Alberta Politics
Well-known earth scientist David Hughes (Photo: David J. Climenhaga).

Earth scientist David Hughes, latter-day Cassandra, predicts completed TMX will see extra losses for every barrel shipped to Asia

Posted on October 30, 2020, 2:01 am
6 mins

Earth scientist David Hughes has become well known in certain circles as the Cassandra of the oilpatch.

Cassandra, as the classically educated will recall, was the priestess of Apollo cursed to foretell the truth and never persuade anyone. A figure of Greek myth, and a walk-on part with a few lines in Shakespeare, everyone thought she was nuts.

Cassandra as imagined by William Shakespeare: “Cry, Trojans, cry! lend me ten thousand eyes, And I will fill them with prophetic tears” (Image: Public Domain).

Back in 2016, when Alberta’s New Democrats were changing before our eyes into another centre-right conservative party dedicated fighting for pipelines, Mr. Hughes published a study that concluded there was no way Canada could meet its global climate commitments if it kept building new export pipelines and ramping up oil extraction.

This seems pretty obvious, but at the time everyone who was anyone in Alberta acted like he was nuts.

Mr. Hughes also predicted that “new pipelines with tidewater access will not significantly increase the price Canada receives for its oil.”

This also seemed obvious to anyone who paid any attention to economics. But it challenged one of the political orthodoxies of the era, that building pipelines to tidewater and shipping ever increasing amounts of Alberta bitumen to Asia would magically repeal the iron law of supply and demand.

The belief that pipelines could defy economic gravity and overcome low world oil prices helped Jason Kenney’s United Conservative Party get elected and still holds sway in Alberta. Nowadays, it fuels the nutty Wexit movement as well as Mr. Kenney’s UCP.

Well, there’s been a lot of oil under the bridge since 2016. It’s 2020, oil prices are still in the bargain basement, and Mr. Kenney’s promises he could restore the Alberta Advantage are ashes in his mouth. And ours.

Mr. Hughes has now taken a look at the new realities of a world where supply outpaces demand, alternative energy sources are on the rise, global climate change is widely acknowledged, and a pandemic is suppressing demand even more, and he has reached new conclusions.

He isn’t predicting any more that pipelines with tidewater access will not significantly increase the price Canadian oil fetches.

No, he said in a report published yesterday by the Corporate Mapping Project, it will probably make them even lower.

Specifically, he concluded that if the Trans Mountain Expansion Project, TMX, is completed, it will result in a loss of at least $4 US per barrel shipped to Asia by that route.

“Adding the difference in transportation cost to the discount in price selling to Asia compared to the U.S., and the netback loss per barrel to Canadian producers by selling heavy oil to Asia is US $4 to US $6 per barrel or more,” he said.

“Very little heavy oil on the existing Trans Mountain pipeline is transported to Asia,” he added. “Instead, seaborne shipments go primarily to the West Coast of the U.S., which confirms the fact that there is no bonanza for shippers in Asia.”

So that isn’t likely to change even if the TMX is completed.

“Announced expansions of existing pipelines including the Enbridge Mainline, along with completion of Enbridge’s Line 3 in 2021, will create more than enough pipeline export capacity for Canadian oil producers through 2030, and through 2040 and beyond if some of Western Canada’s rail capacity is used,” Mr. Hughes added.

TMX will also further exacerbate Canada’s problem reducing emissions by encouraging additional oil production growth, he noted.

None of this is actually breakthrough stuff, any more than it was four years ago. In fact, it’s pretty ho-hum as conclusions about how things work go, although it’s nice to have the numbers crunched.

Just the same, it will probably prompt some fury in UCP circles, and, like most of Cassandra’s predictions, be ignored everywhere else in this country.

Cassandra, they say, accurately foretold the fall of Troy. “Cry, Trojans, cry! lend me ten thousand eyes, And I will fill them with prophetic tears,” Shakespeare had her say. Nobody paid any attention.

That old stuff has nothing to do with us Albertans, of course.

Mr. Hughes’ Reassessment of Need for the Trans Mountain Pipeline Expansion Project was released by the Canadian Centre for Policy Alternatives’ B.C. Office on behalf of the Corporate Mapping Project.

The CMP is jointly led by the University of Victoria, the CCPA and the Edmonton-based Parkland Institute. It is funded by the Social Sciences and Humanities Research Council of Canada.

18 Comments to: Earth scientist David Hughes, latter-day Cassandra, predicts completed TMX will see extra losses for every barrel shipped to Asia

  1. tom

    October 30th, 2020

    Next he should debunk the magical thinking around separation.

