Last month, the Bank of Canada warned in its latest Monetary Policy Report that Canada’s oil industry is dragging down the nation’s economy because the country imports crude at higher cost than it exports. Nationally, we import an enormous amount of oil, both light and heavy crude, mainly from Algeria, the UK, Nigeria, Norway, and Saudi Arabia; in 2009, we brought in an average of 1.1 million barrels per day, compared to an export of 1.9 million barrels per day.* This foreign supply is bound for Eastern Canada, mostly going to the Atlantic provinces and Quebec, with a small quantity reaching Ontario. (Natural Resources Canada provides a good map of our existing oil pipelines.) With the difference in price between Canadian and international oil sometimes as great as 35 percent, CIBC and the Bank of Montreal estimate that the annual loss to the economy is nearly $20 billion. To reduce Canada’s reliance on expensive foreign oil, why don’t we ship heavy crude from Alberta to the refineries in the Atlantic provinces?
This question has excited the media and the energy industry from coast to coast. The Calgary Herald calculates that an eastbound oil pipeline would be a terrific investment, while Nova Scotia’s Chronicle Herald argues that it would be economically efficient. But these views may be mistaking the effect of an eastbound pipeline on oil prices — remember, oil companies are inherently driven by the expectation that those prices will rise. And using decades-old infrastructure for the endeavour presents a high risk of calamity.
From a series of posts about underexplained people, places, and things that have arrested our collective attention.
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Currently, the selling price of Alberta crude is low because the main buying market — the US Midwest — is oversaturated; its demand is insufficient to sustain higher prices. Enbridge and TransCanada have long been scrambling to devise ways to ship crude to where demand is higher, and there are numerous proposals under consideration. One is the latter’s Keystone XL — rejected in January due to community fears over damage to the Nebraska Sandhills. (The company has since submitted a modified proposal that circumvents the region.) Another is Enbridge’s “Northern Gateway” pipeline that would ship oil from Alberta to Kitimat, BC, and then on tankards to Asia and California. That project is dealing with enormous resistance because any spills would devastate BC’s vulnerable coast.
Recently, both companies have included Canada’s eastern market in their sights. Enbridge has proposed “re-reversing” a section of the existing Line 9 pipeline, which is part of a network that reaches from Edmonton to Montreal via the US. The line flowed eastward in the 1970s, reversed in the ’90s, and the current proposal seeks to change its direction again. Meanwhile, TransCanada is considering converting part of its natural gas pipeline, which stretches from the Alberta-Saskatchewan border to the Quebec-Vermont border, and delivers gas to the Maritimes by connecting with local lines, to ship crude instead.
Supplying Canadian oil to the Atlantic provinces is an appealing notion, but we shouldn’t be lured by the sexiness of self-sufficiency. Existing pipelines aren’t meant to transport heavy crude. The advocacy NGO Environmental Defence compares Alberta’s oil flowing through a pipeline to “fast, hot toxic sandpaper.” The organic acid concentration of this oil is up to twenty times higher than conventional crude, contains ten times more sulfur, and is forty to seventy times more viscous. Pumping it through pipelines requires high pressure and raises the oil’s temperature, which in turn raises its corrosive power (by industry standards, corrosion rates double with every 10ºC increase). The result is a higher risk of spills because the pipes are more easily damaged. And the pipes already in the ground — including Enbridge’s Line 9 and TransCanada’s natural gas pipeline — weren’t built to accommodate this punishing use.
Between 2007 and 2010, pipelines in North Dakota, Minnesota, Wisconsin, and Michigan — which collectively have the most experience transporting Canadian heavy crude — spilled nearly three times as much oil per mile of pipeline than the US national average, according to figures that Environmental Defence compiled from US government sites. Heavy crude is also extraordinarily more difficult and expensive to clean up. Shipments of the stuff across Ontario, Quebec, and the Maritimes risk bringing such spills home. Ours is a big country, and it’s possible that there is no good way to ship heavy crude across its thousands of kilometres.
Finally, would an eastward flow of oil actually decrease its price for Canadian residents? In fact, oil companies expect that shipping product away from the oversaturated US Midwest and toward areas where demand is higher will buoy up the price of Canadian crude — a key argument in TransCanada’s Keystone XL proposal. Critics suspect that the economic benefit of a higher price of Canadian crude would be primarily to oil producers, at citizens’ expense.
According to energy think tank Pembina Institute, the export pipeline to the US is operating at only 59 percent capacity, and the Harper government plans to double oil sands production within a decade. Even with an eastbound pipeline, the Maritime market won’t absorb this excess, leaving Canada with no choice but to seduce international buyers.
All this at a time when we know we’re supposed to be cutting back on fossil fuel use.
* An earlier version of this post misstated the amounts of oil imported and exported by Canada. The Walrus Blog regrets the error.
The Walrus thanks Gillian McEachern of Environmental Defence.
Alina Konevski is an online editorial intern at The Walrus.