B.C. to the Pacific coast ($34 billion). That expansion seems to have been successful, but the timing for new projects is problematic as we see in the following.

The second problem is that world demand for oil is estimated to peak within 10 to 15 years, and then as electrification increases, oil useage will seriously decrease. This is roughly the same time that new pipeline projects will be fully functional and expected to be profitable. According to Hislop, the timing is bad and new pipelines are just not going to be economically feasible.

The third problem, never discussed in the media, is the fluctuating price of oil in world markets. This price can be manipulated by major oil producers – in particular, OPEC. And if that price drops below a certain point it becomes more expensive to produce and ship than it can be sold for. A major factor is electrification. As electricity continues to replace oil (EVs for example) it is inevitable that the demand for oil will decrease, along with the price others are prepared to pay for it.

Becominng an Energy Superpower

All in all, this means that the “energy superpower” talk we hear from PM Carney, Alberta’s Danelle Smith, and many others can be misleading. Carney, unlike Smith, seems to be talking about more than just oil. Carney and others who talk of the “grid” and energy sharing between provinces seems to be referring more to electricity than oil.

And that means that this “superpower” status does not necessarily involve more pipelines. If Hislop is right new Canadian pipelines have a limited role in the energy world of the future. That’s because we are clearly moving away from oil and towards electrification.