  2. Bob Raynard

    October 30th, 2020

    Thanks for another great column, David. I am glad you included the bit about oil that does get to the coast tends not to go to Asia anyway. Pipeline proponents seem to be overlooking the fact that some bitumen is already reaching the Port of Vancouver; as anyone stuck at a railroad crossing watching endless black tankers go by can attest to. I have for some time wondered why those proponents aren’t able to show the much higher price the bitumen that reaches tidewater sells for.

    Presumably the thinking is that once we are able to supply enough bitumen to some Asian port, it will be a good business model to build a refinery over there. So, in other words, even after the pipeline is built the Alberta oil workers will still have to hope for some form of miracle.

  3. Just Me

    October 30th, 2020

    All the more reason for the UCP to pour more and more public money to support the industry. Of course, it will only be Alberta’s public money, so whatever.

    Kenney is looking more and more like Hugo Chavez — who knew?

  4. Geoffrey Pounder

    October 30th, 2020

    Climenhaga: “Back in 2016, when Alberta’s New Democrats were changing before our eyes into another centre-right conservative party dedicated fighting for pipelines”

    Not your father’s NDP, that’s for sure.
    To be precise, Rachel Notley’s New Democratic Party changed into a centre-right conservative party dedicated [to] fighting for pipelines. Not all of Alberta’s New Democrats approved or followed blindly along. Many on the left viewed this shift to the right with alarm and dismay.
    The book on the NDP’s backroom metamorphosis has yet to be written. Longtime NDP strategist Brian Topp seems to have been chief architect.

    “Topp says he won’t help the B.C. NDP, which opposes the Kinder Morgan pipeline expansion, in the provincial election coming next May.
    “No way, he says. He’ll stay right out of it. He vows to keep promoting Notley’s pipeline and climate change agenda to New Democrats everywhere.
    “‘I’m always going to advocate for that,’ he said in an interview. ‘Canada must get the best return for its resources. It’s crazy to allow your resources to be discounted.’
    …”Topp, who got the key job shortly after the 2015 election, has been the most powerful chief of staff in Alberta’s recent history, charged with managing the transition to NDP government, finessing political challenges to Notley, and driving the massive policy shifts in environment, taxation and the electricity market.
    “Don Braid: Notley’s chief of staff, Brian Topp, headed back to Toronto as part of Alberta NDP shakeup” (National Post, 2016)

    Then-Edmonton Journal columnist Graham Thomson called then-chief of staff Topp the “most powerful person in the Alberta government” and the “architect of much of the government’s aggressive agenda”. “It is difficult to overstate Topp’s influence on, and importance to, Notley and her government.”
    “Think of the government’s agenda the past 19 months and pretty much everything is covered in Topp’s fingerprints: the REVIEW OF ENERGY ROYALTIES; a new CLIMATE CHANGE STRATEGY; a carbon tax; revamping the province’s electricity market; boosting the minimum wage; hiking corporate taxes; banning political donations from corporations and unions; limiting campaign spending; borrowing billions of dollars for infrastructure projects; GETTING FEDERAL APPROVAL FOR A PIPELINE PROJECT TO TIDEWATER.”
    “Graham Thomson: Notley’s chief of staff Brian Topp resigns” (Edmonton Journal, Dec 15, 2016)

    Brian Topp: “… And finally, victory for the NDP will not be found in focusing on the agendas of a kaleidoscope of NGOs and lefter-than-thou showboaters, however well-meaning…”

    “The inside story of Kinder Morgan’s approval’ (Postmedia)
    “Just 3 days after the Oct. 19, 2015 federal election, a half-dozen of the most powerful political insiders in the country gathered for dinner in the Byward Market, a historic section of the nation’s capital filled with high-end restaurants, boutiques, courtyards and artisan shops.
    “Representing Justin Trudeau’s new govt were his top two political advisers, Gerry Butts and Katie Telford.
    “They were facing Brian Topp, a wily political tactician who recently stepped down as AB Premier Rachel Notley’s chief of staff.
    “At Topp’s side were Richard Dicerni, then head of the AB public service, and University of AB environmental economist Andrew Leach, at the time chair of Notley’s Climate Change Advisory Panel.
    “… Leach, Notley’s advisor, … acknowledges that the Liberal platform in the 2015 election was much more in line with Alberta’s plan than any other federal party’s.”

