Canadian politicians of nearly every stripe seem united, at the moment, in their adolescent professions of love for new pipelines. But love is blind, and in this case, blind to four tough truths about Canada’s dead-end relationship with bitumen.
Among leaders making their lovestruck pronouncements was Calgary Mayor Naheed Nenshi recently, who flew into B.C. and declared in all sincerity that pipelines shouldn’t be carrying the “sins of the carbon economy” and that we need more of them.
In Saskatchewan, Premier Brad Wall has compared pipelines to economic miracle workers even as his petro-province flounders thanks to the overproduction of heavy oil in a glutted market.
(Wall’s subservience to petroleum interests, by the way, has taken on Trump-like proportions. The province’s recent Throne Speech even dubbed proposals to limit climate change as “misguided dogma.”)
Prime Minister Justin Trudeau, a Harper-lite politician with a surfboard no less, preaches that Canada can build pipelines and erect wind turbines at the same time and still fight climate change. What?
And Alberta’s New Democrat Premier Rachel Notley thinks the main solution to the economic woes caused by low oil prices is to export more of the world’s most volatile commodity and thereby keep or drive oil prices even lower.
Someone has to break it to them. Here goes.
There are four obvious (and very conservative) reasons why more pipelines don’t make any kind of economic, energy or climate sense.
These truths also explain the growing opposition to the corrupt National Energy Board that still approves pipelines without due process and ignores their impact on global pricing, let alone the science on climate change.
Truth #1. There is no way to clean up bitumen spills.
Basic science shows that neither industry nor government has developed an effective spill response for conventional oil on the high seas. As a consequence, marine oil spill response remains a public relations sham that does not remove spilled oil or fully restore damaged marine ecosystems.
Yet our bitumen-besotted politicians would have British Columbia gamble with its fisheries, tourism and coast on the bold lie that diluted bitumen, a dirtier product than crude, can be cleaned up in a timely and tidy fashion.
Because the low-grade heavy oil must be diluted with a gasoline-like product to move through a pipeline, it presents an even graver logistical challenge than a conventional spill.
Two dramatic bitumen pipeline ruptures in the U.S. (Michigan and Arkansas) graphically illustrated how unprepared regulators and companies were to deal with diluted bitumen. The Enbridge spill in Kalamazoo, for example, caught the oil spill establishment sleeping and cost an incredible $1 billion to “clean up.” In the messy process, the company even purchased more than 150 homes.
A 2015 report by the U.S. National Academy of Sciences summed up the nature of the dirty problem: “Spills of diluted bitumen into a body of water initially float and spread while evaporation of volatile compounds may present health and explosion hazards, as occurs with nearly all crude oils. It is the subsequent weathering effects, unique to diluted bitumen, that merit special response strategies and tactics...
“In cases where traditional removal or containment techniques are not immediately successful, the possibility of submerged and sunken oil increases. This situation is highly problematic for spill response because 1) there are few effective techniques for detection, containment, and recovery of oil that is submerged in the water column, and 2) available techniques for responding to oil that has sunken to the bottom have variable effectiveness depending on the spill conditions.”
In other words, industry has not developed “effective techniques for detection, containment, and recovery of submerged and sunken oils in aquatic environments.”
Nenshi, Trudeau and Wall might want to reread the science agency’s central conclusion: “Broadly, regulations and agency practices do not take the unique properties of diluted bitumen into account, nor do they encourage effective planning for spills of diluted bitumen.”
Why are Canadian politicians advocating for more pipelines when they haven’t yet developed the capacity or the science to clean up diluted bitumen on land or sea?
Truth #2. The economic case for pipelines has totally collapsed.
According to the lovestruck politicians, bitumen exports to China will make Canadians rich, and the sulfur-rich crude will miraculously command a higher dollar with marine access.
But bitumen will always require higher transportation costs and more upgrading and processing due to its appalling quality. As a consequence, it has always sold at a price differential of around $6 to $7 dollars to conventional oil.
This historic differential widened when the Alberta government rubber-stamped so many projects that industry flooded the North American market with bitumen between 2000 and 2008. The differential dropped again to historic norms as more and more refineries in the U.S. retrofitted to process heavy oil.
The Parliamentary Budget Office explained these elementary facts in 2013, but politicians beset by hydrocarbon hallucinations have trouble reading. The PBO emphasized that eliminating the discount paid for bitumen relative to conventional oil “is not realistic, as there is a significant difference in the quality of these crude oil benchmarks that is reflected in the price difference.”
Furthermore, the PBO added that, “both U.S. and Canadian production are expected to increase at a faster rate than U.S. and global demand, which can be expected to put further downward pressure on the price.” And how would more pipelines help that situation?
Neither port access nor pipelines can turn a sow’s ear into a silk purse. (If you want to make money with bitumen, do what the Koch brothers do: import 300,000 barrels of raw bitumen a day and refine the garbage into gasoline and jet fuel.
No country now pays Mexico or Venezuela more for their heavy crudes just because they have port access. Yet Canada’s politicians live in alternate bitumen realities.
These same pipeline advocates also argue that the price of oil will rise again and all will be well. But most credible analysts dispute this assumption and believe business as usual has ended in oil markets.
In the last six years, extractors of extreme and difficult oil in Alberta and North Dakota have flooded the market with costly hydrocarbons and generated a genuine oil glut.
Art Berman, a reliable Houston-based oil analyst, calculates that industry is pumping about half a million barrels a day more than what the world can burn or afford. Most of this overproduction has come from Canada, the U.S. or Iraq.
