Is there any demand for Alberta bitumen in Asia?

[I keep asking politicians, when I'm in the same inside or outside space with them, "If the Trans Mountain Expansion is so amazingly good for us, why do you have to lie about it? About Asian markets, about price-per-barrel, about number of jobs, about tax revenues?" - Gene McGuckin]

Sept 6, 2019

FROM HIS LIVING ROOM WINDOW above Westridge Marine Terminal on Burnaby Mountain—the terminus of the Trans Mountain pipeline—retired SFU professor emeritus David Huntley can see the oil tankers coming in to pick up or offload cargo. It’s August and Huntley hasn’t seen a crude oil tanker at Westridge since June 30. Pulling out his iPad with Vesselfinder.com, Huntley finds the large orange icon that is the closest crude oil tanker and pulls up its information—size, draft, speed, destination, location, port of origin and so on. The next anticipated one, the Nordbay, is drifting west of Juan de Fuca Strait, and is not due in until the middle of August. Nordbay’s recent port of call is Martinez, California, where there is an oil refinery.

“California is where most oil tankers are headed,” says Huntley. He tells me only 20 crude oil tankers have left Westridge for China since 2014. Twelve of these were in late 2018 when the Canadian crude price was as low as $11 US per barrel due to a glut of oil in Alberta. When the Alberta premier ordered a curtailment in production, the price jumped back to normal and shipments to China stopped.

Why is a professor with two degrees in engineering and physics and doctoral studies at Oxford tracking these tankers? “Because,” states Huntley, “initially what the tankers were doing was inconsistent with the rules on the Vancouver Port Authority website. Now, Trans Mountain and politicians are telling us things that are not true.” For instance, as he notes in a recent report, “The numbers commonly quoted from them are an increase from 5 [tankers] per month to 35 per month, an increase of a factor of seven. In the two years before the application, there never were five per month (i.e. 60 per year) as claimed.” It’s been more like 1.2

Huntley, who built his career on facts and (amongst other things) helping reconstruct the Earth’s climate through dating sediments using the physics of sand grains, has turned his focus from understanding this planet’s paleoclimate to finding the evidence to protect its future climate.

“What got me interested in the tankers—besides living next to them—is the lack of good solid data on them,” he says. “How can we evaluate the effects of the proposed increase of tanker traffic in the Salish Sea that would accompany the TMX [Trans Mountain Expansion Project] without this information?” he asks.

Huntley’s findings are in direct contradiction to what we have been led to believe: Kinder Morgan’s 2015 business case presented to the NEB stated that “access to Pacific Basin markets is almost non-existent…” Implied is that being able to ship oil to Asia would realize higher prices for Alberta bitumen. As Huntley points out, “These claims about a lack of access to ‘tidewater’ are without merit since there is—and has been—guaranteed access to tidewater. And that access is—and has been—severely underutilized.”

Huntley’s research has been rigorous, and he has appeared at NEB hearings in the capacity of intervenor, commenter and observer. He has assembled data—names, dates, and destinations—on crude oil tankers from 1974 to the present using various sources: the Pacific Pilotage Authority, Port of Vancouver annual reports, Trans Mountain submissions to the National Energy Board, a document ironically known as CRED (Conversations for Responsible Economic Development) published in 2013, and AIS (Automatic Identification System) with navigational tracking software like Vesselfinder. With these he has done that indispensable form of research called “ground-truthing,” i.e., observing first-hand which tankers use the terminal, where they are heading, and whether they leave loaded or empty.

It should strike anyone as strange that this information has to be assembled by a retired physics professor instead of the pipeline owner, the Government of Canada, to substantiate the business case for buying a $4.5-billion pipeline that requires a further $9.3 billion for expansion, including that of the Westridge Terminal. It seems the government relied on Kinder Morgan’s own business case, which was prepared by Neil K. Earnest of Muse Stancil, a Texas oil and gas consultancy. Earnest provided no evidence for his claim that there was “almost non-existent” access to Asian markets—probably because there is no such evidence. Yet the Government of Canada seems to have bought that.

The Westridge Terminal is currently capable of loading over 100 Aframax or 200 Panamax tankers per year. So far this year, the rate is only one per month. And on average, only 30 to 40 tankers a year are loaded, with virtually all of them heading to California, according to Huntley’s research. He notes, “It has been rare for Kinder Morgan to exceed 50 percent of [Westridge’s] loading capacity, and in 2016 and 2017 it was using less than 15 percent of its loading capacity.”