    Evidently, Notley did not need much persuading. Notley’s NDP relentlessly attacked environmentalists and pipeline opponents. By the end of term, she had bought into Vivian Krause’s absurd fantasies:
    “‘I’m frustrated by it, of course,’ Notley says of the [anti-oilsands] campaign. ‘Vivian Krause (the B.C. researcher) and people like her have done a good job of really laying bare the details of this and really showing us the degree to which this had been going on and building over time.'”

    If Brian Topp and the NDP brain trust think the path forward lies in pushing fossil fuels and flouting the IPCC, they are deluded, if not criminal.
    Naomi Klein (06-Feb-18): “Alberta has a left-wing political party in power, one that has somehow convinced itself it can beat the right by being a better suck up to Big Oil.”

    Acknowledge the science, but ignore its implications. Boast about climate leadership, but push oilsands expansion and pipelines. Sign int’l agreements, but fail to live up to them. The new denialism. Just as delusional as the old kind but more insidious. And far more dangerous.
    “The New Climate Denialism: Time for an Intervention”

    Trudeau, Notley, and Topp are banking on failure. The oil industry is betting that the world will fail to take real action on climate change. The only scenario in which oilsands expansion makes sense.
    According to Trudeau, the path to renewable energy and a sustainable future runs through a massive spike in fossil-fuel combustion and emissions. Complete disconnect from the science.
    Oilsands expansion and new pipelines are not pragmatic politics — just plain lunacy. It doesn’t matter what your policies are on farm labor, GSAs, childcare, etc. If you’re not progressive on climate, you’re not progressive.
    NDP voters need to get off the fence. Heed reality or not. Act on the science or not. Either Canada meets [Harper’s inadequate] targets or it does not.
    There is no middle road. No compromise.

    • Caron

      October 30th, 2020

      Notley betrayed farmers and ranchers in every way possible from continuing the impunity of the energy sector to steal farm and ranch land to letting them leave their used junk all over the landscape. It was Notley that approved the first mountain top removal coal mine, upending Premier Lougheed’s protection of our ground water. Too feckless to raise royalties to the level Premier Stelmach suggested, and to disconnected to bring in WCB reform that actually makes the system work for injured workers, and too expensive for most farmers and ranchers.

      • karl roth

        November 1st, 2020

        Caron, i had a look online and nowhere did i find info re “it was Notley that approved the first mountaintop removal coal mine”
        perhaps you would be so kind as to where you got that info

        whatever your complaints about Notley, and she’s by no means perfect, i find her and the NDP vastly preferable to the Kenney/UCP regime

  5. Geoffrey Pounder

    October 30th, 2020

    The main destination for dilbit via TMX?
    U.S. West Coast refineries, especially California.
    California alone accounts for 1% of global oil demand. Although California has announced a new plan to end the sale of gasoline-powered cars by 2035, it will continue to be a major oil consumer for years to come. But probably not long enough to justify TMX.
    Connect the dots between California’s gluttonous oil demand, Canada’s consistent failure to meet climate targets, and raging infernoes that consume communities in both regions.
    “Most vessels that currently load in Vancouver go to refineries in Washington State, California or Hawaii, according to Thomson Reuters Eikon shipping data.”
    “Canada oil sands Asia export dream faces port bottleneck” (Reuters, Nov 20, 2016)

    “Canada dreams of sending its oil to Asia via Trans Mountain, but most if it will end up in California” (Reuters)

    “California, not Asia, will be the most attractive market for Albertan heavy crude following KM’s Trans Mountain Pipeline expansion (TMX) from 300,000 b/d to 890,000 b/d. Lacking a deep water port, TMX’s Burnaby terminal on the British Columbian coast cannot handle carriers larger than an Afromax, making shipping costs less competitive than those of Middle Eastern sellers.”
    “California is a better market for Trans Mountain-transported crude than Asia” (Alberta Oil Magazine)

    “The U.S. has 55% of the world’s heavy oil refining capacity and heavy oil prices on the U.S. Gulf Coast are $3 higher than in Asia which, coupled with higher transport costs to Asia, means that oil transported to the U.S. via Line 3 and Keystone XL will capture a premium of $5 per barrel compared to Asia exports via Trans Mountain. The ‘billions for Canadian priorities’ are a figment of the government’s imagination.”
    J. David Hughes: “Fact-checking Alberta’s pipeline ads” (Edmonton Journal, Feb 20, 2019)

    U.S. Gulf Coast heavy-oil refineries pay top dollar for Alberta dilbit, just below the WTI price.
    “What discount? Gulf Coast paying premium prices for Canadian oil — but only 450,000 bpd make it there” (Financial Post, Oct 25, 2018)

    President Biden may axe Keystone XL.
    Here’s hoping.

