The soaring cost of the Trans Mountain Pipeline Expansion has pushed the still-uncompleted megaproject Ottawa bought for Alberta further into the red, says a report released yesterday by the Parliamentary Budget Officer says.
This quickly earned the project the uncomplimentary sobriquet “boondoggle” from Environmental Defence’s national climate program manager, Julia Levin.
The Trudeau Government made the decision in 2018 to buy the 70-year-old pipeline that runs 1,150 kilometres from Alberta to the West Coast near Vancouver from Kinder Morgan Canada Inc. and to take on the cost of the expansion the company had first proposed in 2013.
It’s the only pipeline carrying Alberta petroleum products to the Pacific Coast, and Ottawa was clearly responding at the time both to pressure from the NDP provincial government of then premier Rachel Notley and threats by then-owner Kinder Morgan Canada Inc. to pull the plug on the project in the face of environmental and political opposition in British Columbia.
The charming belief prevalent then and now in Alberta that, never mind the law of supply and demand, the expanded line would miraculously increase the price fetched by oilsands bitumen by getting it to new markets in Asia via pipeline and ocean tanker inflamed the debate in the province.
At the time of the federal decision to take over the project, the cost of the purchase was said to be $4.5 billion.
The short analysis report published yesterday by the Office of Parliamentary Budget Officer Yves Giroux said the estimated cost of the massive construction budget for the project has surged from $12.6 billion when the PBO last looked at the project in 2020 to $21.4 billion now.
When Ottawa made the decision in 2018 to buy, expand, run and eventually sell off the pipeline to the private sector, the expansion project’s cost was estimated to be about $7.5 billion.
As a result of the soaring costs, the PBO report by analysts Jason Stanton and Kaitlyn Vanderwees said, “Trans Mountain no longer continues to be a profitable undertaking” and will result in a net loss for the federal government.
A chart in the report shows the current value of the pipeline system now at minus $600 million!
What’s more, the report said, if Ottawa were to pull the plug on the TMX project at the end of this month and suspend it indefinitely, the Government of Canada would have to write off more than $14 billion in assets.
“The net impact would result in a significant financial loss for the Government and would lead to the Trans Mountain Corp. no longer being a going concern,” the report said – the company being a subsidiary of Crown-owned Canada Development Investment Corp. that has operated the pipeline since Kinder Morgan was paid off and got the hell outta Dodge.
Well, no surprise there, really. The business plan on which the expansion project and subsequent federal purchase was based always seemed more than a little iffy, especially since it depended in large part on the notion that expanding the supply of diluted Alberta oilsands bitumen to Asia would cause the price fetched by the stuff to increase.
That’s not actually how the law of supply and demand, normally thought to be pretty ironclad, is supposed to work. Indeed, one would have thought that, as earth scientist David Hughes has been predicting since 2016, increasing supply might just do the opposite, as generally seems to be the effect of overabundance on prices.
More than a little ironically, world oil prices are now way up – for the moment, at least – not because the government of Canada has been building pipelines, but because Canada and other western nations have been trying to force Russia to shut pipelines down in response to its invasion of Ukraine.
This is another indication that the law of supply and demand still operates just as explained in economics textbooks.
Long-term contractual agreements with shippers that mean most of the growing costs of the expansion can’t be passed on oil companies also impact the viability of the project.
All this said, the report does not present information that non-expert readers would need to reach their own conclusion about what Ottawa should do next.
The report explains, “PBO requested updated projected future cash flows for the Trans Mountain Pipeline system from the Canada Development Investment Corp., the Crown corporation holding the Trans Mountain assets.”
CDIC, it said, “provided all requested information to PBO, but the information was classified as commercially confidential. The data’s confidentiality did not inhibit PBO’s work to model the data, assess the value of the Trans Mountain assets, or publish the analytical results in this report.” (Emphasis added.)
In other words, we’ll just have to trust the PBO – a situation that provides the grounds for a lot of mischief by supporters of pipelines, no matter what.
