The Expert's Report that Damns the Northern Gateway Pipeline
Veteran energy analyst David Hughes calculates three reasons the project is bad for Canada.
HOW FAST CAN OIL SANDS REALLY GROW?
A slide presentation by geologist David Hughes includes charts showing the wide discrepancy between commonly accepted growth scenarios for the Alberta oil sands, and significantly higher projections put forth by Enbridge and other proponents of fast build-out of oil sands infrastructure. The slides also include satellite views of the oil sands showing growth over nearly three decades. View the slides here.
The Northern Gateway Pipeline will explosively increase the scale of oil sands production at a level not in the national interest, says David Hughes, one of Canada's foremost energy analysts.
By tripling oil sands production rates above 2010 levels, the project will "compromise the long term energy security interests of Canadians, as well as their environmental interests," charges Hughes.
The proposed pipeline, designed to ferry bitumen to Asian markets, will also liquidate a non-renewable resource at prices that will likely seem like a bargain down the road says Hughes in a 30-page report titled "The Northern Gateway Pipeline."
The top-notch analyst also points out that Enbridge, Gateway's proponent, has made up its own oil sands growth forecasts, which it has provided to the National Energy Board to justify the project.
"Enbridge has generated its own projection of a further increased oil supply, with no methodological backup, to justify the need for its Northern Gateway project to the National Energy Board."
Hughes' damning report also posits a simple question that Canada's media routinely neglects: why does the Canadian government support a proposal to export oil to China when nearly half the country (Quebec and Atlantic Canada) is nearly 100 per cent dependent on declining or volatile reserves from the North Sea and the Middle East? (The study was funded by the author and by Forest Ethics with intervenor money for the Gateway hearing provided by the Canadian Environmental Assessment Agency.)*
He also singles out a glaring public policy omission: Canada does not have a credible energy plan. "The absence of a National Energy Strategy, given the non-renewable nature of the majority of the energy inputs to Canadian society, represents an extreme vulnerability to the long-term security interests of Canadians."
Author's 32 years with Natural Resources Canada
Hughes is neither a radical nor a foreigner. Nor he is an environmentalist. In fact the no-nonsense geologist regards the oil sands as a strategic resource that should be developed measurably and carefully in the national interest.
His energy expertise is genuine and hard won. The rock hound worked for the Natural Resources Canada for 32 years where the senior researcher focused on analyzing coal reserves, shale gas and unconventional natural gas supplies.
The retired 61-year-old energy specialist now gives detailed and sobering talks about declining global energy supplies across the continent.
The report, which has been submitted as evidence to the National Energy Board (the author will testify at the public hearings), squarely questions the "Canadian energy superpower" rhetoric of the Harper government. Hughes says it's based entirely on the oil sands -- a low quality and environmentally high-cost source of oil.
But Canada does, however, burn super volumes of fossil fuels. Canadians now consume five times more oil than the global per capita average, says Hughes. In addition half the country depends on oil imports (780,000 barrels a day) from foreign countries. In fact, the majority of oil consumed in Quebec and Atlantic Canada comes from volatile regimes in the Middle East.
How can Canada be an energy superpower, asks Hughes, when it will become "increasingly dependent on OPEC and the vagaries of the world oil markets for what is likely to be much higher cost imported oil?"
Furthermore, Canada's highest quality energy resources are declining. "Our natural gas production peaked in 2001 and conventional oil peaked in 1973. The superpower claim is totally a statement about the tar sands," Hughes told The Tyee.
But bitumen is not light oil, cheap oil or even easy oil. It's taken 40 years of dedicated brute force and landscape destruction as well as nearly $200 billion worth of mostly foreign capital to reach marginal production levels of 1.5 million barrels a day. (See satellite images)
In the global scheme of things, that's a drop in the bucket. It's also a modest figure given that Canada now consumes 1.8 million barrels a day. (Domestic demand could grow to 2.25 million barrels by 2030).
Moreover Canada has or will soon pick the best fruit first in the oil sands, says Hughes. The mineable portions are the richest and cheapest to extract. These are the focus of nearly 90 per cent of the 26 billion barrels currently under "active development" according to the Alberta Energy Resources Conservation Board.
Of the remaining 143 billion barrels, 90 per cent can only be exploited by in situ methods, which are so energy wasteful and water intensive that many experts think this technology should be banned or severely limited.