At the same time, demand is not really growing due to profound global economic stagnation — a lasting legacy of incredibly high oil prices from 2010 to 2014.
But overproduction has now depressed prices to the point that many bitumen miners and American frackers continue to pump oil solely to generate enough cash to service their increasing debt loads or keep their creditors at bay. The world economy, as Berman notes, has become a volatile casino.
“The oil industry is damaged and higher prices won’t fix it because the economy cannot bear them,” Berman adds. “It is unlikely that sustained prices will reach $70 in the next few years and possibly, ever.”
So this price collapse is different than the others, argues Berman. “It is more fundamental. Debt has pushed the economy beyond its limits. Producers are on life support. Outlandish claims by companies and analysts about break-even prices and efficiency are not based on this reality.”
When an industry supplies more of a product than the market demands, the solution, say free-market economists, is to reduce production, not increase it.
“You never see mention of Canada’s role in contributing to world over-supply or any mention of the role the rapid expansion in the oil sands has played in contributing to ‘lower prices for longer’ in mainstream media,” adds pipeline critic and economist Robyn Allan.
“All we hear is this nonsense that if they get access to tidewater they will get higher prices. It makes no economic sense, but pipeline proponents keep saying it, and the federal government keeps buying it.”
Truth #3. Bitumen cannibalizes the economy.
Nenshi and Wall aren’t likely to talk about energy returns, but this important principle underpins the success of modern capitalism, and now partly explains its dangerous malaise.
Cheap oil once offered glorious returns or surpluses that the economy translated into piles of dollars, which, in turn, fuelled economic growth.
Nearly 100 years ago, it cost but one barrel of conventional crude to find and pump another 100 barrels. Today those energy returns now average about one to 20. In the U.S., they’ve fallen to one to 10 and in the oil sands they have collapsed to one to three, or in some cases close to zero. In simple terms, bitumen doesn’t bring home the bacon.
Our world was built on easy energy returns the same way, say, grizzly bears once depended on easy salmon fishing for comfortable winter living. Abundant energy returns from cheap oil fed the growth of government, funded healthcare and encouraged much civility. Expensive energy constricts that flow and shrinks the public sphere.
Unfortunately, mined bitumen and fracked oil aren’t easy, cheap or carbon neutral. Companies extracting fracked oil from Texas and North Dakota typically spend four times more than what they make. Bitumen miners aren’t much better. They burn more energy and capital, and all to deliver fewer returns and surpluses to society. It’s like cycling backwards.
Yet no one in Alberta or Ottawa talks about declining energy returns or its political and economic implications. The consequences generally include words like collapse, ruin and volatility.
Now here’s what the politicians should be jawboning. Jordan Larson, a recent Quest University graduate, tracked changes in extraction efficiency and resource quality decline in Alberta between 1990 and 2011 — something our regulators and university specialists have failed to do.
He found that as bitumen’s share of total oil production increased from 10 to 45 per cent of all petroleum mining, the energy invested increased by 202 per cent while annual energy produced only increased by 64 per cent.
In other words, over two decades it has taken increasing amounts of energy to produce petroleum projects in Alberta. In the animal kingdom, that would be the equivalent of finding emaciated bears along rivers supporting fewer and fewer fish. If the dismal trend continues, and there is no technological solution in sight, “petroleum production in Alberta will be unproductive by 2045,” Larson says.
Building pipelines to encourage that sort of energy debt is tantamount to cultural suicide. It is opening the gate to barbarians.
Truth #4. Climate disruption and carbon anarchy aren’t a distant threat... they’re here now.
Every day the science spells out some new horror: thinner Arctic ice; acidic oceans; record hot spells; flooded cities; drought-stricken crops. And every day, the economic costs grow dearer. The Fort McMurray wildfire cost $3.5 billion and was determinedly fuelled by petroleum production. The mega-flood that submerged Louisiana cost more than $8 billion and was also primed by oil extraction.
How many times must ordinary people be slapped in the face before our politicians grasp the gravity of the insult?
Climate disruption, driven by oil consumption and forest destruction, has become a global insurgency that can only be combated by rapidly changing patterns of energy consumption. That means using less energy and living locally. Pipelines and their political champions now look and behave like horsemen of the apocalypse.
The emissions math on climate change in Canada is now pretty simple. Environment Canada states it boldly: “Emissions of GHGs from the oil and gas sector have increased 79 per cent from 107 megatonnes (Mt) in 1990 to 192 Mt CO2 in 2014. This increase is mostly attributable to the increased production of crude oil and the expansion of the oil sands industry.”
Canada can’t meet any reasonable target to decrease its climate-disrupting emissions by digging up more bitumen. Political leaders who say otherwise are innumerates or liars.
So there you have it: basic supply and demand economics, as well as a common sense appreciation of energy returns give a thumbs down to pipelines. In addition, Canada does not have a credible or proven oil spill response for diluted bitumen on land or water. Finally, climate disruption warns that pipelines can only put our children’s survival at risk.
To date, the nation’s bad case of pipeline blindness has sadly denied any sane discussion about what really matters.
The oil price collapse is a sign of great unease and ill health in the petroleum industry as well as the global economy. Cheap energy fuelled global growth. Extreme energy seems to fuel only stagnation or contraction.
“The best path forward is to face the beast,” argues Berman. “Acknowledge the problem, stop looking for improbable solutions that allow us live like energy is still cheap, and find ways to live better with less.”
Where is that political debate?