Topic
Former CEO of ICBC concludes project 'is neither needed nor in public interest.'
Pipeline would create oil price shock, hurting Canadian consumers, finds report.
ENERGY & EQUITY: Before you make oil sands and pipeline decisions, can you answer these queries?
A short course in Dutch Disease, deindustrialization and the Bitumen Curse.
Petro wealth is fouling our country's character, as it did many others'.
Find more Tyee energy reporting here.
A highly respected Canadian economist says the controversial Northern Gateway Project "poses a serious threat" to Canada's "economic growth and long term development."
In a detailed analysis submitted to the National Energy Board, Robyn Allan, the former president and CEO of the Insurance Corporation of British Columbia, concludes that "Northern Gateway is neither needed nor is in the public interest."
Moreover the project, if built, would raise the price of every oil barrel by $2 to $3 dollars in Canada over the next 30 years, and thereby create an inflationary price shock that would have "a negative and prolonged impact... by reducing output, employment, labour income and government revenues."
Allan's 74-page detailed and highly critical report not only challenges the credibility of Enbridge's controversial proposal but also questions the very rationale for a public hearing.
"I assumed that it would be a wealth generating project," the 56-year-old retired investment and financial affairs economist told the Tyee. "But when I started digging none of those assumptions held. The project is an inflationary price shock to the economy."
Allan's blunt conclusions indirectly question the financial competence of both Prime Minister Stephen Harper and Natural Resource Minister Joe Oliver, who have described the Chinese funded $5-billion project as a form of "nation building." They have also dismissed its critics as "foreign radicals."
Allan, once rated by the National Post as one of Canada's top 200 CEOs, says she started to study the economic case for the project after a query by her son. That was when she discovered that Enbridge's economic benefit models were based on "misleading information, faulty methodology, numerous errors and presentation bias."
Moreover, 90 per cent of the project's benefits all come from substantial increases in oil prices. Because the price of oil rises to the top global market, the pipeline would not only raise gasoline prices throughout Western Canada but inflate the price of imported oil for Eastern Canada too.
The input-output models used by Enbridge don't account for economic feedback "or how consumers adjust to rising oil prices."
Becoming 'importers of inflation'
Enbridge, Harper and the Alberta government have long argued the project is needed to secure a higher price for bitumen due to overproduction and a supply glut in U.S. markets.
In fact, even Enbridge's analysis admits that there will be no net benefit to Canada if the project does not secure the so-called "Asian Premium" or a higher crude oil price. But by capturing that premium for crude oil, the project will effectively raise Canadian oil prices for the next 30 years.
"The upshot is that Canadian refinery demand... will have its market price determined as if the transactions for Canadian crude oil supply and demand take in place in the Asian market." (The Chinese government heavily subsidizes the price of oil in its economy.)
As a consequence, the project will raise the price of oil with no commensurate change in production or efficiency; it will enrich a few global oil companies such as Sinopec and it will increase inflationary pressures in Canada for decades.
"Northern Gateway is about a redistribution of income from consumers and business that use oil and oil-based products as inputs, to oil producers... Canadians certainly do not want to irrevocably adopt a crude oil energy strategy whereby, as exporters of oil we become importers of inflation," wrote Allan.
As a result, the project will not build the nation's economy but actually shrink it.
"Higher oil prices mean a decrease in family purchasing power, higher prices for industries who use oil as an input into their production process, high rates of unemployment in non-oil industry related sectors, a decline in real GDP, decline in government revenues, increase in inflation and an increase in interest rates and further appreciation of the Canadian dollar."
Canada's economy would become less diverse
Natural Resources Minister Joe Oliver says he supports the project as a means "to diversify energy markets."
Yet Allan found that the pipeline will "ensure that the Canadian economy moves further away from a diversified base and closer toward a bi-industrial model: primary resource extraction backstopped by a sophisticated financial sector."
Enbridge's economic case also assumes that the Asian Premium, a form of price gouging by Saudi Aramoco, the region's central supplier, will persist and support Canadian bitumen exports. Allan calls such an assumption flawed too.
"It is difficult to understand how the oil industry, publicly supported by the federal government, can use free market arguments to support the need for pipeline capacity expansion, in order to access a market where deliberate price gouging (non free market) forces are at work. It would be one thing to argue that providing supply to Asia will remove this predatory practice, but Canadian producers actually need the Asia Premium for its business and economic case to work; particularly in the early years of the project's operation."
In addition, Allan characterizes the reduction of Enbridge's insurance coverage for oil spills to $575 million as "likely insufficient" to cover the cost of any real spills along the 1,000 kilometre pipeline over mountainous terrain.
