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George Eynon: Energy, the Environment and the Economy – Confusion, Ignorance and Partisan Politics: Canada’s Dysfunctional Confederation


by George Eynon PGeo FGC FEC [hon]
A Calgary-based n Energy and Regulatory consultant with 45 years’ experience.
A former global oil & gas executive; former ERCB Board Member / AER Hearing Commissioner; and currently an SME with the School of Public Policy and Haskayne School of Business at the University of Calgary.

Join George on LinkedIn

Notes from a presentation at the US-México Chamber of Commerce
4th North American Sustainable Economic Development Summit, in Dallas TX

Once upon a time, the British colonized a part of the New World in two different areas.  In due course, one set of colonists declared war on its colonial masters and eventually took over a huge area of the new continent.  Some of them fled north to the other British colonial area, helped defeat its rival French colony and formed a country on the same continent even larger that the first.  Eventually the two countries established the longest undefended international border in the world.

Fast-forward a couple of centuries or so, add to the south a country of indigenous inhabitants of the New World and their Spanish colonists across a major river, and you have North America in a nutshell.  It is difficult to imagine three more politically dissimilar energy economies than Canada-USA-Mexico linked together geographically and bound together by trade agreement.

One session in the Summit focused on North American Energy Independence.  Guillermo Zuniga, the head of the Energy Regulatory Commission in Mexico, addressed the energy reform underway.  Robert Stephen Molina, Director of the Energy Management program at UT Dallas, gave a (very) brief US viewpoint.

I provided “the Canadian perspective”, at the request of the Canadian Consulate in Dallas (which serves Texas, New Mexico, Oklahoma, Arkansas and Louisiana), an area similar to that of the host regional chapter of the US-Mexico CoC.

The Summit provided me with the opportunity to address just how dysfunctional is Canada’s confederation of Provinces and Territories currently, with widely differing positions and views on their economies, environmental issues, and energy needs.  Furthermore, to comment on a Federal government that suffers from schizophrenia when it comes to the economy, the environment, and energy, and continues to mismanage our Confederation.

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The message to the Summit was simple: many of our problems are self-inflicted, either by putting parochial and/or political interests ahead of the national interest, or by a weird sort of benign neglect on the part of individual provinces and the federal government.  Numerous proposed oil & gas export pipelines proposals have met with opposition, recurring regulatory delays, and eventual withdrawal or rejection.

TransCanada’s Energy East project proposed converting an existing high-pressure natural gas mainline to carry Canadian crude oil from Alberta to Ontario and building a new line to Québec and through to the Maritimes.  Québec effectively “vetoed” a project to move low GHG emissions Canadian crude oil to Québec refineries.  Instead, Québec continues importing crude oil from countries such as Saudi Arabia and Venezuela that have less ethical production practices and much higher emissions footprints.  Neither the previous Harper government nor the current Trudeau government “acted in the national interest” to encourage use of Canadian crude oil rather than higher cost imports.

The industry also proposed 4-5 routes for export pipelines across northern B.C. to deliver natural gas to LNG liquefaction facilities or crude oil to terminals at deep-water ports.  All met with strong opposition in B.C.—and were eventually withdrawn.

Enbridge’s Northern Gateway was a project to build twin pipeline from Alberta to Kitimat, British Columbia: an eastbound pipeline to import natural gas condensate (diluent), and a westbound pipeline to export diluted bitumen (dilbit) to Asian markets via oil tankers.  However, the Federal Court of Appeal overturned the government’s approval, finding Ottawa had failed to consult properly with First Nations affected by the pipeline—and the proposal withdrawn.

TransCanada’s Coastal Link pipeline is now underway.  It will carry natural gas from northeast BC (apparently with BC government approval) to a Shell LNG facility, for export to the higher priced Asian market.  However, despite First Nations support, this pipeline faces regulatory hurdles.

