• gunnar.leitner

The Trans-Mountain Pipeline: Economic Saviour or Environmental Destroyer?

The Kinder-Morgan trans-mountain pipeline is currently a hot-bed for debate in Western Canada. And rightly so, BC and Alberta have framed the debate in such a way as to leave them both with a lot to lose. Taken at face-value, it would seem as though a life or death struggle is unfolding between the two provinces. This debate has been mainly vitriol, with threats of trade war and boycott from the sister provinces.

The impact of this debate stands to be historical in its impact on Canadian politics and how provinces deal with issues of trade, autonomy, and environmental protection. What is needed in this debate is an acknowledgment of reality and the facts. Who stands to gain from this? What are the implications of either decision? How will either side mend relationships after this blows over? We are, after all, siblings glued at the hip.

To unpack this issue, I will discuss the logistical implications of the pipeline, both from a commercial and industrial standpoint, followed by a summary of how this affects the various parties involved and finally, the implications of either victory.

What does the project do?

Oil produced by Albertan extractors is collected in northern Alberta at the Edmonton terminal. It is then piped to a few different locations, mainly American refineries and marine ports for export, but also along 1200km of the BC wild to Burnaby at the Westridge marine terminal. From there it is loaded onto oil tankers and sold to foreign markets across the Pacific. Oil moved in this way is similar to how water in a garden hose is moved, with various pumping stations and tanks along the way required to move and hold the oil.

The trans-mountain project will increase Albertan oil output from Edmonton to Vancouver from 300,000 barrels to 890,000 barrels per day. This should be thought of as more of an expansion to currently existing systems rather than the complete construction of a new pipeline as only around 12% requires new development. The expansion also includes tripling the ocean terminal capacity (Westridge Marine) to allow for increased output. A projected 400 Aframax tankers (the largest oil tankers allowed into the Burrard inlet) would use the terminal compared to the current 100. The upgrades to existing pipe and terminals come with a smattering of new storage tanks and pumping stations across BC.

The project would result in the short-term creation of approximately 15,000 jobs and would undoubtedly stimulate economic growth; not just for Alberta, but also for Canada. Over the next 20 years, revenue directly from the pipeline is projected at $46.5 billion; with $19.4 billion going to Alberta, $5.7 billion to BC, and the rest to the rest of Canada. This money is crucial for Albertans who have been hit by low profits from oil exports over the past few years and stands to buoy their economy for a couple more decades.

The Product Issue

A lot of the reason why Kinder-Morgan, and the federal government, are in favour of expansion is that it enables higher volume to be shipped. The pro-pipeline argument is that Alberta cannot sell its product for higher returns because it doesn’t readily have access to foreign markets like China or India. If Alberta could increase export then they will increase market share and demand for their product. While this type of thinking has classically held up, in the case of bitumen, this is blatantly not true. The issue lies in the product itself. Bitumen and unrefined crude oil products, like those produced in and shipped from Alberta are simply unpopular. These end-products have a very dense chemical structure which makes refining bitumen very difficult and costly compared to readily available and less dense crude oils. In the current market, it doesn’t make business-sense to buy bitumen when refineries and consumers have access to higher quality crude. Thus, bitumen is typically only used in asphalt or waterproofing applications.

This is why the Albertan oil sector is struggling. The unique chemical nature of bitumen makes it inferior to other products on the market for refineries. This fact costs us; a barrel of crude bitumen must sell at a discounted rate compared to other North American produced alternatives. In fact, the federal government subsidizes oil companies to the tune of around $3 billion annually which effectively enables the industry to compete, without which, they would either collapse or be forced to abandon bitumen extraction. The only times that bitumen has made fiscal sense is during times of hyperinflated oil prices as seen during wars and recessions.

