Canada is a country out of equilibrium. Alberta produces a surplus of oil, most of which is sent to the United States to be refined. Heavy oil from the Oil Sands requires more intensive refining than conventional light crude, and US refineries in the Gulf with more than enough supply on their hands are able to drive a hard bargain. As a result, Albertan oil sells well below the US price (a difference of between 20 and 40 dollars a barrel), which itself is already significantly lower than the global price. In the meantime, eastern Canada faces an oil shortage and is forced to import oil at much higher prices.
Why does this imbalance exist? Historically, the headquarters of large oil companies have been based in the United States. Thus it was both convenient and strategic for Canadian supply to be routed through the US, and refineries to be built there. Currently, there are only three oil refineries in Alberta; most of Canada’s refining capacity is based in Ontario, Quebec, and on the east coast. Pipelines connecting Albertan supply to eastern refineries are overloaded, with inadequate capacity to solve the imbalance that exists between the east and the west. The supply exists, the demand exists, and the connection between the two has become the limiting factor.
Recent advances in hydraulic fracturing (fracking) technologies have increased the efficiency of oil and gas production in the United States, fuelling a surge in supply that is only expected to increase. This has fueled a drive towards energy independence, with the US wishing to decrease its reliance on imported oil supply. Canada has been left in a worrying predicament; with the US as the main market for Canadian supply, Canada has been forced to expand its network and look for new buyers. To this end, several major pipeline proposals have surfaced in the past few years. This article will examine three: Northern Gateway, Keystone XL, and the TransCanada pipeline/Enbridge Line 9 reversal.
The Northern Gateway pipeline is a proposal by Enbridge to build a twin pipeline from Bruderheim, Alberta to Kitimat, BC. One pipeline would carry 525,000 barrels of bitumen per day from Alberta to the coast, while the other would transport condensate (a light oil mixture used to dilute the bitumen for transport) back east. The proposal includes the construction of a marine terminal in Kitimat, from here oil tankers could transport crude to Asian markets. Enbridge is currently awaiting regulatory approval for the project.
The Keystone XL proposal by TransCanada involves the expansion of the current Keystone pipeline network, which transports oil from Hardisty, Alberta to Cushing, Oklahoma. The expansion includes a more direct route between Alberta and the Midwest US, as well as a connection from Oklahoma to the Gulf of Mexico. Together, the new pipelines would allow an additional 850,000 barrels of oil per day to be transported to refineries in the Midwest US and in the Gulf. The project is currently in limbo as it awaits presidential approval. Both the Keystone and Gateway pipelines have been met with criticism from environmental organizations, aboriginal groups, and the general public, largely due to the fact that they require the construction of thousands of kilometers of new pipeline. Much of the approval process has become intensely political, with significant uncertainty on when and whether the two projects will go ahead as planned.
Another recent proposal by TransCanada, presently known only as the TransCanada pipeline, has received significant media attention. It involves adapting on existing underused natural gas pipeline to transport 500,000 to 1,000,000 barrels of oil per day from Alberta to eastern Canada. By using existing infrastructure, the project minimizes negative social and environmental impacts such as the destruction of animal habitats. This should serve to expedite the approval process required. The current network spans from Alberta to Montreal, and a proposed addition would stretch to Saint John, New Brunswick, home to the largest refinery in Canada. Saint John is also a deep sea port, ideal for export to overseas European markets. Because of its span across multiple provinces, this project would require the approval of the National Energy Board.
A complementary proposal would reverse the direction of flow in the Enbridge Line 9 pipeline, an existing pipeline which currently transports imported oil from Montreal to Sarnia, Ontario. This would send another 300,000 barrels a day eastwards. Other ambitious ideas include routes to Churchill, Manitoba, or to the Northwest Territories, although these are still far from reality. As production in the Alberta Oil Sands continues to expand, routes are urgently needed to connect supply to markets. Alberta’s financial deficit in 2013 comes as a direct result of the ‘bitumen bubble’ – the price gap between Alberta and world oil. This problem can only be expected to grow as production in the US increases. Pipelines should therefore be a priority in order to right the energy imbalance and break the need for imported oil. Expanding available export options and decreasing reliance on the US is an essential step in ensure the long-term economic stability of Alberta and Canada as a whole.
Special thanks to Matthew Yaychuk for his valuable insights and resources.
Alan Shapiro is a fourth year earth sciences student at the University of Alberta.
Image CC Travis S. on Flickr