As a result, the report requires a certain amount of reading between the lines to try to figure out which course of action – pumping or dumping – makes more sense in the long run.
Notwithstanding the PBO’s stated mission of helping Parliament “by providing economic and financial analysis for the purposes of raising the quality of parliamentary debate and promoting greater budget transparency and accountability,” nowhere in yesterday’s report does it say explicitly that a write-off would be a more prudent course of action than continuing to operate what may well turn out to be a white elephant.
Without the data not available to the public, it’s hard to argue with Ms. Levin’s conclusion “the Trans Mountain Pipeline has become a financially dangerous boondoggle.”
“The government has often justified the pipeline by promising that its eventual profits will fund clean energy projects; this is flimsy logic given the disastrous climate and environmental impacts of the project,” she said in a news release. “The PBO update shows this argument doesn’t hold water: there will be no profits, only financial losses for Canadians and more carbon emissions for the planet.”
“As the costs of the project keep ballooning, the government should cut its losses and cancel construction of the expansion pipeline,” she concluded, “before even more of our dollars are wasted; public dollars that could be instead invested in developing sustainable energy systems.”
Even though Prime Minister Justin Trudeau should have noticed by now that the only thing likely to earn him more abuse from Albertans than not giving them what they want is giving them what they want, there’s still not much chance of that happening.
Both the federal and Alberta governments yesterday signalled their determination to keep working on the project.
“The Trans Mountain Expansion Project is in the national interest and will make Canada and the Canadian economy more sovereign and more resilient,” Adrienne Vaupshas, federal Finance Minister Chrystia Freeland’s press secretary, told the Canadian Press.
“This project is necessary for Alberta and Canada’s energy sectors,” Alberta Energy Minister Sonya Savage advised CBC News.
The head honcho of the UCP was in complete agreement with the Liberal government purchasing this pipeline. This boondoggle still pales in comparison to what has happened here in Alberta. $575 billion was lost, because the Alberta PCs thought it was okay to alter the very good oil royalty rates that Peter Lougheed got. Ralph Klein didn’t bother to ensure that oil companies in Alberta cleaned up any damages they made, and Albertans are stuck with a massive $260 billion tab for this. The Redwater Upgrader boondoggle exceeds $30 billion, because of different costs associated with it. This got the Alberta PCs turfed in 2015. The UCP admitted this was a loss, but made Albertans pay for the cost of keeping the thing (barely) afloat. The UCP had their own $7.5 billion gamble with a pipeline, and their gamble was a loss. Cancellation of the NDP’s crude by rail, by the UCP, was also a very massive cost that the UCP gave Albertans. The UCP would love to point fingers at others, but doesn’t see what they are doing hasn’t been helping.
A little confusing clip here, “Without the data not available to the public” reads like a double negative? Should it perhaps be “With the data not available” or “Without the data available”?
Old Albertan: A pure Climenhagaism of the first water. Double negatives that nevertheless can be parsed to make sense, multiple parenthetical phrases within parenthetical phrases, the subjunctive mood willy-nilly, as it were, and an abiding faith that split infinitives are not just OK, they’re often preferable to infinitives unsundered – with a quote from Fowler to back it up! Sometimes, if you love me, you just have to love my convoluted prose, the bane of generations of copy editors, from whose malign influence I am now freed. DJC
Perhaps Sonya Savage will suggest shipping bitcoin to Vancouver via the pipe thereby solving the casino money laundering problem. Oh right, bitcoin isn’t a real thing that, like, you can touch. Next idea….
Sustainable energy doesnt exist, especially without a sustainable economy. Even Trudeau’s activist enviro minister realizes you cant just flip the switch to green. I PROMISE YOU that everyone thumping their chests over carbon emmissions and blah blah blah is comfortably situated in the middle class. I’m sick of being lectured by the zoom-class elites, with their desk jobs and cerb payments. We will not be abandoning pipelines, or ramping down oil sands production, because that would be moronic. I know most of the 8 of you will disagree, but I dont care, because Canada is going full-blown conservative by next election, so green opinions dont really have weight anymore. Thank Trudeau for that.