According to the "growth" forecasts by the Canadian Association of Petroleum Producers (CAPP), Canada could extract 3.7 million barrels a day by 2025 (the maximum recovery rate) but such haste would exhaust the 26 billion barrels "under active development" within 19 years. The Gateway Enbridge pipeline, which proposes to suck out half a million barrels a day to Asian supertankers, would accomplish that job quickly.
Three strikes against
Hughes thinks that the rapid liquidation of Canada's highest quality bitumen reserves, as proposed by Enbridge, is bad national policy for three reasons.
For starters, peak oil means the end of cheap oil. What stays in the ground will only get more valuable over time, says Hughes. Speedy liquidation means not only a revenue giveaway but exponential growth of pollution and water contamination. (Current mining waste liabilities already total more than $20-billion.)
Second, energy returns on bitumen are dropping fast, which means that industry will increasingly spend more energy to get less energy back. Right now industry secures but 5.7 barrels for every barrel of oil or its energy equivalent invested in tar sands mining operations. In contrast, the Middle East still garners superior returns of 20 to one. (According to energy expert Charles Hall, our currently oil-driven civilization requires returns of 10 to one or must face economic stagnation.)
But the steam plants, models of inefficiency and waste, win returns of 3.8 to one for in situ recovery (80 per cent of the resource). Given that the best bitumen resources with the highest energy returns are now being used up, a rapid extraction policy leaves Canadians with the dregs of the barrel as well as less energy and even bigger environmental messes, says Hughes.
Third, the Enbridge pipeline is based on a projection that accelerates liquidation of a non-renewable resource in the absence of any national policy. Hughes points out that Northern Gateway is not needed unless oil sands production is ramped up by more than three-fold over 2010 levels. Enbridge bases its Northern Gateway proposal on the assumption that oil sands production can be tripled in less than 25 years. (Remember it took 40 years to reach 1.5 million barrels.)
The Enbridge forecast, which was an extension of CAPP's most optimistic forecast of tar sands development filed in its application to NEB, has no documented methodological basis. This was confirmed in an email to Hughes from CAPP.
It stated: "The extension is not from CAPP. Looks like someone has done the extension without our cooperation. In other words, we can't comment on the methodology."
CAPP, the nation's powerful oil lobby, has two growth scenarios for the tar sands. Given existing approvals and projects under construction, CAPP's more conservative forecast says oil sand production will grow from 1.8 million barrels a day to 2.8 million barrels by 2019 (tar sands production including diluents). That's a 50 per cent increase over 2010 production levels.
But a super "growth" CAPP scenario based on speculative numbers suggests production could reach nearly 4.6 million barrels per day by 2025, a growth rate of 154 per cent.
Enbridge, however, took these figures and jacked them up to 5.8 million barrels a day by 2035 or a growth rate of 217 per cent over 2010 levels. "Enbridge's rationale for the Northern Gateway Pipeline is based on its own unsubstantiated and highly optimistic projections for growth in oil sands production beyond 2025," reports Hughes. "This may serve Enbridge's corporate needs and those of its shareholders but does not consider the longer term environmental and energy security needs of Canadians."
In summary Hughes concludes that 50 per cent growth in oil sands production can be handled by existing pipelines and U.S. demand. In other words Gateway is not needed. (A Natural Resources Canada briefing note reached the same conclusion last year saying "Even without Northern Gateway, Canada will have enough crude oil export capacity for some considerable time.")
Slow and steady
Like many oil patch veterans, Hughes favors a slow and prudent course and doesn't recommend much further growth in bitumen production. "I agree with [former Alberta premier] Peter Lougheed. I think we should have a planned growth strategy that puts Canada first."
But Enbridge's radical growth projections would expand the scale of the mammoth tar sands project and triple current levels of production by 2035. Hughes calls such irrational growth a threat to the nation "in the light of the long term energy security and environmental interests of Canadians."
Furthermore, "the absence of National energy strategy which safeguards the long term energy security and environmental interests of Canadians means there are no constraints on the uncontrolled liquidation of Canada's intrinsic energy resources."
Asked why Natural Resources Canada hasn't raised these critical energy issues, Hughes paused for a moment on the phone at his home on Cortes Island in British Columbia.
"That's a good question," he replied.
*Story updated at 3:26 p.m. on Jan. 12, 2012.