By: Jose Caceres
We live in a society that ‘still’ uses oil intensively. Wouldn’t that make a strong enough reason for Eastern Canada to use the oil that is produced at home, in Western Canada? Refineries in Eastern Canada import around 80% of their oil supply. The Energy East pipeline if built could provide a reliable source of oil to Eastern Canada while at the same time give an economic boost to the national economy and secure Canada’s energy independence…
If you take a quick look at the articles I have been posting in LinkedIn in recent months, you would think that I am an unlikely person for promoting the development of a fossil fuel related venture. Though, if you dig a bit in my work experience you will notice that actually I used to be an ‘oil man’ myself. Regardless of my background, these days, as a sustainable development advocate and a citizen of Canada, I support what I believe is best for the country and its people. This article analyzes the controversial proposal of the Energy East pipeline from the perspective of an Albertan who believes that the coherent energy integration of the country is key for a sustainable future.
The current circumstances of the oil industry provide solid grounds for the Energy East pipeline proposal. These circumstances can be summarized as follows:
- Canada doesn’t have full energy autonomy despite the abundance of energy resources. Canada imports a significant portion of the oil that consumes, despite of being a net exporter of it. Lack of enough capacity in the form of pipelines for transporting the oil limits the accessibility of the oil produced in western Canada to reach the markets in the east, including potential markets beyond our borders.
- A grueling downturn in the oil industry as a consequence of the abrupt collapse of oil prices is currently shaking, deeply affecting and nearly suffocating the economy of the oil-rich provinces of Alberta and Saskatchewan and costing the loss of thousands of jobs and also of tax revenue. The limitations for transporting the oil produced in western Canada only exacerbates the consequences of the downturn.
- The political decisions made at home concerning energy matters, in particular oil, don’t have any transcendental influence over the behavior of the oil-price. The oil-price collapse is not a home-made issue, it is governed by a world supply-glut and Canada is just at the mercy of what the world markets supply and demand dictate. Though, one thing that can be resolved at home, is the construction of new infrastructure, in this case a pipeline, which if executed would represent an economic relief, even a boost, for the national economy (and not only of Alberta!).
The importance of the oil industry in Canada
The information and statistical data used to illustrate the importance of the oil industry in Canada was obtained from the Natural Resources Canada webpagehttp://www.nrcan.gc.ca/energy/oil-sands/18086 and the Energy Markets fact book 2014-2015.
Canada is the world’s fifth-largest crude oil producer and fourth largest crude oil exporter (mainly to the US). Canada also has the world’s third-largest proven oil reserves, most of which is in the oil sands. However, despite its abundance, Canada also imports crude oil. Below some statistical data:
Canadian oil resources
Proved reserves (at the end of 2013), billion barrels
Canada total 172.5
- conventional 5.3
- oil sands 167.2
Canadian oil supply and demand
Source: Energy markets fact book 2014-2015, millions of barrels per day
Production total 3.8 mb/d
- Conventional 1.5 mb/d
- oil sands 2.3 mb/d
Exports 2.9 mb/d
Imports 0.7 mb/d
The importance of the oil industry in Canada is such that the Canadian dollar value is tandem-pegged to the oil price in an almost uncanny parity. The chart below from www.stockcharts.com illustrates it:
The economic context of Alberta. The importance of the oil sands:
The oil & gas industry is the economic backbone of Alberta, and as discused earlier, constitutes Canada’s main export. Today, we are facing the tremendous conundrum of having a resource that is losing its value, that is not liked by many (because its environmental impact) and yet still pays our bills.
If there is a province that is feeling the brunt of the downturn, that is Alberta; and if there is a place that could be considered as ‘ground zero’ for this turmoil, that would be Calgary (my hometown), since Calgary is the hub of the oil & gas industry in the country.
Though Calgary might be ground-zero, the oil sands industry occupies center stage. Beyond the pernicious environmental effects of this industry, which will be discussed later, the oil sands industry is a key driver of Alberta’s and Canada’s economy. It creates jobs and tax revenue for the government which are necessary for supporting the social programs and capital infrastructure projects we rely on.
