Why Canada needs a Pipeline.

There is lots of information out there on pipelines being generated from both sides, while most of the population is in the middle wondering who and what to believe.  I will take an honest shot at it.

First, who are the customers for Alberta Oil? We have three major players. The United States, Canada and Asia. There are currently multiple pipelines going to the coast of BC and we do export oil thru BC waters. We use and consume as much oil as we can internally. There isn’t a shortage of petroleum in Canada at the pump, ever. Sometimes in remote areas, but that isn’t a supply problem its logistical. Our refineries are running as much as they possibly can. Then why not build more refinery’s? Seems simple enough. But who will buy the product? Currently all the refinery’s in Canada are producing enough petroleum products to satisfy the domestic market. If we build more refinery’s we need a customer for the refined products. Could be the US or Asia but we still need pipelines to send it to market. Sending highly flammable gasoline or other volatile products down a pipeline is highly dangerous compared to the relatively low flash points of unrefined crude. Unrefined crude contains hundreds of different chemicals that are sold after refinement. Logistically, exporting them all to an international market would be a major challenge. Its much easier to send the product to the end user and allow them to refine it and deal with their own logistics. So as simple as it is for us to say refine more in Canada, it isn’t a realistic option. Every major democracy has enough refineries to support the domestic market, the remainder is exported as raw product.

Energy east pipeline seems like a viable option on the surface but its not as simple as turning the value from one oil source to another.  That being oil from Saudi to Alberta oil. Anyone familiar with oil refining knows that refineries are built to accept a specific type of crude oil. In the case of Irving Oil in St. John NB its light crude. The type from Saudi. The do blend it with some heavier oil from AB but the refinery can’t process straight up AB oil. They don’t have a coker (to remove sulfur) and not planning to invest a few billion to change that anytime soon. Plus, anyone remotely familiar with the east coast knows that the Irving brothers own the whole show of oil east of Ontario and some of the northern US border states. The ocean tankers, the refinery, the shipyard that builds and maintains the fleet of tankers and absolute control of distribution to the customers at the pumps via Irving Oil gas bars. None of this is changing anytime soon. These are the same Irving brothers that Alberta told to go F#&k themselves when they wanted AB oil during the elder Trudeau’s NEP rein. Hence the Irving brothers building an empire with total control over sourcing, refining and distribution. The Irving brothers are on record supporting energy east pipeline, but their plan is to buy Alberta Oil cheap and resell it by exporting it using their massive fleet of tankers and shipyards to build more.  Forget energy east it isn’t happening. Its doesn’t solve our price gap problem.

When you have more of something than you need, like we do with oil, the option is to export, and we have for a lot of years to the US. Currently 99% of Alberta’s oil goes to the US.  Its been a wonderful relationship. Sometimes we feel closer to Texas than we do to the rest of Canada. Oil is an international commodity and the price is set on the stock market where brokers bid on contracts. Democracy and free enterprise at work. So, imagine if the price of oil for January delivery is set at $ 60 US Dollars per barrel on the stock market. That doesn’t necessary mean that Alberta is getting $ 60 USD. I wish, but no it isn’t happening. Like any commodity there are bids. Highest bidder wins the contract. But the brokers are not idiots, they know that Canada has only one market and there is only one buyer. So, we get low balled and there are no other bidders so sometimes the oil is selling for $ 10 USD per barrel compared to the $ 60 it should be getting. This is costing Alberta $ 80 million dollars daily while the buyers in the United States our selling our oil at a $ 50 USD a barrel mark up and are getting extremely wealthy. It can be argued that this is Canadas money not Alberta’s money. With Alberta sending 21.5 billion dollars to Ottawa last year to support the “have not provinces” this number will be considerably lower this year given that we are getting as low as 1/5th the market value for our oil.

The US has also been drilling for Oil at a record rate. They are importing less and less oil from the middle east and could become a net exporter verses an importer. So, our one and only market is shrinking, we are being low balled on the price and we can’t refine more oil internally. Alberta needs a new market and that market is Asia thru BC to the coast. Its Canada’s only option.

But pipelines are dangerous? What about the spills on the coast?  I will tell you what’s dangerous! It is loading up 200 rail cars with a flammable liquid and sending them down a railway that’s questionable at 80 km / hour. As shown in Quebec, rail car derailments of oil kill people. Pipelines don’t kill people. When the line is pumping the pressures are constantly monitored, when the pressure drops, something is up, obviously there is a problem and the line is stopped until the problem is fixed. Do they leak, yes. No man-made engineering accomplishments is perfect. But they don’t kill people and they are safe.

What about the spills on the coast?  There is a place in Alaska called the North Slope. The US has been drilling there for years and producing oil. Where does that oil go and how does it get there? It loaded up on tankers in Alaska and travels south into Canadian waters off the coast of Vancouver travelling south to US ports. This is a daily occurrence of multiple tankers.  The BC government is aware, the Canadian government is aware. Has there ever been a spill? No. Has there been an issue. No. It goes so well that it draws very little attention from anyone. But residents of British Colombia listen up, there are oil tankers going up and down your coast right now and you have no say or control over what they do. The US is a sovereign nation with rights to pass thru the BC waters, perhaps Alberta needs to do the same.