The capacity of the current Trans Mountain Pipeline is 300,000 barrels per day. About 55,000 stays in BC, refined for BC usage. About 170,000 barrels per day—over half of the current capacity—heads south via the Puget Sound Pipeline to four refineries in Washington State. (Some of the refined products are sold back to BC.) Reportedly, the US is interested in bringing in a lot more this way. In an April 2019 podcast interview, the CEO of the new Trans Mountain Crown agency, Ian Anderson, said that new capacity of the expanded pipeline might be soaked up by markets in BC, Washington State or California. He admitted he did not have contracts requiring shipping in tankers. “I’ve got contracts to move barrels down my pipeline, but those could go to different places, not necessarily over water. So the market will decide how many ships move,” said Anderson. The oft-quoted—and for many coastal citizens, worrisome—34 bitumen-laden tankers per month plying coastal waters apparently refers to the maximum physical capacity of the terminal once expanded from its one berth to three.

Another researcher, a 32-year veteran of the Geological Survey of Canada, scientist J.David Hughes, has shown that historically there has been no appreciable price differential between what oil commands from North America versus Asia, making the main case for expansion seem dubious. As Earnest’s report for Kinder Morgan put it, TMX “enables Canadian crude oil producers [access to] higher-priced Pacific Basin markets.” He projected Asian markets would pay $5–8 more per barrel from 2018 to 2038. Hughes, however, writes “the price in the Far East is $1–3 per barrel lower, plus the transport costs via TMX and tankers will be at least $2 per barrel higher to Asia. Hence building the expansion would mean a loss of $3–5 per barrel compared to shipping oil via new pipelines that will be built long before TMX.”

In a recent article, Hughes explains there is a pipeline bottleneck due to the 376 percent growth in oil sands production since 2000, but that “the Line 3 and Keystone XL pipelines…will provide double the export capacity of TMX before its earliest completion date and yield higher prices on the US Gulf Coast compared to the Asian markets that TMX is allegedly being built to access.” Huntley notes, “If there were higher-priced Asian markets, the tankers would be going there.” He writes, “The existing pipeline and Westridge terminal are capable of supplying world markets with far more oil than they have been doing, at least since 2014.”

From Trans Mountain’s perspective, one of their most strategic errors was locating a pipeline terminus on the same mountain as a university community of over 20,000 residents. There are a lot of smart people living on that mountain who like facts—starting with biochemistry professor Lynn Quarmby, who successfully led the first challenge to Kinder Morgan back in 2014, and Gordon Dunnett, a retired structural engineer who released a report on the high risk of a catastrophic fire to the 66-year-old storage tanks in the event of an earthquake, and the failure of Kinder Morgan to adequately assess them for failure. There’s also John Clague, professor emeritus at SFU, emeritus scientist for the Geological Survey of Canada, and past president of the Association of Professional Engineers and Geoscientists of the Province of BC, whose work substantiates the lack of risk assessment. Huntley and these other academic heavyweights are just some of those providing contradictory evidence to claims made by the company and government—evidence which has been underreported by the mainstream media. Vancouver Sun reporting has “bordered on nonsense,” says Huntley, as do op-eds by industry shills like Stewart Muir from Resource Works, a PR arm of the resource sector.

But if facts aren’t guiding the process, then what is? Huntley answers: “Politics and money.” If there is no plausible business case, what company is going to invest in the expansion, unless it is heavily subsidized by the taxpayer? Currently, the pipeline and some or all of the associated costs are being paid for out of the Canada Account, which allows the federal government to make large investments in higher-risk ventures if they are deemed in the national interest.

In April 2019, the international Institute for Energy Economics and Financial Analysis (IEEFA) produced a report characterizing the project as “built on quicksand and clear as mud” with “no full accounting of ongoing operations” (see http://ieefa.org). It states: “The government has an obligation to tell its citizens how much the Trans Mountain Pipeline Project is costing.”

Perhaps with the October federal election coming, Canadians will demand such answers. But the IEEFA report also notes that getting answers might prove difficult: “The Canadian government has already routed payments to fund and develop the pipeline through a maze of government agencies with different missions, reporting mechanisms and accounting standards.”

The other question is: What exactly is in the national interest?

Email huntley@sfu.ca for David Huntley’s report on tankers at the Westridge Marine Terminal.

Briony Penn is an award-winning writer of creative nonfiction books including the prize-winning The Real Thing: the Natural History of Ian McTaggart Cowan, and most recently, Stories from the Magic Canoe with Wa’xaid (Cecil Paul).

[Top photo: Westbridge Marine Terminal in Burnaby]