Pipelines in North America have been headline news for years and this is only going to escalate. Will they? Won’t they? Growing opposition is leading to more protests, arrests and damages. Fortunately, to this point vandalizing of physical assets has not been extensive. But this is always newsworthy no matter what the logic behind them.
The issue has reverted to fundamentally irreconcilable positions. The historical case is everybody consumes oil every day in ways they often don’t understand and therefore modern society cannot function without it. Canada has lots so let’s produce it. The opposition is supported by a growing number of people absolutely convinced mankind must quit using petroleum entirely as soon as possible otherwise the world’s environment will suffer irreparable harm. They are so dedicated to their position they are increasingly escalating protests to include civil disobedience.
Incredibly, the voice of the latter has grown as loud and influential as the undeniable logic of the former.
It is into this highly charged and diametrically opposed divide two relatively new political leaders – Alberta Premier Rachel Notley and Prime Minister Justin Trudeau – claim to have found the solution. Carbon taxes to discourage oil consumption and make its production more expensive - combined with selective restrictions on development such as carbon emission caps and outright pipeline vetoes - will reduce opposition sufficiently that Canada will be able to produce more oil.
Confused? You bet! Penalize oil production and consumption as the best path to producing more of it. Purchase that so-called “social license to operate” then get that big rig back on the road and punch the pedal to the metal. If you find this solution fundamentally incomprehensible you are not alone. There are those on both extremes who figure it is flawed if not fraudulent. Alberta’s land-locked oil industry sincerely hopes it works and many of the captains of industry are investing heavily in its success. But the reality is don’t get your hopes up.
On November 29, Prime Minister Trudeau announced federal approval of two pipeline expansions/replacements, Kinder Morgan’s Trans Mountain line from the east side of Edmonton to Burnaby and Enbridge Line 3 from Hardisty to Superior, Wisconsin. Both are two of Canada’s oldest oil pipelines dating back to the 1950s. If completed, the expansions would increase throughput from about 700,000 b/d today to as much as 1.695 million b/d at some point in the future, a gain of almost 1 million b/d.
Kinder Morgan’s Trans Mountain pipeline runs 715 miles from Edmonton’s refining hub to the Pacific Ocean in Burnaby. Originally built in 1953 and in safe and reliable service for 63 years carrying about 300,000 b/d, Kinder Morgan applied in 2013 to expand the line to 890,000 b/d at an estimated cost of C$6.8 billion. An additional 580,000 b/d of pipeline export capacity is a huge boost to the industry particularly when it is to tidewater, not Canada’s historic and competitive U.S. market. Kinder Morgan hopes to start construction next year.
Ottawa only approved the Canadian segment of Enbridge Line 3. The U.S. section is still waiting approval but because it is an existing line crossing the Canada/U.S. border this project doesn’t require White House approval, the withheld permission that killed TransCanada’s Keystone XL project. This 1,031-mile line dates back to the 1950s. When the work is completed in 2019 it will transport 760,000 b/d with future capacity of up to 915,000 b/d. Because of its age and Enbridge’s concern for safety and integrity Line 3 is currently carrying under 400,000 b/d. At C$7.5 billion this project will be the most expensive in Enbridge’s history.
The same day Ottawa officially put the last nail in the coffin of Enbridge Northern Gateway which was intended to run from Edmonton to the Pacific Ocean seaport of Kitimat, B.C. This was approved by the National Energy Board in 2012 and the federal government shortly thereafter but was challenged in the Supreme Court of Canada. Based on failure to adequately consult aboriginals, earlier this year the court overturned government approval. Related: Trump’s Energy Advisor Hamm: We Are So Much Stronger Than The Saudis
Ottawa has been setting the stage for these decisions through multiple policy announcements. On October 5, it unveiled a national carbon tax to come into effect January 1, 2018 with details to follow. On November 7, the federal government released details to put another $1.5 billion into an oil spill protection plan. Trudeau gave much of the credit for approval to Alberta’s Premier Notley who announced her province’s Climate Leadership Plan over a year ago. Trudeau said, “Let me say this definitively, we could not have approved this project without the leadership of Premier Notley and Alberta's climate leadership plan, a plan that commits to pricing carbon and capping oilsands emissions at 100 megatonnes per year."
So there you have it. Because of new federal and provincial carbon taxes and the judicious application of selective one-off decisions such as cancelling Northern Gateway and capping oil sands emissions, the path is now clear for new pipe. Supporters of both the federal Liberals and Alberta NDP chortled long and loud about how the insightful policies of new “progressive” governments had accomplished more than the knuckle-dragging, pro-development former Conservative and Progressive Conservative governments in Ottawa and Edmonton respectively. That two major pipelines carrying over 1 million b/d to the U.S. were approved and built under the former Conservative government and the outgoing Barack Obama administration is regularly ignored.
The problem is petroleum’s social license appears to be lost in the mail.
The opposition to the approvals has been broad and loud. The very next day the Vancouver Sun headline read, “B.C. groups say the war over the Kinder Morgan pipeline just beginning” following by a detailed list of who was unhappy and the wrath they intended to inflict on Trudeau and anybody else who disagrees. Thanks to all the anger in B.C. Enbridge Line 3 may stay under the radar. That may be an optimistic prediction.