Enbridge's benefit case (five of its 12 corporate directors are U.S. citizens) says the project will not aggravate the nation's "Dutch Disease," a common challenge for all oil-exporting nations that raises the value of currency and trashes the output of local manufacturers.
Allan, however, found the project would make things worse. "The project promises a sustained increase in the price of crude oil which will serve to appreciate the Canadian dollar, raise inflation and interest rates. Those pressures will work negatively on Canada's other exporting sectors to decrease output and employment further."
Enbridge's economic benefit model assumes that exchange rates will remain at 85 cents for 30 years. But given that the Canadian dollar is now pegged to rising oil prices, "that assumption falls apart. The project will put pressure on exchange rates and rising exchange rates can also lead to net losses for the oil industry," added Allan.
'Game changer': Alberta Federation of Labour
To date, the federal government has not conducted a rigorous and independent cost-benefit analysis on the impact of increasing bitumen exports to Asia or the United States. Parliament recommended such a study in 2007.
Most of the media discussion on Enbridge has focused on environmental issues such as ocean pollution and potential spills.
"Shouldn't we figure out if there is an economic case before determining what the environmental sacrifices might be?" asked Allan.
The Alberta Federation of Labour submitted Allan's report along with its public submission on the project to the National Energy Board yesterday. The 140,000-member union, which supports local upgrading of bitumen and opposes the pipeline, characterizes the document as a "game changer."
Allan's report supports the findings of Dave Hughes, a retired senior analyst with Natural Resources Canada. He described the pipeline as a risk to Canada's economic and energy security.
[Tags: Energy.] ![[Tyee]](http://thetyee.cachefly.net/ui/img/ico_fishie.png){kind=small}
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Frank Lee
1 year ago
Allan's Report Reminds Me !
Of the BC Government's insistence on coal projects in both northeast and southeast backfired, when BC lost bargaining power and the coal market glutted. A similar lack of foresight in today's COnservative government, which makes decisions based upon its political timetable rather than long -run economics.
Patz
1 year ago
Pipeline
I heard an excellent interview with Ms. Allan on CKNW this afternoon by Simi Sara. I had already thought the economic benefit argument was weak but that the environmental issues trumped all the other viewpoints. Now, I see two very big reasons why this project is very much a negative for Canada and BC.
I will read the report but there is another issue in the tar sands debate which I don't think she mentions. That is the tar sands are an energy shell game. Meaning that there is very little net energy realized in tar sands to oil production because the process uses so much natural gas, has such a huge environmental footprint and require a huge infrastructure investment. It is a way for the companies involved to create money using government policy and subsidy. $2.8 b/year.
And hands up who thinks the oil companies will hang around to clean up after they take their profits. Silly bunnies!
igbymac
1 year ago
Shocking!
(emphasis added)
I've nothing to say about the findings in the article which speak clearly for itself. But I will add that anyone with a solid understanding of political-economic theory and knowledgeable about Stephen Harper would reach the same conclusion in about 30 seconds.
Granville
1 year ago
I say "Let the pipeline go ahead!"
As long as Stephen Harper, Peter Kent and John Baird are put through it with the oil.
I am joking of course. A better solution to the problem of the Terrible Trio would be to put them in a jail cell with a hanging rope for decor. It is just a suggestion is all, prompted by one of Harper's own backward benchers.
The northern pipeline is a pipe dream, just like the Prince Rupert Grain Terminal idea. I lived in Alberta for a total of 17 years, and I am still trying to wash myself clean of the mental muck.
This idea is just the latest get-rich-quick idea froom sleazy politicians and oil-slick millionaires. Someone needs to tell the stubble-jumpers to go stick it. They are acting like some cheap land manager, stickiing it to a farmer, and we ain't taking it.
Like Eugene Whelan said of the Africans, years ago. "Maybe they have been out in the sun too long without a hat".
I sure am sick of listening to their crap these days. It is like watching a replay of "Dallas" without Larry Hagman.
pipeup
1 year ago
Another clog in Enbridge's pipe
Thanks Robyn Allen for adding such amazing analysis to the debate, and for Nikiforuk for reporting on it. This project has always been about Enbridge making more profits, and never about any benefits to impacted communities or Canadians. Hopefully Canadians east of the Rockies will learn that this pipeline and tanker project means higher gas prices and more of the Petrostate Harper has begun governing.