  6. Lars

    October 30th, 2020

    I expect that Steve Allan will be investigating David Hughes’ foreign funding, then.

  7. Keith McClary

    October 30th, 2020

    ” Mr. Hughes published a study that concluded there was no way Canada could meet its global climate commitments if it kept building new export pipelines and ramping up oil extraction.”

    The War Room’s “research” actually agrees, although they don’t put it quite the same way:

    Reaching Paris target entails extra costs to jobs and Canada’s economy
    Paris commitments will come at a steep cost and existing policies aren’t enough to hit the target
    By Mark Milke and Lennie Kaplan on July 16, 2020

  8. Bill Malcolm

    October 30th, 2020

    It’s not as if the NDP in BC are any brighter. Full speed ahead on LNG to ship fracked gas from Northeastern BC to Asia, where current spot prices are half of the prices needed for break even. Earlier this year they were down at half the current spot price. Volatile. Japan has discovered gas off their coast as well. Russia’s full of the stuff., how much do you want? There is zero Alberta or BC advantage in price, merely subsidized cost in the offing, the more you ship, the more you lose. Shovelling cubic dollars down a rathole is what our “leaders” are pushing, and it’s blind nonsense.

    These dimwit provincial premiers, plus Trudeau and that “Hi I want to be your friend” O’Toole are so far out of it, someone needs to come along and knock their heads together and inject some common sense. Because it’s completely lacking. Yesterday’s riches aren’t coming back, and the bitter pill is going to have to be swallowed whether it’s imposed by events or by someone with clout withdrawing their head from a cloud and finally realizing, Oh, crap. Nobody is well served by denying reality.

    • David Climenhaga

      October 31st, 2020

      Nobody can get elected by recognizing reality. Leastways, not until it’s too late to fix it. That’s the problem, in my opinion. DJC

      • Farmer Brian

        October 31st, 2020

        My reality is this David. I see an Alberta government with a projected deficit of $24 billion. This is debt that will cloud my children’s and grandchildren’s future. You are correct that voters don’t recognize the problem until it is too late to fix it. Alberta is the only province without a sales tax and is accumulating one of the largest provincial deficits during this pandemic as a result. Opposition leader Rachel Notley goes on about the corporate tax cut. In the 2018-2019 budget year with a 12% corporate tax rate, $4.87 billion in corporate tax revenues were collected, the government spent $56 billion, so corporate taxes covered 8.7% of government spending! Now I didn’t agree with the UCP’s corporate tax cut to 8% either but raising corporate taxes won’t fix our deficit problem by its self. That is my reality what is yours?

        • David Climenhaga

          October 31st, 2020

          You strike me as a smart guy, Farmer Brian, so let me answer a question with a question: Do you think a sales tax alone would be the answer? Theoretically speaking, if you were a member of an Alberta provincial cabinet, say the UCP’s, would you argue for a sales tax? I’m genuinely curious. DJC

          • pogo

            October 31st, 2020

            I hope see the event horizon interact with the sun rise. What? No unicorns for me to herd? There goes that farming dream! Oh, by the way. Sub optimal interaction with reality ends before any grand children of the recently self inflated snifter legacy class reach primary school. Just sayin’.

          • Farmer Brian

            November 1st, 2020

            To answer your first question, there was a time when imposing a sales tax would have balanced the budget on its own, that time no longer exists. Today both income and corporate Taxes will have to be increased in addition to a sales tax combined with spending restraints.

            If I was at the UCP cabinet table I would bring up a sales tax. I am sure it is already at the UCP cabinet table but the reality is until a sales tax garners support in the general populace no provincial government will bring one in. Look at Rachel Notley, I think part of the reason she was defeated was bringing in the carbon tax. If she had let Justin Trudeau impose the tax she might still be in power. Brian Mulroney brought in the gist what did that do for his popularity? One other quick historical note, Jean Chrétien in his red book promised to remove the gst if elected, once elected crickets!

          • David Climenhaga

            November 2nd, 2020

            You’re certainly right about Rachel and the Carbon Tax. (Sounds like something by The Band.) I’ve said so myself in this space. DJC

  9. Sub-Boreal

    October 31st, 2020

    Meanwhile, in the parallel universe where constitutional authority over natural resources was not given over to MB, SK and AB in the ’30s, the race-to-the-bottom to lower royalties never happened, AB had a sales tax, and the national sovereign wealth fund became like Norway’s.


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