Thousands of people have lost their jobs since the downturn begun and many more, who are still working, are afflicted for the ongoing situation and with the possibility that they could be next in joining the unemployment statistics.
The Canadian Association of Petroleum Producers estimates that 44,000 jobs directly related to the oil & gas industry were lost since the downturn began. Also, the Canadian Association of Petroleum Producers and Enform estimate that the overall job losses (direct and indirect) could add-up to the staggering number of 110,000. (source:http://www.cbc.ca/news/canada/calgary/oil-patch-layoffs-how-many-1.3665250)
Key economic facts of the oil sands:
Source: http://www.energy.alberta.ca/oilsands/791.asp )
Between 1999 and 2013, approximately $201 billion was invested in the oil sands industry.
In 2014, approximately 133,053 people were employed in Alberta’s upstream energy sector, which includes oil sands, conventional oil, gas and mining.
In the fiscal year 2013 – 2014, synthetic crude oil and bitumen royalty accounted for about $5.2 billion or almost 55 per cent of Alberta’s $9.6 billion non-renewable resource revenue.
Oil sands and the environment:
In addition to the economic hurdle provided by a global context of low oil prices, which significantly weakens the competitiveness of the oil sands, another very difficult hurdle for this industry to overcome is the environmental. Oil sands are far from being a clean source of energy and their development has negative effects on the environment. The oil sands industry currently accounts for approximately 8.5 per cent of Canada’s total GHG emissions and about 0.12 per cent of global GHG emissions (Environment Canada 2015). Water pollution and land damage also account for the negative environmental effects of this industry.
Canada, as a first-world nation and global leader in all sorts of affairs, has the inherent role to lead by example. The environmental arena is one aspect in which any government should pay meticulous attention. Luckily for us, the current government is embracing due-diligence in protecting the environment and fighting climate change. Climate action initiatives are already taking form, especially after the recently signed Paris agreement on climate change (COP 21). As a result of these initiatives the Climate Leadership Plan of Alberta (which will be discussed later) aims on building a sustainable future by diversifying the economy with new technologies and clean sources of energy, but also using the existing resources and in this case the oil sands.
Despite the oil sands negative environmental impacts, the responsible management of this resource has resulted in dramatic improvements over the years. The Alberta Energy webpage (http://www.energy.alberta.ca/OilSands/791.asp) provides some relevant aspects of the environmental management regulations that guide the sustainable development of the oil sands. The following is a summary of these:
- Between 1990 and 2012, oil sands producers reduced per barrel emissions by an average of 28 per cent.
- Carbon Capture and Storage(CCS) is a technology that can be used in a number of industries to reduce CO2 emissions. Alberta is investing $1.3 billion over 15 years in two large scale CCS projects, the Alberta Carbon Trunk Line and the Quest Project.
- Oil sands projects recycle 80-95 per cent of water used and use saline water where possible.
- River Management Frameworks from Alberta Environment and Parks impose strict limits on water usage.
- Strict policies are in place for reclamation of the used lands as well as for managing tailings.
- The Oil Sands Sustainable Development Secretariat was created in 2007 to address rapid growth issues in the oil sands regions of Alberta. The Secretariat collaborates with ministries, industry, communities and stakeholders to address the social, infrastructure, environmental and economic impacts of oil sands development.
The role of the Climate Leadership Plan of Alberta:
The Climate Leadership Plan is committed to act on climate change by reducing GHG emissions -mainly by phasing out coal and replacing it with renewable energy and natural gas-, taxing emissions, capping oil sands production and promoting energy efficiency; but YET enabling the oil & gas industry to produce its products recognizing that they pose (still do) the backbone of the economy of the province and also, as discussed earlier, play a very important significance in the country’s economy.
A crucial goal of the plan is to achieve economic and energy diversification. Achieving diversification implies huge capital investments and hence the requirement of taxing emissions produced by the oil & gas and manufacturing industries so the revenues can be used for forging a new and varied economy in which green energy and technologies will occupy a prevalent position.