BC approved the Coastal Link pipeline across the northern part of the province to carry BC gas to the coast for export—but vetoed twinning and expanding an existing crude oil pipeline—the erstwhile Kinder Morgan TransMountain project, TMX—from Alberta to the B.C. lower mainland.  The BC government’s hypocrisy over approvals and rejections of construction permits for pipelines to the coast is a result of a similarly hypocritical backlash by much of the population of the lower mainland—and entirely politically motivated.

The federal government even bought TMX from Kinder Morgan—yes, Canadians now own it—but subjected it to further consultation review, based on the Bill C-69 Impact Assessment Act that mandates new processes…

  • Enhanced “consultation” that must include First Nations’ “traditional knowledge”
  • Mandatory “sustainability” assessment of the social welfare of all Canadians
  • Environment and climate change impacts on Canada’s external obligations; and a
  • Ministerial “veto” of projects even before any need to assess impacts

…but no longer requires direct consideration of the economic benefits to Canada as a whole!

The federal government further muddied the pristine waters of the northern BC coast by introducing Bill C-48 “the Oil Tanker Moratorium Act”.  This is a piece of legislation respecting the regulation of vessels that transport crude oil or persistent oil to or from ports or marine installations located along B.C.’s north coast; and imposes a complete ban on oil tankers carrying more than 90,000 tonnes from the area.  There is no similar ban on any oil tanker traffic along any other Canadian coastline.  It is aimed directly at Alberta crude oil produced from the oilsands, and effectively prevents Canadian oil accessing Asian markets via the ports of Kitimat and Prince Rupert; and directly harms Alberta and NEBC indigenous economies and employment.

What is the federal government’s rationale—to appease BC’s rainforest eco-terrorist voters?  Apparently, it is OK to build a brand new pipeline for BC gas, but not to twin an existing one for Alberta oil and the revenue it brings to the national economy.  Go figure!

Just a few days before the US-Mexico CoC Summit, US state interests got into the act.  Despite having all the approvals in place, a Minnesota judge recommends Enbridge spend $1.3 Billion to remove the old (1960s) Line 3 rather than decommission it in place—and then use the old route to replace it rather than the approved new route.  The Line 3 Replacement is already a $9 billion project.

Similarly, a US District Court judge issued an injunction preventing TransCanada or the US federal government “from engaging in any activity in furtherance of the construction or operation” of the Keystone XL pipeline.  He maintained that the US State Department’s analysis “fell short of a ‘hard look’” at potential spills, likely impact on Native American cultural resources, cumulative emissions (from Keystone XL and other Oilsands pipelines), and how a change in oil prices might affect the viability of the pipeline.  The decision could cause a further delay of another year for completion of Keystone XL, on top of the 10 years to date from first proposal.

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However, some of our problems are not self-inflicted—they are the result of very deliberate interference by US vested interests.

First, we all need to acknowledge that our neighbour, the US, literally considers Canada’s oil & gas supply as part and parcel of its own energy self-sufficiency and sustainability—with little or no regard for Canadian sovereignty.
(Note: many Summit attendees, given the nature of the organization, were not oil & gas “savvy” and needed to hear some realism about the US relationship with their closest neighbour and all, Canada). 

US interests have given over $90 million in the past 10 years to ENGOs (environmental non-government organizations) protesting proposed pipelines in Canada to fund efforts to stop approval and construction of the projects.  Wealthy Americans have done this through charitable Trusts and Foundations: such as those of the Hewletts’, the Moores’, the Packards’, the Rockefeller Brothers’ (which, ironically, made its billions from oil & gas), Pew, Oak, Sea Change, Tides and Westwind.   That’s a lot of charitable foundations and trusts’ moolah!

The stated purpose of funding the protests is to prevent Canada’s crude oil from accessing more valuable markets overseas; not protecting the environment—despite one such entity even calling it “the Tar Sands Campaign”!

