Why oil to tidewater argument for tar sands pipelines is bunk

If you follow mainstream media and you haven’t heard "we need to get our oil to tidewater" ad nauseam, something weird is up.

Natural Resource Minister CarrPrime Minister TrudeauPremier Notley and pipeline and tar sands industries, have all been delivering the same drum beat message, and it's building in intensity.

Here’s the thing - the message is totally false.

I clearly have a strong opinion on Energy East. Some may be inclined to think this discounts the arguments below. (I beg to differ, by the way...).

I’m not the only one calling this bluff. In a recent iPolitics piece written by former top senior manager with one of Canada’s top energy companies, Ross Melot, (who earlier argued the business case for Energy East is shaky at best), Melot stated:  

“...Premier Notley just became the latest Canadian politician to play games with pipelines. She’s telling Albertans a pipeline to tidewater can cure what ails the industry. It won’t — it can’t — because the problem a pipeline to tidewater was intended to address doesn’t exist anymore.... Money spent on a pipeline right now would be money wasted. But Notley can’t say that aloud — not while also delivering the bad news on her province’s finances.”

Tar sands woes aren’t due to lack of access to pipelines

The core premise of the argument is that the lack of pipeline access to tidewater is forcing tar sands crude to be sold at discounted rates. Greater access and market diversity will bring higher prices for tar sands crude, they say.

First of all, the price differential between tar sands crude, classified as Western Canadian Select (WCS), and other key crude oil price benchmarks like West Texas Intermediate (WTI) has reduced significantly since 2013 (when you could legitimately make an economic case for getting oil to tidewater). In fact, Scotia Bank Energy Economist Rory Johnson projected that by 2017  there would be no price differential at all.

Several pipeline projects between Illinois, Cushing and the Gulf Coast came online in 2013/2014, relieving a regional transportation bottleneck by allowing tar sands crude to flow further to the U.S Gulf Coast.

The Gulf Coast refineries are the ultimate destination for tar sands crude. The area is home to over 2 million barrels per day of oil refining capacity, much of it geared towards heavy oil.

Current pipelines actually give tar sands producers 500 thousand barrels per day (bpd) of surplus capacity to the Gulf Coast and the U.S. Midwest, which is another important destination for heavy oil.

The price differential that exists isn't caused by the lack of access, but primarily by the quality and remote location of the tar sands. Bitumen is thick and heavy and requires dilution for transporting by pipeline. It creates more havoc when it leaks in waterways and generates more carbon pollution when it is produced. It costs more to refine and and produces less valuable end products like gasoline (generally $2-3 per barrel of the price differential). And, simply put, Hardisty Alberta is far away from major markets, so this adds to the costs of shipping tar sands crude.

Accessing Asian and European markets through the Kinder Morgan or Energy East pipelines will do little to fetch more money. The cost of getting the crude there increases and the markets have less capacity to refine heavy crude. In fact, evidence suggests the money received for crude shipped to these markets will be less than what tar sands producers get with Gulf Coast and U.S. Midwest refineries.

So if lack of market access isn't causing the tar sands' current struggles, what is? 

Alberta's deficit, which is causing serious struggles for workers and families across the province and this country (with many workers traveling to Alberta for high paying jobs) is first and foremost, a victim of the global oil price crash

Heavy oil in the tar sands is more difficult to produce and more expensive. And right now, it has a lot of competition. Returning to Melot’s article, he adds further critical context: “Alberta’s problem is twofold: Its oilsands have been buried by fracked American oil that is both higher-value and cheaper to produce..." 

Undeniably, the U.S. is awash in cheaper fracked oil, the production of which is wreaking havoc on communities, waterways and our shared climate. 

Melot also rightly argues that, longer-term, the tar sands will face marginalization in a 'world committed to weaning itself off carbon.'

Energy East is proposed as infrastructure that will last 40 years. TransCanada would like it to be operational by 2020. (I think this is overly ambitious, this means Canada will be producing and shipping 1.1 million barrels of oil at least until 2060. And we have pipelines that have been around longer than 40 years. In fact, the natural gas pipeline TransCanada wants to convert for Energy East is up to 40-years-old in segments located in Saskatchewan and Manitoba. (And TransCanada has the worst pipeline safety record in Canada – yikes!)

This is past the 2050 deadline in the Paris climate agreement set as a goal for weaning ourselves off of fossil fuels, which many climate scientists support. It runs in conflict with more than 100 scientists in Canada who have publicly called for no further expansion in the tar sands.

Pursuing this kind of infrastructure locks Alberta and Canada into producing and shipping what will become stranded assets within the projected life time project. This not only puts our climate, communities and waterways at risk, it represents an economic risk too.

The truth is we can meet the deadline and decarbonize by 2050. It’s not technology that stands in our way, but the lack of political will and the powerful fossil fuel lobby.

For some inspiration on the direction forward, check out this story about the Indigenous community of Little Buffalo, located in the heart of the Peace River tar sands. The community launched a solar project, installing 20.8kW, to power their health centre.

Stay tuned for more on the direction forward in tomorrow’s blog on the Leap Manifesto and the many responses it is inspiring.

For more information about why the oil to tidewater argument doesn't add up, please see this useful briefing (a key source for this blog) by Oil Change International, Environmental Defence and the Natural Resources Defense Council.