Lol, blue is certainly crashing but not in the way that you think. Y’all went after Trudeau at his weakest and MISSED. How do you think you will be coming back from that ? As far as renewables, talk to China and India about that; They’re building them out so fast it’s crashing prices over and over. You might not agree with the world that is coming, or even like it, but trying to stop it is like the tide.
The hubris is blinding
If these so-called “zoom-class elites” were working desk jobs on Zoom, how could they also have collected CERB? Aren’t you mixing your metaphors? And speaking of mixed metaphors, please remember that people collecting CERB were eating Hawkins Cheezies™, according to the UCP. They were not eating potato chips. I would hate for anyone to mix that UCP metaphor, even though there is indeed a large potato chip factory in Alberta, where potatoes are grown, but not a Cheezies factory. Cheezies are manufactured in Belleville, Ontario. It would have made more sense and been more Albertan to insult Albertans by saying “potato chips”, but common sense is not always factual. Thank you.
Two good points there BlueWaves – about being lectured to by zoom-class elites and if the Conservatives win the next election we can surely hold Justin Trudeau mainly responsible…
For the conservatives to win any election they’re going to have to find a leader for their party first, and there is nothing but brain dead Harper sycophants left over there. Good luck with all that.
Well Little Bird, the cons will eventually find a leader. The last time around they almost won without a leader, JT almost snatched defeat from the jaws of victory as they say. With the Tsunami of problems coming JT and the Natural Governing Party have a lot of work ahead of them. Is he up to it? No real indications of that yet…
One of the biggest things I’ve learned from Trump is that calling people stupid doesn’t convince them they’re wrong, it convinces them they don’t like you.
Strange, because one of my main takeaways of the last four years is attempting to get people who literally wish you dead to like you is a fools errand.
Capitalism will never create a sustainable economy, because that would require capitalists who could be content with a reasonable profit. It will continue to reel from self-inflicted crisis to self-inflicted crisis.
IMO the Liberal party remains in power because of the combination of the first past the post system and the existence of the Conservative party. If they can get 40% of the votes they get 80% of the power, and they can get halfway there just by saying, “if you don’t vote for us the Conservatives will get in.”
I think Canada’s electoral system is equivalent to America’s health care system – no other developed nation (maybe America, holy crap what a gong show they’ve become) would switch system with us.
I think if we had a more responsive system (my fav is New Zealand’s electoral system with Australia’s fine for not voting) we would have two right wing parties, one for the ‘social Conservatives’ and one for the ‘fiscal Conservatives.’ The Liberals would still exist but would no longer be permitted to perpetually fail their way back into power. There is room for a rival centrist party and a left-of-center party in Canada. I suspect an electable antiCapitalist party would exist as well.
On the subject of electoral reform, critics of FPTP often propose either Proportional Representation, which creates perpetual hung parliaments and the need for coalition governments — which can either be stable and effective, as in places like Germany, or unstable political gong shows, like Italy or Israel — or a form of ranked ballot, also known as Single Transferable Vote or “instant-runoff”, such as is used in Australia’s federal elections for its lower House of Parliament, as well as Canadian political party leadership balloting. My issue with ranked ballot is that, in the Canadian context, it is almost certain to produce perpetual Liberal majorities, since the Liberal Party is far more likely to be a Conservative or NDP voter’s second choice than either other party.
Another option rarely discussed, is the one we just saw in France’s Parliamentary elections: true runoff elections in all seats where the leading candidate did not win a true majority of the vote. In a runoff, only the top two or three candidates in the first round of voting stays on the ballot, and a majority mandate in that seat almost inevitably emerges from the second round of voting. Downsides of such a system include often lower turnout on second round voting — which could potentially be mitigated by Australian-style mandatory voting laws — and the additional cost of doing runoffs in many seats, which is simply a cost we would pay for democracy.