Enbridge's Northern Gateway pipeline and tanker project will be stopped - it's just becoming harder and harder for Harper, Oliver and CEO Pat Daniel to cheerlead, which is maybe why they've taken to bullying. I wonder what they're going to come out calling Ms. Allen and the AFL now...
realisticman
1 year ago
Reading the Report
One finds that it does NOT say that the pipeline would increase the price of oil. It says that the proponent ESTIMATES a $2 - $3 annual increase in world oil prices. That's a big difference.
Refineries in Eastern Canada and in Pennsylvania have been closed because of excess capacity. Where there is an increased demand is in Asia.
"The fact is, that a similar tanker (to the Valdez) makes a similar journey, on average, every single day of the year. Many come from Valdez, Alaska—where the trans-Alaska oil pipeline terminates. This is called the “TAPS Trade” (Trans-Alaska Pipeline System). These tankers sail down from Valdez, staying 40 - 75 nautical miles offshore. They pass outside of the Queen Charlotte Islands and Vancouver Island. When the tankers get offshore of Cape Flattery, they turn in and head east down the Straits of Juan de Fuca. After transiting Juan de Fuca they usually turn north and continue up Rosario Strait. Many end their voyage at the refineries in Anacortes, or Cherry Point, but others continue up the south end of the Straits of Georgia and in to Vancouver, Canada. "
www.tgw.net/sailing/qca/tankers.htm
Oil has been transported by ship for over 150 years. Tankers move approximately 2,000,000,000 metric tons (2.2×109 short tons) of oil every year and will continue to do so for some time yet. As of 2007, the United States Central Intelligence Agency statistics count 4,295 oil tankers of 1,000 long tons deadweight (DWT) or greater worldwide.
OwlRol
1 year ago
Environment, no, now national economics no
Great stuff, thank you Andrew N. for the article and Robyn Allan for her analysis provided to the NEB.
Complex, a little convoluted in places, requiring readers' further examination and thinking, nonetheless, this cuts through the Enbridge project PR and ultimately questions this Harper government "energy superpower" mantra.
The problem is, that no matter how much detail and complexity is required for a true analysis, most people, including some Harper cabinet members, request simplicity, because they can't deal with more in a logical, rather than ideological frame.
"30 second" videobytes good, and then turn off detailed thinking that might make such scratch their heads, if they even take an interest.
I'm quite sure that the PMO is well aware of this, although they surely screw up on health care and pension "bread and butter" issues. Oops.
zalm
1 year ago
Reading the other report...
...the one that the aforementioned report is based on, one finds that Enbridge expects to get $8 a barrel more for its oil by selling into other markets, and that not one thin dime of this additional price premium will accrue to either provincial or federal coffers.
What does this mean for BC? That the Lower Mainland's only refinery will not be able to secure contracts for oil it needs to continue operating, and will reduce capacity in March, perhaps leading to shutdown in the near future.
Layoff notices were issued to workers for March. The government of BC received no such notice of increased revenue...
zalm
1 year ago
On the other hand
I sincerely feel a higher price for oil is a very, very good thing. I merely feel that the benefits should accrue to the population that owns the resource, not the shareholders who extract it. In the event of a substantial price increase caused by rising demand, shareholders should receive only a portion of that increase, with the rest subject to a confiscatory regime of super-royalties and taxes on net earnings where appropriate.
If it's good enough for Australia, and Indonesia, and New Zealand, and Norway, and Scotland, even Stephen Harper ought to be able to recognize that it's good enough....
johnyappleseed
1 year ago
No pipelines no tar sands
The Chinese have wagered 17 billion dollars, invested into the oil sands and pipelines. Now or later, they are betting that oil is coming out of the ground, so they can afford to take a wait and see attitude. Some day in the future it may well make " financial sense" to build the pipeline, but what won't change, is the massive risks to the environment and to the people of British Columbia. I won't even get into the moral and ethical reasons for not allowing the continued developed of the tar sands.
oilslick
1 year ago
Enbridge pipeline is dead
http://powellriverpersuader.blogspot.com/2012/02/stephen-harper-attempts-to-sell-canada.html
An energy ponzi scheme..
Alberta sold petro China land-locked oil, on what grounds, Petro-China was ripped off by Alberta and the Federal Harper Cons..
Also, Harper is acting treasonous towards BC and Canada..
The Keystone XL pipeline..Enbridge pipeline. between those 2 pipeline...If they were up and running..2 million barrels per day being shipped and Canada would still be reliant on domestic oil imports from "Unethical sources"
Harper is acting treasonous, issue an arrest warrant today!
George Smith
1 year ago
When will we hear about this in the corporate media?