The Port Issue

Relative to the rest of the world’s ports, the port of Vancouver is low-volume and the proposed expansion would not change this substantially. Rotterdam can move 8,206 tankers a year, Singapore loads 22,280 tankers a year, and Louisiana can load three supertankers at a time (Supertankers are more than four times larger than the Aframax tanker). This issue is further compounded by coastal regulations that require all Aframax tankers to only load 80% of their max volume due to the depth of the channel. This is not something experienced by other ports that can load supertankers. If the pro-pipeline argument aims to increase competitiveness by increasing market share, it must be noted that the current facilities aren’t even used to their capacity. American markets have new ports such as the LOOP that are far more appealing to the entire foreign market. It seems that we are attempting to upgrade a ’97 Honda while our neighbour has a Ferrari. Unfortunately, the Burrard inlet is doomed to remain relatively low-volume because it is simply too shallow of a port. This issue has been completely understated by Kinder-Morgan, and their incredibly inflated valuation of the project reflects the understatement.

First Nations

The political geography of Canada is no doubt distinct from other nations. Canadian first nations are situated on land reserves which are treated as being sovereign and allowed to self-determine and self-govern. This means that what the federal government says doesn’t necessarily apply to our first nations. I bring this up because there seems to be the notion that the project can proceed without the blessing and cooperation of our first nations. This entire process has been marred with being non-transparent to first nations and was described as inadequate at addressing their concerns by a joint provincial and federal commission. This in fact has the potential to become a supreme court battle as many first nations are engaging the Canadian legal system to defend their rights and get their voices heard. Nevertheless, a reported 43 of 130 indigenous communities have agreements with Kinder-Morgan that enables the construction of the pipeline citing economic benefits as their reason for support.

Many first nations communities have voiced vehement opposition to the construction of the pipeline. Secwepemcul’ecw activists have recently vowed to send Kinder-Morgan packing and have voiced that they do not consent to the pipeline. This is a powerful stance that has widespread support in many movements such as Idle No More, No More Silence, and the Indigenous Environmental Network and the perpetrators have vowed to make this “their Standing Rock.” Furthermore, many of the agreements that Kinder-Morgan has signed are based on inflated projections of valuation and environmental safety. Taken together, the Secwepemcul’ecw nation rejecting Kinder-Morgan along with other communities that have yet to finalize agreements, could spell an impassable supreme court obstacle for Kinder-Morgan.

Albertan Economic Interests

As said before, the whole point of this project is to increase export of bitumen to foreign markets across the Pacific. The project itself stands to benefit many Albertan sectors such as transportation, machinery, and material wholesalers. Furthermore, 55% of the jobs go to Alberta; on their website, Kinder-Morgan cite that the project will create around 441,000 person-years of employment for Alberta and that these are composed of 15,000 construction jobs, 13,000 pipeline operations jobs, 11,000 jobs generated by dividend payments from oil producers, and 401,000 jobs related to additional investment in oil and gas development as a result of higher netbacks to producers. The last two are broad categories to represent jobs that aren’t actually jobs but ‘prospective jobs’ created as a result of oil companies having more money and competitiveness in the markets. The thinking is that having more profits encourages investment into additional infrastructure and other job-creating development. Keep in mind that this translates into a potential 26,000 jobs, almost 90% of them being contingent on oil company investment of profits, and oil companies do typically reinvest profits into extraction. However, while these jobs are likely to happen, the figures used by Kinder-Morgan do not explicitly represent workers, merely funds.

It is projected that, with the expansion, the potential economic profits of the project would enable the Alberta government to balance their budget within 5 years. Furthermore, Albertan oil would become more competitive and would be exported to more non – American markets.

Political Interests

Rachel Notley, the premier of Alberta, has insisted that the only way out of the current financial deficits of $10 billion is to increase oil sales. She isn’t quite wrong either, with one of the lowest taxation rates in the nation, Alberta almost completely relies on oil and a few other commodities to balance their budget with 10% of their total revenue being derived from non-renewable resources. It was due to this wealth of commodities that Alberta has been able to maintain having no provincial sales tax. While the province was, quite literally, booming when oil prices reached prices as high as $140 per barrel through 2008 to 2014, other countries have since invested heavily into production. The United States shale oil industry is being driven by technology and the highly advanced logistical network of American oil refinement (something that bitumen extraction and Canada respectively, lack). While foreign markets since the 2008 global recession have shifted towards reducing oil imports and lessening their reliance on foreign oil. Since this boom, Alberta has been in financial decline. Therefore, it is imperative to the Albertan government that they regain their footing in the global commodities market.

