Canadians are often told the Trans Mountain pipeline project is imperative to access Asian markets anxious to buy Alberta bitumen.
True? Like many things in life, the truth is found in hard facts, not overheated rhetoric or wishful thinking. Ten years ago the Trans Mountain pipeline was quietly expanded by 40,000 barrels per day, about 13 per cent. With a decade of shipping data available since that upgrade, has the Asian market since exploded for Alberta bitumen?
Crunching the cargo statistics from the Port of Vancouver a very different picture emerges. In 2016 — the last year that complete data is available — the U.S. accounted for 99.99 per cent of outbound crude oil shipments. Of the 1,185,289 tonnes of crude shipped in bulk tankers that year, 1,185,121 tonnes were delivered to the United States.
In fact, total crude tanker shipments from Vancouver peaked eight years ago in 2010 at 4.3 million tonnes and have since declined 72 per cent.
And what about those hungry Asian markets? Crude exports from Vancouver to China topped out in 2011 at only 28 per cent of total outbound shipments. By 2014, they dropped to six per cent, and in 2016 they were essentially zero. The next largest Asian importers of crude from Vancouver were Singapore, which peaked at four per cent of total shipments in 2009, and India reaching two per cent in 2013.
The market seems to have decided that shipping diluted bitumen across the Pacific Ocean is a money loser. Like it or not, the main customer for Alberta bitumen remains existing refineries in the U.S. already tooled up to process high-sulfur low-value bitumen. And with the current U.S. administration anxious to complete the Keystone XL pipeline to refineries in Louisiana, why do we need to endanger the B.C. coast with tankers carrying dilbit to the same market?
Many Albertans would prefer to believe that once the Trans Mountain pipeline is rammed through, the good times will be here again. Again, the numbers tell a different story.
Oil economist Jeff Rubin recently published a damning assessment of the viability of increased pipeline capacity out of Alberta. Asian markets actually pay $8 a barrel less than U.S. refineries for heavy oil like Alberta bitumen. Likewise, European refineries typically pay $3 below the U.S. market after a long expensive boat ride.
The IMF just released a report on global commodity markets showing an average breakeven price for oilsands production at US$88 per barrel of Brent Crude — it is currently at $65.
Many multi-billion-dollar bitumen projects are already the economic equivalent of dead men walking, according to Rubin.
“Exxon had to write off US$16 billion of its oil sands assets, including all 3.5 billion barrels of bitumen reserves at its massive and still expanding Kearl Lake mine,” he writes. “Following the huge decline in oil prices since 2014, Exxon’s high cost oil sands resource no longer meets the US Securities Exchange Commission’s definition of a proven reserve, which is one that can be commercially exploited at today’s prices with current technology. Having already spent billions of dollars to develop the mine, Exxon and its Canadian subsidiary, Imperial Oil, have little choice but to complete the ongoing expansion, whose increased output only adds to the current glut of oil already weighing on the price of WCS (Western Canada Select diluted bitumen).”
In other words, the bottom has already fallen out of many bitumen projects, yet they stagger on, animated solely by political and economic inertia. Of course hope springs eternal in the oil industry, which clings to the idea that if the Trans Mountain project is uneconomic now, perhaps in 10 to 40 years prices will improve.
On the same planet, but in an alternate universe, policy makers are striving to keep global temperature increases below two degrees Celsius. This would require decreasing oil demand by 20 per cent by 2030. If these efforts are successful, the market share of the most expensive, lowest value petroleum on the planet will be the first to go.
The U.K., France and China have all announced impending bans of the sale and manufacture of gasoline and diesel vehicles. These bold actions are in stark contrast to the moral origami of Prime Minister Justin Trudeau, who is maintaining with a straight face that the best way to protect the climate is by massively scaling up bitumen production. So absurd is this position that it seems hardly worthy of even ridicule. Beyond climate conference photo-ops and aspirational rhetoric, Canada has a wretched record reducing carbon emissions, and Ottawa seems determined to make it even worse.
So what about continued calls to approve the Trans Mountain pipeline? In this age of conflicted information, it is important to look at the sources and their interests. For instance, Scotiabank recently released a report advocating rapid pipeline approvals, stating “The sooner governments move to allow additional pipeline capacity to be built, the better off Canada will be.”
On a completely unrelated note, Scotiabank has the largest exposure to oilsands debt of any Canadian bank at $32 billion. According to Peter Routledge, an analyst at National Bank Financial quoted in the Financial Post regarding the dangerous debt exposure of oilsands creditors, “Banks effectively go into business with their clients, businesses or households, when they lend to them. Therefore, it is in a bank’s interest for its clients to remain going concerns.”
Important public policy decisions such as pipeline approvals should be driven by facts, not by private interests who have made foolish investments, or the short-term political imperatives of governments that have squandered their resource endowment.