I would also go further by voiding elections in all seats with less than 50% turnout — or, if we go the route of mandatory voting, those with more than 50% spoiled ballots — holding new elections in those seats, and barring anyone on the ballot the first time from running the second time.
The advantages of using a French-style runoff system are that it still produces a 1:1 relationship between electoral districts & elected representatives — something not produced by PR — and in addition only puts people with majority support into Parliament.
How I wish I could say any of this is surprising. The guvmint of Oilberduh—ANY guvmint of Oilberduh—sucks up to Big Oil. Also Big Banks, Big Insurance, Big Used-Car Dealerships, Big Agribusiness, etc. ad nauseam.
David Hughes isn’t the only non-corporate economist who warned the Feds not to buy that pipeline. I think Tzeporah Berman had some unkind words for it, and Robyn Allan certainly did (see Ms Allan’s blog, at https://www.robynallan.com/ ).
The idea of making Big Oil pay for its eventual replacement might make some sense, but not as presented in the flimsy excuses for the TMX. Far better would be a windfall tax to capture, say, 90% of extreme profits due to speculative or panicky price spikes.
As for politics—if Sonya Savage says it’s necessary, I believe her. It’s critically necessary to the UCP, to have something, ANYTHING, they can claim as a win.
Since Alberta’s own Daddy Warbucks seems to like throwing around public money on pipe dreams, perhaps Ottawa should offer the TMX for sale, for about $14B.
I’m sure will scream about outrage and FreeDUMB, before he blames Rachel Notley for the whole mess.
It’s no secret that it was our hero Peter Lougheed who urged the Klein and Stelmach governments to slow down the growth of the oil sands, get control of the pollution, collect proper royalties and taxes and they refused to listen. The oil executives agreed with Lougheed and offered to join the Kyoto Accord and Harper and Klein refused to let them. Dr. David Swann stood with the oil executives and pointed out that the pollution was creating health problems for Albertans and those of us with Asthma agreed, and Klein had him fired. Instead they invited the world to come and get our next to free oil and taxes and they did creating a huge surplus but these Reformers weren’t smart enough to make certain that there was a proper system in place to get this surplus oil to foreign markets and they created this mess we are in and Albertans were dumb enough to let it happen. For those of us from the world of finance, Royal bank manager, with ties to the oil industry , watching this happen was sickening. It was so obvious. Yet we were having sarcastic comments hurled at us for trying to stop it from our fellow seniors. One again Lougheed was right and these Reform Party fools were dead wrong and it should never have happened. We were doing well by collecting proper royalties and corporate taxes and dealing with the U.S.
With the Reformers telling the world that we don’t give a damn about global warming or the pollution we are creating they have literally created a nightmare for our oil industry. Oilmen were telling me that the abuse they were receiving from celebrities was justified. It’s why Norway pulled all their finances out of Alberta and Encana Corporation moved their head office to Denver and oilmen friends state they are now working a lot more in Texas and New Mexico as this article proves: “Alberta Oil Workers Moving to Texas and New Mexico on U.S. Visas ” Unlike Norway and Alaska who copied the Lougheed system Albertans allowed these damn Reformers to destroy it.
Yesterday, BC Premier John Horgan staunched growing criticism and slightly declining popularity by terminating a controversial plan to demolish and rebuild the Royal BC Museum and its adjacent Curatorial Building in Victoria. My!—that was quick! It was only just announced for weeks ago, and now—poof!—it’s gone. We West Coasters will have to be forgiven a moment to catch our breath: after 16 years of BC Liberal regime which inflated the provincial debt four-fold to somewhere north of $100 billion with intransigent stealth, we’re still getting used to this kind political responsiveness. “We hear you,” Horgan announced while smartly plugging a lead pill in the billion-dollar proposal’s ear—that is, “billion” with an asterisk indicating astronomical risk this savvy politician wisely put to bed.