Alternatively, BC has been relatively steady through the last couple decades, currently boasting one of the lowest unemployment rates in the nation. With investments in commodities, tourism, and a red-hot Vancouver housing industry, the province remains one of the most financially stable in the nation. However, this stability comes with a price to British Columbians, who live in one of the most expensive provinces in the nation having a provincial tax rate of 12%. Further, with a ballooning cost-of-living index, making BC a relatively expensive province to reside in. Recently, the city of Vancouver rated “affordable living” at $3,500/month for a 3-bedroom apartment and recently garnered the title of “most expensive city in Canada”. Joe Horgan, the premier of BC, has attempted to extend social welfare and increase minimum wages to help mediate the repercussions of this run-away regional inflation; a move that will no doubt increase taxation revenue as well as benefit British Columbian workers more than the trans-mountain pipeline would. As said before, BC relies on taxation, a booming housing industry, tourism, and a smattering of agricultural and resource-based exports to balance their budget. The financial implications of a pipeline do not necessarily tie into any of these and even seem contradictory to the industries that BC has cultivated. In the event of an oil spill, like the Gulf coast during the BP crisis, these industries would be crippled and BC would stand to lose billions in revenue and see much of it’s work to establish their coastline, erased.

As a nation, interest in the pipeline has gained some mention. Prime Minister Trudeau, once referring to the project as “being in the national interest” has repeatedly decried Premier Horgan and the BC government as being the main reason the pipeline has yet to move through. As an industry, the oil sands contribute around $13 billion to the Canadian economy. Compare this to the markets that drive real estate, which contributes around $50 billion annually to the Canadian economy. Taken together with the profits from tourism (upwards of $80 billion), it is understandable that Trudeau would like to see the oil sands contribute more. However, a pipeline through one of the most fiscally productive and environmentally sensitive areas of Canada, with multiple industries that are essentially the antithesis of oil export (and historically are highly sensitive to the repercussions of oil spills as evidenced by the long-term damage caused by the Gulf Coast and Exxon Valdez catastrophes), makes no sense and should be viewed as being in opposition to the national interest. An environmental disaster in the Burrard inlet would surely cool the Vancouver housing economy, cripple fisheries and tourism, and inhibit the international interest in BC as being a serene, clean, and beautiful get-away.

Environmental Considerations

Environmentally speaking, British Columbian coastlines (along with a majority of marine environments) are characterized as being fragile ecosystems. Chemically speaking, bitumen and Albertan oil products are more difficult to clean from ecosystems than normal crude. Bitumen is denser than water, meaning that it tends to sink and clump in water, and dilbit (diluted bitumen that is transported in pipelines), once spilled, separates into bitumen while the diluting agent evaporates. In the context of an oil spill and when compared to regular crude, bitumen is more toxic and more difficult to clean up. Taken together, if bitumen spills in a British Columbian waterway, that waterway will be irrevocably damaged and many of the economic benefits derived from such are lost. Furthermore, responses to a spill are of paramount importance. Quick responses mediate damages done by oil spills in a couple ways; mainly by limiting oil spilled and area affected through the use of various booms and skimming equipment. Skimming equipment and much of the machinery employed during normal crude spills are less effective at cleaning bitumen due to the density issue which further increases the danger posed by marine spills of dilbit.

