Only Fantasies, Desperation and Wishful Thinking Keep Pipeline Plans Alive

There is no waiting Asian market for oilsands crude. In fact there’s no waiting market anywhere.

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.

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 Postregarding 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.