The plan and engineering assessments, nineteen years in the making (the NDP have been in power for the last five), were actually initiated by the former BC Liberal government whose recently-elected leader has been calling the culmination the Premier’s “vanity project.” I happen to have been involved with one of many aspects of those initial explorations, many years ago—asbestos abatement: there was never any doubt the work needed doing, even way back then, and just “busting the A” alone would be hugely expensive, as decades of stopgaps certainly have been—never mind the whole thing’s cost-estimate hyperinflation of which British Columbians are all too familiar by way of another BC Liberal initiative: the Site-C Dam on the Peace River.
That damn plan dogged Horgan’s NDP government ever since his predecessor Christy Clark pushed the dubious project past the point of no return before the 2017 provincial election (she won a minority that was immediately toppled by a non-confidence vote). Nevertheless, Horgan’s very controversial decision to continue with the partly-built dam (which his party strongly opposed while in opposition due to expected cost overruns of the spectacular sort) rather than lay-off two-thousand workers recently reemployed from the struggling gas-producing region of northeast BC’s little corner of Great Plains (which never votes NDP) was a political move that didn’t eventually prove costly: the NDP’s thinnest minority was re-elected with a robust majority just three years later.
TMX just happens to cross BC; indeed, Horgan’s NDP probably could not have taken (and retain in the 2020 election) long-held BC Liberal seats around the tidewater terminus of the existing TM pipeline without promising to “use every tool in the tool box” to stop supertankers from plying the busy inside waters of BC and Washington State in order to reach open ocean. Apparently the concern about spills, diluted bitumen being impossible to clean up (the bitumen fraction sinks when the solvent evaporates), crosses party lines as well as international borders (Washington State also opposes the project). However, each Canadian federate is guaranteed access to markets through another’s jurisdiction and Horgan’s reference to the courts determined that many of those “tools in the tool box” would in fact be unconstitutional. Thus garnering respite on this file, BC’s government has been better able to deal with the perfidious BC Liberal legacy and the pervasive challenges of climate change—devastating floods, wildfires and extreme summer heat, not to mention Covid.
TMX protests have been somewhat overshadowed by others (of which BC has many), but the court of public opinion and unsettled indigenous sovereignty-claims are two notables among the remaining tools in the tool box, certainly less dismal than TMX’s bleak feasibility; they will doubtlessly continue to dog the pipeline as it soldiers along. The Parliamentary Budget Officer’s latest truth assures at least that.
So, now that we’re here again, I have to wonder what, if any of the TMX principals —I would include the BC, Alberta, and federal governments, their respective loyal oppositions and electorates, and the BC First Nations along the pipeline route which have not yet settled their respective sovereign claims against the Crown’s—might have to say about the dog the feds bought on all of their behalves. Which one is more likely to pull the pin on TMX?
Not that the NDP is unanimous in this regard, but its federated presence can’t be ignored: it governs BC and sends a considerable number MPs to Ottawa where it holds the balance of power; the NDP has a good chance of regaining power in Alberta next year. Not that the movement is generally disliked, but Horgan’s the only one being applauded right now, probably because he’s in the safest place— that is, not entangled on the flypaper of partisan politics and willing to work with JT on the massive LNG export facility in Kitimat, despite the federal project BC officially opposes. Rachel Notley’s Alberta NDP is politically compelled to support TMX, but with very important distinctions from the UCP which would both expand bitumen mining and kill the carbon tax she agreed to in order to get the feds to buy Alberta a pipeline; both she and JT have national unity in mind—the UCP, not so much. And then there’s Jagmeet Singh holding the balance of power for JT: his NDP has the most tricky position—but I’d love to hear him ask Pierre Poilievre’s opinion on the matter in the House of Commons. ‘Hey, Pete! You ole fiscal conservative, you!— all decked out in your market fundamentalist duds…should Canada dump this dog, er what?’ That’d be easy—asking it, I mean…
Neither are BC FNs wholly agreed on TMX (or pipelines, in general) because of the boggling complexities of their respective sovereign claims. Some of these nations were instrumental in shit-canning Northern Gateway because the HarperCon government failed to consult meaningfully with them, but others were ready to share pipeline revenues for consenting to routes through their traditional territories. Horgan and JT precipitated a scrape by trying to push the CGL pipeline through Wet’suwet’en territory and, although this nation’s claim is still outstanding and the pipeline still under construction, it’s clear Wet’suwet’en people are not unanimously against the development. Nonetheless, vigorous protest which raised general awareness of the constitutional and judicial complexities involved convinced Horgan to retreat to the negotiation table which the Crown tried to circumvent. The fact that many FNs today are applauding Horgan for rescinding the Museum proposal shows how deft his politics are—like, how is the museum relevant to FNs hundreds of miles away? By Horgan’s invitation to be. That’s smart.