Pipelines are not notorious for spilling and have a decent track record as far as transportation safety. Thus, the overland transport is not necessarily the issue here, it’s the destination; a marine port situated near some of the most unique ecosystems found in Canada. A major spill during freighting would spell a catastrophe for the local Vancouver economy. Furthermore, proposed regulation to speed up oil spill response times in BC, require transporters to outline acceptable spill responses, and require permits issued by the province for expansion of transportation, have been met with push-back from oil producers. Demands made by BC to ensure ample emergency tow vessels, increased research spending into oil spill cleanup, and increasing pipeline safety have so far, been met with apathy from the federal government. Trudeau has repeatedly claimed that the environmental safety regulations put into place are ample to protect BC coastlines and that the “Ocean Protection Plan” covers issues related to marine spills. The issue with that lies within the question of liability. Current legislation requires that a spiller is liable for a maximum of $1.6 billion. The potential cost of a medium sized spill would cost the local economy around $200 million while the spill clean-up would likely run into the $2 billion-dollar range. After said maximum liability, local and federal governments would be on the line to cover whatever the difference is. Thus, based on the potential destruction of entire sections of the British Columbian economy, the terrible nature of dilbit, and the lack of liability for oil producers in BC, the pipeline expansion seems to be too great an environmental and therefore economic risk for BC to take for the aforementioned reward of 5 billion dollars over 20 years and a few extra jobs during construction.

Not to mention, extraction destroys the Albertan wilderness and is one of Canada’s largest contributions to greenhouse gas emissions.

In Closing

If the pipeline is allowed to go forward, as said, it would stimulate economic growth for Canada and make us more competitive in the world economy. Canada would gain trading partners and be able to subsidize education and healthcare with the profits from increased expansion. However, the inherent risks of oil transportation are very high, especially in the context of BC. A large oil spill would be rare but would devastate the local economy. Smaller spills are much more common with pipelines and would spell the long-term poisoning of some of Western Canada’s most special ecosystems. With oil increasingly being looked at as a dying technology and climate issues becoming more and more relevant and pressing by the day, a large project such as this will make little long term economic impact to the nation even if it were to remain spill free for it’s life-time. While if the pipeline does happen and then leaks into the Burrard inlet, Canada may be left to pick up the tab while British Columbians are left with a spoiled home.

It seems to me that the trans-mountain expansion is less than a well thought out plan. To suggest that transporting a globally uncompetitive product through a region that stands to lose billions more than it gains in the event of a spill of said product, so that the federal government can continue subsidizing the sale of this product, so that a province detached from the reality of their economic misgivings can maintain it’s tax-free status and increase the sale of said product, seems insane. I should mention that Kinder Morgan is a Texas-based company so this amounts to the subsidization of American companies for the explicit purpose of exploiting Canadian commodities. We don’t need to risk BC to sell more oil so that Alberta can live off of oil proceeds until that entire section of their economy inevitably collapses in the coming decades due to clean energy and climate action. What we need is investment into sectors of our economy that replace the need to extract bitumen in the first place: renewable energy and synthetic fuels. With such investments, Canada can set itself up to be a world leader in clean energy production rather than a simple exporter of some of the dirtiest, most environmentally destructive chemicals found on earth.

In my opinion, it seems as though the Albertan government is leveraging BC into agreeing to something that is clearly NOT in BC’s best interests in an attempt to balance an out-of-control budget. As a result, British Columbians are expected to pick up the tab for Alberta’s lack of foresight and investment into areas other than oil extraction. Instead of introducing common-sense provincial taxation laws (provincial sales tax is not collected by Alberta and their income taxation rate is among the lowest in Canada) Alberta expects to fund their government through what can only rightly be described as the taxation of British Columbians. Alberta’s reticence to tax their population has essentially opened the door for direct-to-budget government lobbying by oil companies promising big benefits if we would just submit to their agendas. Furthermore, the ensuing trade war initiated by Alberta has negatively affected British Columbians both at the pump and in the debate. To me this epitomizes the adage of cutting off your nose to spite your face. Bitumen is a terrible product and will likely not become profitable again, regardless of logistical improvements done to move it faster around the country. Thus, why does it seem appropriate to ask BC to risk their environment to do just this?

The BC Coastline