If Canada doesn’t support the pipeline we will go it alone and do it ourselves. Alberta is getting kicked around and low balled in our prices by the US. Canada we are asking for your help, we don’t mind sharing the wealth. People from all over Canada live and work in Alberta. For now we are one strong nation under one flag but be assured, we are tied late in the 3rd period against the US and looking at overtime. Alberta will shorten its bench to win. The road map to separation is in my previous posts. So, Canada, what do you want to do?

If you agree with this post please forward to your friends, governments and elected officials. Please leave your thoughts, insights and points in the comments section.

9 thoughts on “Why Canada needs a Pipeline.

  1. ThankYou for your insight and educated opinion of what needs to happen yes I believe in one flag but if that flag doesn’t believe in one of its provinces it may leave us no choice please be realistic and not hypocritical as you read these posts the basis of everything is oil and gas that determines Our privileged way of life unless you want to go back to the Stone Ages

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  2. If I may give a British Columbian perspective, as opposed to the snowflakes of Vancouver’s environmental elite. The big issue with the pipeline is not to think of an argument based on logic, because those who oppose the pipeline are not governed by logic. Canada’s environmental movement has always been plaqued by those who are defined by a sense of moral superiority and these people have always had the unfortunate habit of turning a vague idea into an obsession. The entire green movement of Canada has convinced itself that this pipeline is now the Holy Grail of the entire environmental movement to the detriment of all other environmental initiatives that are actually progressive. The fact of the matter is, that the biggest impediment to dealing with true progress on the environmental front is the Banshee like wailing of environmental extremists that drowns out any mature dialogue on environmental issues. Conservatives have made a huge political error by not gathering together environmentally minded Conservatives to put together a environmental strategy based on logic rather than far left wing fantasy. I am betting that the Green party itself is peopled by frustrated members who see the party being hijacked by the extreme left, but who have no other political destination for mature dialogue. The environmental extremists have been allowed to set the agenda, and Canada’s political right have allowed this to happen.
    I would suggest that the best way to deal with the environmental extremists is to attack their credibility. This can be done in an indirect manner that forces them to dance to our tune , rather than the other way around. There are a host of environmental issues that are being ignored by the environmentalists, because no one is putting any pressure on their image as sacred stewards of the land. You have to fight fire with fire and recognize that when it comes to environmental issues, the environmentalists are not half as good as they think they are. Time to change the agenda.

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  3. Your comment that you keep re-posting “Like any commodity there are bids. Highest bidder wins the contract. But the brokers are not idiots, they know that Canada has only one market and there is only one buyer. So, we get low balled and there are no other bidders so sometimes the oil is selling for $10 USD per barrel compared to the $ 60 it should be” is fundamentally wrong. The oil discount, or ‘differential’ as it is called in crude market is determined largely by the transport cost the marginal barrel. In a balanced market the differential will be equal to the cost of transport be it pipeline, rail, etc. With the current marginal barrel needing to move by rail (likely manifest) due to lack of pipeline egress the differential in a balanced market should be equal to that cost which would be ~-$20/bbl. With additional pipeline egress this marginal barrel would move on pipelines and reflect a differential closer to -$15/bbl. In an over-supply situation these barrels are sold at a discount in order to move distressed barrels. The buyer on the other end is not the ‘broker’ as you put it. The broker is just the middle-man combining buyers and sellers (bids and offers) in the market on the broker exchange. The buyers are on the demand side, often refineries or storage players that have a use, or a place to put the distressed barrels. Hence the reason we’re seen integrated companies that have refineries in PADD2/3 with record profits this year.

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    1. Thanks for reading and for the info JR. while my terminology may not be correct the just of the article is. You are correct the refineries are getting extremely wealthy by low balling the price of Alberta Oil moving into the US and reselling it at a very handsome profit. Its steeling Canadian money. Notice I said Canadian and not Alberta money.

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      1. Again, you are over-simplifying. They’re not low-balling, or stealing. They’re buying it at a market price set on the exchange. The market price would not be so low if there was less supply or additional egress. The market signal (high prices) in the past led to high production, along with the promise of expected egress (pipelines) which have not materialized. Plus, many of the integrated companies that are ‘steeling’ Canadian money also have Canadian operations, Canadian Payroll, and pay a large amount of Canadian taxes. Many of the other companies like the storage holders and marketers that are also profiting are Canadian companies as well.

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      2. Perhaps I may be over simplifying it or you could be making it too complex. Bottom line is they are buying it at $ 10 bucks a barrel and making it up to holy high hell after refinement. How we get to that point is what you explained but the result is the same. You cant go to a gas pump in the US and buy discounted gasoline refined from Canadian crude. It all goes into the same inventory and the US is profiting handsomely from it. Your thoughts on taxes are not correct. US based companies in Canada move their money to the US to avoid Canadian taxes. Some even create shell companies to show loses. Very few US companies are paying Canadian corporate taxes in all industries. Its just way too high. I mentioned in another post of what the AB government can do now about Corporate taxes.

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  4. haha. I give up, there’s no point. I’m not over-simplifying, only correcting how the industry actually works, and haven’t even touched the mis-information on Irving Oil, or your US demand assumptions. Bottom line…the thing we agree on is we need pipelines!

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    1. The blogs were written to stimulate conversation, to get all Canadians involved, this isn’t just an Alberta problem. I want to get the right information out there by people such as yourself. People who can add information and put forth educated insights. Our conversation is an example on how that is occurring. Please correct me about Irving? I am curious to hear your insight. They haven’t built an empire on cheap Saudi and North African Oil?

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