Electorates in BC and Canada are generally ambivalent about pipelines, but some others are very invested, one way or the other, for partisan reasons. The PBO’s assessment will probably spark some fleeting interest—unless, of course, certain party leaders make sure it’s not fleeting—all of them Dippers, naturally.
And so we zero in on the Western Prairies, its nominal conservative parties and voters. They stand out. I feel they have an opportunity to address this damning budgetary news. They would demand no less of any other such news, and there’s certainly enough there to criticize their favourite whipping boy.
So let’s have it, Alberta, Pierre Poilievre, Kevin Falcon…what should Canada do? Pump or Dump?
Some detritus I swept up from the internet floor this week:
https://leaderpost.com/news/saskatchewan/reiter-accuses-feds-of-killing-pipeline-industry-after-evraz-layoffs
https://www.cnn.com/2022/06/20/energy/china-russia-oil-imports-record/index.html
The only “energy” in and from Alberta is extracted fossil fuels. No mention anywhere in all this hype about Alberta energy about other ongoing and proposed energy projects. All the wind turbines throughout the province, all the solar arrays, all the geothermal sites [presently operating and proposed], though in reality they depend on fossil fuels to come to completion, are seemingly anathema.
When and where is there any maturity forthcoming that recognizes that world fossil fuel extraction peaked in 2018 {IEA no less!} and that in order to have any semblance of energy use in the future, we shall have to use fossil fuels to build, maintain, and replace the energy alternatives. Squandering this precious resource on burning it all so wastefully only contributes to more of the climate crises around the globe and to a very much quickened depletion.
At least it makes our billionaire overlords richer.
I think local resources should be developed by locals, for locals, with the consent of locals. Letting multinational corporations extract our resources and exploit our markets has always been a sucker’s game.
Maybe I’m being a bit picky here but neither Ms. Levin nor Ms. Savage are unbiased commenters. Actually both of their inputs can only be taken as political opinion not analysis. I am absolutely sure that Ms. Levin would not only wish that TMX shutdown completely but the whole tar sands operation as well. And of course we know what Ms. Savage will say…
I think the important question is whether TMX will cause new tar sands projects or just expand the options for selling what’s being produced now. If it’s indeed to expand the available market options for Alberta oil then Ms Levin’s “more carbon emissions for the planet” argument is bogus – existing tar sands oil production is going to be refined and burned somewhere be it Texas, Asia or wherever. Thus Ms. Vaupshas’ comment that TMX “will make Canada and the Canadian economy more sovereign and more resilient” is probably the most accurate argument in this article. Remember, the key to reducing fossil fuel emissions is to stop burning the stuff.
DJC, your (and others’) supply and demand arguments are kinda weird. You say it’s “ironic” that oil prices are up right now and of course that’s traditional supply/demand, but that is also a very good argument to diversify our market for Alta oil rather than be tied exclusively to Texas refineries. Getting existing Alta oil production to tidewater has nothing to do with increasing supply – the oil is already in the market by way of Texas – if anything it’s about demand. As you’ve noted there is a worldwide demand for oil but if Alta oil can get to tidewater then Texas will have to compete with the rest of the world for it. To continually hear the US refer to Alta tar sands oil as “our oil” really burns my ass.