While the environmental policies introduced by Alberta and Ottawa allow Premier Notley and Prime Minister Trudeau to claim they have found the right balance between environmental protection and essential oil-driven economic activity, the idea this made-in-Canada compromise will narrow the gap between the two opposing factions remains uncertain.
Two important events could and should temper the euphoria the oilpatch has enjoyed after learning there might eventually be more pipe built.
The first is the December 4 decision by the U.S. Army Corps of Engineers to re-route the North Dakota Access Pipeline (NDAP) around the lands claimed by the Standing Rock Sioux Indian Reservation. The protest had been growing since spring and escalated significantly in recent days when it authorities announced the main camp housing the protesters had to be cleared by December 5. Besides stalled construction the protest has been plagued by equipment vandalism, injuries and some serious force by law enforcement personnel including hosing protestors with water cannons on a very cold day.
The owners of the pipe and the government of North Dakota have criticized the decision and hope it will be overturned by new President Donald Trump when he is sworn into the Oval Office on January 20. That’s not the point. The fact is a large and growing protest movement got a partially constructed pipeline stalled. This was not in the lib-left, heavily populated paradise of the lower mainland of B.C. but on the flat, barren, traditionally conservative bald-ass prairies of North Dakota. This isn’t significant future economic opportunity stalled by opposition but the loss of billions in hard cash already sunk by the pipeline’s owners after meeting all regulatory approvals required to start construction. There must be a solid legal case for compensation if it is not eventually completed.
This bodes poorly for Kinder Morgan. B.C. municipal politicians are already bragging about how big a protest can be held in Vancouver using the local population and mass transit. Green party leader and MP Elizabeth May claims she’ll go to jail if arrested at peaceful and legal pipeline protest. If the new Trump government reverses the decision be assured the protest will reassemble and a very public and possibly violent confrontation will occur. This will cause ordinary people who don’t understand how essential oil is in their lives to become sympathetic to the anti-pipeline cause. If NDAP is rerouted the same demand will be made of Kinder Morgan. Except B.C. will propose a new terminus like Tuktoyuktuk on the Artic Ocean
What is most disturbing about NDAP it is has nothing to do with carbon emissions or tanker traffic. The root of the opposition is the pipeline is going under the Missouri River which is the source of Standing Rock’s drinking water. It might leak one day. Then what? The real enemy is the existence of any new pipeline carrying oil anywhere.
The other problem is the upcoming B.C. election set for May 9, 2017. The NDP have already declared their opposition to Kinder Morgan and will campaign against it. When it looked like the NDP was going to win the 2013 election they declared Kinder Morgan would never be built. Incredibly, this was a factor that reversed public opinion at the last minute and gave the pro-business Liberals a majority government. But recent polls indicate some 60% of people in B.C. oppose Kinder Morgan although 66% of those who vote Liberal support it. Come spring the B.C. campaign and this issue will make news every day. Related: Filling The Gap: Tomorrow’s Most Popular Oil Trade
Alberta Premier Notley is off to B.C. to sell the deal. It will be interesting to see the Alberta NDP leader pleading for support for economic growth through pipelines while the B.C. NDP leader campaigns against it. Who Notley is going to talk to and what she’s going to say is unknown.
The reality is the grand NDP/Liberal climate change compromise is meaningless to those opposed to new pipe. Oil is oil and is bad whether or not it is taxed, controlled and regulated. Carbon taxes are not a proxy to increase carbon production. One example is B.C. environmentalist and Green Party leader Andrew Weaver who in an on-line debate with Alberta Climate Leadership Plan chair and University of Alberta economist Andrew Leach tweeted, “I reiterate any so-called climate plan that puts forward dramatic increase in emissions is a joke”.
What can the oilpatch do to forward its cause?
Logic and economics don’t work. Governments in Alberta, Ontario and now Ottawa are trying to appeal to the anti-oil crowd by spinning an attractive but unproven energy future whereby low cost and reliable hydrocarbon fuel like coal and oil can easily be replaced by low-carbon renewables. This is repeated over and over without supporting evidence. Governments which have gone down this path are reversing their commitments as they face economic reality. Ontario Premier Wynn recently publicly apologized for massive increases in electricity prices caused by forcing people to pay for higher cost wind and solar power.
Economic hardship? Nobody cares. That there are tens of thousands out of work in Alberta’s oilpatch and the province is in serious financial difficulty because of the oil price collapse and the lack of economical market access means absolutely nothing to those who have decided that not producing more oil for any reason is more important that whatever economic misery such a rigid and doctrinaire position perpetuates.
Premier Notley has publicly suggested her political opponents are hoping the pipelines don’t get built to discredit her government and reduce the chances of winning another election. While the oilpatch is hardly a hotbed of NDP support, there is great support for these pipelines. Another million b/d of oil takeaway capacity from these two projects could rekindle investment and put thousands back to work. Everybody would love to see Kinder Morgan and Enbridge digging ditch and laying pipe. If it is carbon taxes that break the logjam more Albertans will get with the program because they will have an income with which to pay them.
But it will be events in North Dakota and B.C. that have a far bigger impact on what happens than Alberta politics. The fundamental question remains; can carbon taxes return growth and prosperity to oil sands? That this will work is not proven. To many it is not even intuitive. But be assured the vast majority certainly hope so.
By David Yager for Oilprice.com
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It's up to the government to see through it and push forward and not let their country be controlled by outside interests and the most ignorant and selfish of citizens.