If Canadians in general were privy to information like this they would demand the Harper cons be tried for treason. Unfortunately, the cons' handlers own the corporate media as well as the Harper cons. Keep these great articles coming, eventually the truth will leak out and maybe, just maybe people will wake up before it's too late.
macsasquatch
1 year ago
I will repeat this...
I try to get this in everywhere on this topic. If you have seen it before, have patience with me,- my Old Age Security seems a little less secure these days.
Our federal legislation has a cap on how much an oil/pipeline/tanker company has to pay for clean up of a spill. When questioned about this, our federal ministers say that once the cap has been reached, locals would hav eot go to civil action to get payment from a company, - that is, go to civil court against whatevr phalanx of lawyers the company could afford to hire.
In addition, a few years ago a rig in the Gulf of Mexico caught fire and there was a big clean up to do. The company, a world wide company, argued, through its lawyers, that the liability should be restricted only to the value of the one rig that had been destroyed. Then those clever lawyers argued successfully that the value of the rig should be the value after it had been destroyed by the fire. I realize American precedent does not have to be followed up here, but, it is a good idea to keep in mind what clean up costs might be, and who would pay them.
judycross
1 year ago
Curious, so I did a search
under Robyn Allen pipeline and got lots of radio coverage yesterday, 2/2 and a story in the Van. Sun.
http://www.vancouversun.com/business/price+shock+from+Gateway+pipeline+would+slam+Canada+economy+study/6092927/story.html
Coverage could disappear unless we help keep it alive.
wiley
1 year ago
Inethical Kleptocracy
Good, it looks like Harper and Oliver have got some new "enemies of the state" to contend with.
Skywalker
1 year ago
Robyn Allen rocks!
I just spent time listening to the two corporate morons on CTV's National Affairs. They interviewed Robyn Allen and she made them look, as one of the two finally admitted with, "OK I'm stupid". It was the first time in the interview he was accurate even though he was probably not serious. Then, cowards that they are as well, once they got Robyn Allen off the phone they proceeded to make the corporate case for Enbridge. They couldn't baffle Robyn Allen with their bulls@7t so took the chicken way out. How dumb do these people think the listeners are?
Granville
1 year ago
P.S. ship the oil to Ontario!
If they want bitumen, give them raw bitumen.
Where there's muck there's money.
freewilly
1 year ago
rail instead
Why a pipeline? Why not a hi-speed state of the art rail line instead. It might make everyone happy, opening up a new corridor. Add the pipeline later or alongside. Either way this has to be an engineering feat.
For a better world
1 year ago
A Red Herring?
It is highly unlikely that tar sands pipelines will be constructed to either Prince Rupert or Kitimat. The furor is soften the public to accept giving away natural gas, with minimal royalties, for exporting.
The bitumen will be primarily shipped to the US through a modified Keystone XL pipe line with increased capacity via Kinder Morgan's right-of-way to Burnaby.
Our Photo-op Premier will accommodate her Gwyn Morgan's plan to ship natural gas to China via Kitimat.
Priscilla Judd
1 year ago
stop the tar
I have something to say - everyone here who sees the problem with gateway needs to sign up for Nathan Cullen and get this guy votes - get one friend to do that too because Nathan is the MP where the pipeline and tankers will be and he knows about this problem.
Nathan Cullen can't stop the project by himself but as leader he certainly can and he will oust the Conservatives - he ousted one years ago when he won his BC riding.
Nathan Cullen says: leave the tar in the ground in case we need it...
If you have any doubt - watch this video
http://www.youtube.com/watch?v=2daQSeqBubU&feature=related
I can see the logic in this article but the people who deny the tar sand energy problems likely won't read it - or understand it -or come around. Many people just don't take the time and they don't care to understand. There's a benefit to being ignorant and supporting Stephen Harper's oil agenda. So sign up ndp.ca it's only $10 and lets get this tar thing done.
Thanks
capnobvious
1 year ago
I think the guy is right
The way you put things here, it gets me see this issue from a whole different perspective. Check this related article http://www.nanogen.ro
Neutral
1 year ago
Does any one really understand the whole issue?
The main issue is Canadian self reliance. We currently send the majority of our oil to the US and at deep discounted prices because we cannot get world prices. Does the report look at how much Canadian Oil Sands are subsidizing the US in their quest for oil. Also can anyone understand supply and dmeand? If there are more supply, would that not drop prices? Perhaps we should refine our oil before exporting it but that is a different discussion.
Neutral
1 year ago
Are we not a producing nation
Why would we not want oil to be $2-$3 dollar more expensive. Heck we produce this stuff.