On oil, world markets and the cost of having our resources 'landlocked'
How would you like to take $40 million a day, wrap it in a nice ribbon and send it to President Obama?
Because that is what we in Canada are doing now, every single day.
The energy sector is Canada's strongest export sector by an overwhelming margin, with a value approaching $100 billion a year. It is predominantly made up of electricity, coal, natural gas and oil. The energy industry, together with its hundreds of thousands of employees and tens of thousands of suppliers, represents one of the most important components of the federal government’s tax base.
A relatively small economy like Canada's needs things which it can trade. Canadians trade wheat, natural resources, and manufactured goods, and Canadians trade energy. Without trade, imports become expensive and the country's participation in the global economy diminishes.
The commodity Canada is currently having trouble trading is oil. We can't get it to world markets and consequently are captive to the US market. At the moment, a barrel of oil worth $120 on the world market is selling in the US midwest at $70 – $80 a barrel. This discount helps the US and hurts the Canadian economy to the tune of $40 million a day. Obama wants that cheap oil of course, as would any loyal American.
The $40 million loss impacts all of Canada, which is why the federal government, with the national interest in mind, is outspoken in its support of oil exports.
There's an argument being proposed that it's better to keep the oil here in Canada because it keeps Canadian energy prices low. The argument is an argument against trade. Should Canada keep its wheat home too? And forest products?
Canada needs to trade and the best place to trade at the moment is with Asian markets. The US economy is flat and Europe is flatter.
To get its full value, Canadian oil needs to be able to get to Asia – and there's the challenge. To reach Asia, the pipelines need to go through BC, and onto tankers at the BC coastline.
Enbridge plans to ship 550,000 barrels a day by pipeline to a terminal at Kitimat, where it will be loaded onto tankers, which will use Douglas Channel to reach open water. They have stated that they are open to considering an alternate terminal at Prince Rupert.
The Enbridge proposal is currently in the hands of the National Energy Board, whose job is to determine two issues: whether Enbridge's plan is environmentally safe and whether it is in the public interest.
The second proposal, still in the early part of the consultation and development phase, is Kinder Morgan's plan to ship 850,000 barrels a day to its terminal in Burrard Inlet, then by tankers out of the Port of Vancouver. Formal hearings are still about two years away.
The Kinder Morgan (Trans Mountain) pipeline has shipped oil to the Port of Vancouver since 1953. Currently about 300,000 barrels a day arrive in the lower mainland and between 5 and10 tankers a month carry the oil to various destinations. The increased supply will need about 20 tankers a month.
Port Metro Vancouver is Canada's largest port and is the primary gateway to the Asia-Pacific. It plays a vital role in getting Canadian goods to market and serves a critical national interest. It prides itself on its safety record and considers itself a model for other ports around the world.
The port require all loaded tankers to be escorted by two tugs and have two pilots aboard. The tankers are double hulled and have multiple compartments, so if one is compromised the oil can be pumped into others. The tankers have been moving in and out of the Port of Vancouver since 1953 without incident.
It is not surprising that people in Vancouver are extremely unenthusiastic about more tankers in Burrard Inlet. We have a beautiful city in a spectacular natural setting. There's too much risk, it is said, and too little benefit to Vancouver. Local mayors have already concluded, at this very preliminary stage, that they are strongly opposed.
There is no question that we need to be very careful about moving oil in BC waters. Any spill will cause damage and a large spill would be shattering to local economies and to the environment. Government regulatory agencies need to be extremely cautious in their approach.
But that caution does not require that local governments should, at this point, stand in front of the pipeline and the ships, arms crossed. The proponents should have the opportunity to develop their proposal and present their case. With the information available at that time, governments, regulators and the community can make an informed decision as to whether the risks are too great.
And we can decide as well whether our daily grant to the USA should continue.
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- post by Suzanne Anton