As you say the report seems to evaluate the lifetime value of the project to be $600M in the red. Eye-watering numbers for sure but jettisoning $14B and leaving the entire market for Alta oil to the US is a much much worse business decision.
An unfortunate consequence of an increased price for Canada’s oil is we would probably pay more for it to use within Canada as well. I call that the price of sovereignty, but maybe it would tend to reduce consumption – right Ms. Levin?
FWIW I think a refinery would increase canadian energy sovereignty a lot more than another pipeline. I understand it wouldn’t be profitable to build one, but if the goal was energy security then Canadian bitumen would go to Canadian refineries and supply Canadian people and industries. If the goal was economic sovereignty we would be keeping the profits from Canadian oil in Canada instead of giving it to billionaires and letting them take it out of the country without even paying taxes on it first. Because even if we pretend climate change isn’t a thing, oil will run out! It’s not a solution, it’s a stopgap.
Energy security and economic security are worthy goals. Those invested in pillaging Canada’s resources are interested in their prosperity, not ours.
Mickey: The idea that TMX will diversify the market for tar oil is accurate, but incomplete and misleading. Without a single-desk seller of Alberta tar oil, arbitrage will level out the global price for tar oil. That means the price will at best stay the same, and given supply and the limited demand for tar oil, the global price will likely go lower. Second problem for Alberta tar oil is transportation costs. The two largest customers for tar oil are the US Gulf Coast and perhaps India. The transportation costs to both sites mean Alberta tar oil must be lower priced than tar oil near-by to those refineries. Venezuela’s tar oil goes directly into tanker ships vs. Alberta tar piped through 7 mountain ranges to the coast and 22 days ship time from Vancouver to Texas and over 45 days to India.
Kang, then why is Canadian Western Select at $90 this week while Mexico’s Maya, which is very similar or equivalent, at $103? Charts show Maya historically above CWS by a significant amount. Tidewater is the answer.
Now oil & energy trading is very complicated and I admit that I’m not an expert, but it’s a convenient myth to say there’s limited demand for “tar oil” as you call it. Why do you think the oil companies signed long-term contracts to fill TMX when it’s finished – so they could sell the crude for less? Many refineries around the world are set up to refine it and it actually has a better output ratio of refined products than light crude.
Now I agree that if they think TMX will let them expand Alta crude production that’s probably not a good thing but it’s up to the govts to prevent that, which they can.
Mickey: What about the differential between Maya vs tar oil? As I explained, it is transportation costs (this is known as the FOB, or “Free On Board” price). After the TMX pipeline costs it is 22 days by ship from Vancouver vs direct from the well to the ship and 3 days from Venezula to the Gulf Coast, for example. There is also a similar difference between the price an Alberta producer of light sweet crude gets because his price is FOB West Texas and therefore less for the same reason. Same thing happens with grain prices. Transportation costs are the bane of the prairie economy, both coming and going.
Of course, there is a limited demand for tar oil and fossil fuels in general. Since the 1970s, economic growth is no longer connected to fossil energy consumption. For example, German’s GDP has increased by 50% since 1990 while its primary energy consumption has declined by 22%. Efficiency gains and substitutions are largely to blame.
Obviously when you invest in a tar sands plant, you must ship the oil out somehow, so it is no surprise they may contract to secure some space on the TMX. Those contracts are secret, but I’m willing to bet dollars to doughnuts that escape clauses are built in to reflect the world price in the future and the various transportation costs to refiners.
It is not really a very complex system, but it serves the interests of the participants and western politicians to make it seem so. We have a small domestic population and are located thousands of klicks from important markets. Might as well call for the removal of the Rockies to get a fair deal.
Rule # 1,221 of being a politician – as long as you pretend you didn’t make a mistake, your supporters can pretend you didn’t make a mistake, and you can hope they will help make sure you are allowed to keep making that mistake.
Rule # 1,222 of being a politician – eventually the consequences of your mistakes become too obvious to ignore.
Rule # 3 of being a politician – when your political ambitions seem wasteful, remember, it’s not YOUR money you’re wasting.