As long as the oil and gas industry, and particularly oil sands, doesn’t get asphyxiated given the constraints for its development and for transporting its products, it has the potential (unlike other industries) to feed the necessary investments for diversifying the economy while at the same time providing energy autonomy by fully meeting the oil demands of the country and continuing to provide jobs. A win-win situation.
Advantages of energy interconnection by means of the Energy East pipeline:
Current Canadian crude oil production is nearing the maximum pipeline capacity out of western Canada of 3.5 million barrels per day. With western Canadian crude oil production projected to grow over the coming years, several pipeline projects are being proposed in order to move new production to markets. One of them is Energy East, which is the core of the discussion in this article. Here are some details (source: http://www.nrcan.gc.ca/energy/infrastructure/5893#h-2-2):
The Energy East pipeline proposes converting the existing natural gas lines to oil and construction of new oil lines. This pipeline if built as proposed, would run from Hardisty (AB) to Saint John (NB) and it will have a capacity of 1.1 MMb/d
Natural Resources Canada provides with a notion of what are the economic benefits for Canadians from pipelines:
“In addition to directly employing thousands of people during construction and operation, pipelines are a key piece of infrastructure that allows crude oil and natural gas production to reach markets. The oil and gas sector, which depends on pipelines to connect to customers, directly and indirectly employs about 740,000 people, contributes nearly 11% to the country’s GDP and pays approximately $20 billion per year in taxes, royalties and fees to governments”
Note that without sufficient capacity in the form of pipelines, large volumes of crude oil are transported to refineries by other modes of transport, such as tanker trucks, tanker ships, or rail cars. These other forms of transportation are not devoid of environmental implications, including GHG emissions, various air pollutants, noise, etc.
Insight and Conclusions:
In a scenario in which Canada didn’t require oil for confronting its impending economic needs and those of its people, I assume I wouldn’t be writing this article, or perhaps I would be writing one in which I would actually be opposing the construction of the proposed Energy East pipeline. Whether we like it or not oil is ‘still’ very important for the economy of Canada and moreover their revenues are necessary if we aim on diversifying the economic and energy matrix of the country.
Although I don’t support the expanding of oil exploration -we have enough proved reserves and we certainly do not need to find more- I do not oppose the sustainable use of what we know we already have.
The outlook for a sustained reversal of the downturn doesn’t seem to appear in the horizon, but what can be seen looming at the horizon is an impending economic decline. We cannot deny that the downturn is already affecting the economy of the whole country, if you are not convinced, the rampant job losses in Alberta and Saskatchewan and the loss of value of the currency should give you a hint.
The Energy East pipeline if constructed, would represent a breath of fresh air for the battered oil industry. It could also enable complete energy autonomy for the country as the eastern provinces wouldn’t have the need of importing foreign oil. In this scenario, the money stays at home.
To those who until this point in the article are still not convinced on the construction of the Energy East pipeline, should remember that the foreign oil imported by Canada in order to meet the demand of the eastern provinces, comes from other countries, as far away as Saudi Arabia or Nigeria and the production and transportation of this oil also implies an environmental footprint.
The fiercest green advocates and the sector of the public that opposes the construction of the Energy East pipeline should consider that achieving sustainable development cannot be complete when the environment is favoured over people’s requirement for employment (and to provide for their families). Both are equally important.
I envision a future in which there is no longer need for fossil fuels to be burnt, but I also acknowledge that fossil fuels are so ingrained in our societies that we cannot -and this goes ‘literally’ for oil and natural gas- go in our everyday lives without them. About coal, its days are counted.
The threat of climate change is real and puts a tremendous pressure on the oil industry. Finding a sustainable equilibrium in which the emissions caused by the industry are counterbalanced with other initiatives, like phasing out coal and replacing it with renewable energy is well captured in the Climate Leadership Plan of Alberta. Coexisting with oil and yet aiming for a 2-degree C global emissions policy is possible.
Whilst Canada continues strengthening the marriage between development & climate change, we are arriving to a point of no return, a starting point of a long journey ahead.
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