By Mark Milke
and Lennie Kaplan
Canadian Energy Centre
Oil and natural gas pipelines are like light switches on the wall. You take them for granted, along with the expectation that once flipped, your lights will come on.
In normal company and normal times, few people would discuss over dinner something as arcane as tubes and wires. The exception might be a convention of electricians or pipeline workers.
However, tubes in the ground that carry oil or natural gas have been in the headlines repeatedly over the last decade.
But chronic news about oil and gas results in part from a vocal minority opposed to those resources.
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The damage to Canada’s economic and national interests has also been worsened by the occasional American president who delays/denies/cancels cross-border permits – Barack Obama during his two terms and Joe Biden now.
Canadians have every right to oppose pipelines, just as they’re free to oppose having wires in houses to deliver electricity. Neither position is particularly helpful to heating a home, or seeing after dark, but we live in a free society. People can advocate for whatever they want within the bounds of law.
The decision by new American President Biden to cancel the permit for the Keystone XL pipeline has led some to claim that activist opposition to pipelines made zero difference to Canada’s oil and natural gas exports, given that Canada’s exports of oil to the United States have risen.
Over the past decade, multiple pipeline projects have been delayed or outright cancelled.
Northern Gateway was effectively killed when a federal tanker ban on the northern B.C. coast (for significant volume flows) was enacted. Energy East died when then TransCanada (now TC Energy) saw the opposition in Quebec polls and focus groups (the real reason beyond the polite official explanation). Keystone XL has been a political football since Obama’s presidency and Biden is merely continuing the Obama approach.
Meanwhile, Trans Mountain is proceeding but not done, and has faced challenges in court and on the ground over the years.
It’s true that the volume of Canadian oil exports to the United States has risen steadily. In 2008 and 2009, Canada exported over 1.9 million barrels of oil daily to the United States. As of 2019, the average daily volume was twice that, at over 3.8 million barrels.
The value of Canada’s oil and gas exports to the U.S. has been akin to a yo-yo. In American dollars, oil and gas exports hit a low of $42.9 billion in 2016. The high-value years were 2008 ($96.4 billion) and 2014 ($97.8 billion). All other years between 2008 and 2019 were between $52.4 billion and $87.7 billion. In 2019, the value of Canada’s oil and gas exports to the United States was $70.2 billion.
Does the rise in volume since 2008 indicate that opposition to pipelines and other hindrances to such projects have had zero impact?
No, as lost opportunities (in the case of some cancelled pipelines) and higher costs/lower returns on alternate means of moving product have been costly.
Natural gas exports to the United States were down from nearly 3.6 trillion cubic feet in 2008 to over 2.6 trillion cubic feet in 2019, nearly a 28 per cent decline. That’s in part because of opposition to the development of a Canadian liquefied natural gas (LNG) industry, including fracking for gas. Some opposition has occurred in British Columbia, Quebec and Atlantic Canada.
That has meant a lost opportunity for LNG exports to non-U.S. markets, which could have replaced the decline in Canadian exports to the United States. That also means fewer dollars in Canadian pockets, fewer jobs and lost tax and royalty revenues.
When Canadian companies ship oil by rail south and are captive to the American market, they spend more since rail costs are higher than for pipelines. They also receive less for their product than they otherwise would – what’s known as the differential in price.
In 2018, Scotiabank estimated that large price discounts in the range of $25 to $30 per barrel could cost the Canadian economy roughly $15.6 billion annually. The Fraser Institute estimates that from 2013 to 2017, after accounting for quality differences and transportation costs, the depressed price for Canadian heavy crude oil resulted in $20.7 billion in foregone revenues for the Canadian energy industry.
In 2019, the Alberta Treasury Board and Finance estimated that without sufficient market access, the Canadian economy lost almost $19 billion in 2018 due to steep price discounts. The Finance Department noted that if no additional pipelines came online, Canada would lose more than $43 billion in income due to reduced production and investment between 2019 and 2023, or almost $9 billion per year. The lost income translates into the loss of about 35,000 jobs per year across Canada.
In December 2020, IHS Markit estimated the loss of income for Canadian producers at US$14 billion between 2015 and 2019 inclusive. IHS called that number “conservative.”
Those who claim activists have had zero impact on the oil and gas sector contradict the very groups now claiming victory after Biden revoked the Keystone XL permit.
Such claims ignore the lowered value of what’s been in pipelines and shipped by rail. Such exports, even when higher in volume, bring much less to Canadians than if the same volumes were shipped by pipelines. And they bring much less than if Canadian-based companies had more than one market to which oil and natural gas could be sold rather than being held hostage to one customer.
Those who think delayed and cancelled pipelines have made no difference to Canada are off by between $9 billion and $15 billion annually. And that’s just for oil.
Mark Milke and Lennie Kaplan are with the Canadian Energy Centre, an Alberta government corporation funded in part by carbon taxes.
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