No other jurisdiction producing oil-& gas faces the kind of attack Alberta does in this devious and bogus grassroots campaign.  Canadian environmental activists play right into the business interests of U.S. billionaires by becoming their convenient dupes.
(Note: Vivian Krause, a B.C. researcher and writer—the Fair Questions blogger—has worked extensively for more than a decade to expose this and similar issues, such as opposition to Canadian fish farming.)

The oil & gas sector in the US understands perfectly what the benefits are; stranding Canada’s oil serves at least two purposes.

First, much of the money provided by Foundations to the protesters comes from railroad investors, more interested in filling their tanker cars to move product to the Gulf Coast refineries than worried about the ethics of interfering with Canada’s sovereignty.

Second, the US downstream sector benefits from a deeply discounted cost of feedstock from Canada for their refinery operations, giving them an extra profit margin on products sales.

The US remains “capitalist to the core”—and will take advantage of even its closest friends!

œ

Meanwhile, Canada’s own internal machinations have created an extreme  investment difficulty—in 2018 reported foreign investment in the upstream oil & gas sector was less than half that of the previous year.  Alberta is in the throes of a major economic downturn, not recognised or fully acknowledged by either Ottawa or Edmonton—or, for that matter, most of the rest of the country.

Western Canada’s oil & gas sector has but a single export market—the US.  Thanks to the industry unlocking shale gas and tight oil with major directional drilling innovations and hydraulic fracturing advances, North America’s oil & gas supply has increased dramatically.  However, this contributes in part to low commodity prices.

As a result, capital is fleeing Canada.  Investment or re-investment in oil & gas was $84 Billion in 2014; it was only $37 Billion in 2017 and a little less in 2018.  The oil & gas sector in the WCSB (the western Canada sedimentary basin) is creating innovative technologies, cutting operating costs, and living within reduced revenues—but the already frigid oil & gas investment climate will only get frostier unless and until export pipelines are built.

œ

There are a few things we can and must do.

  • The Provinces and Ottawa must act together in the National Interest—rather than in their own parochial interests and creating confusion by playing partisan politics.
  • We must end short-term thinking by politicians, mainly interested in keeping seats safe for upcoming elections by thwarting industry’s attempts to think and act long-term.
  • We must understand the entire “value chain”; governments and the public must recognize and acknowledge the energy sector inputs to consumption patterns—we cannot sustain our standards of living without hydrocarbons.
  • Canada emits only 1.6 % of global GHG output, and is already a leader in emissions reduction. Canada’s ability to impact global “climate change” meaningfully is negligible—and we must acknowledge that fact.  The current federal government’s self-important, arrogant and conceited posturing is hurting Canada; we are too small to make a difference, regardless of Trudeau’s fantasies about our global importance.  We should be helping others to catch up, to help reduce the much higher emissions from oil & gas industries elsewhere, not stop ours!  Canada’s oil & gas sector is already the best regulated and cleanest in the world—though we can still do more to improve it.
  • Finally, we need to manage the human resources “crew change”. There is a new 30+ “tech savvy” generation and a well-educated immigrant cohort that both need to be utilized—and a huge 50+ generation of “experience” that can help them.

œ

The bottom line?

Canada’s National economy, not to mention the standard of living enjoyed by all Canadians through transfer payments to which program Alberta contributes the lion’s share, is dependent on oil & gas revenues.

Almost all other oil & gas producing countries are willing to feed the growing demand for products.  We cannot replace the growing demand hydrocarbons in the global economy for another 50 years or more.  Canada has the capacity to produce more and much “cleaner and ethical” oil & gas that the global market demands.  It is infinitely preferable that Canada provides it, rather than have dirtier oil & gas from elsewhere fill the need.

While the current exceptionally discounted North American oil & gas prices are not likely sustainable, Canada still needs to expand its export capabilities beyond the single-market USA—and we need access to new global markets that provide better netback prices to do that.

Recent Federal and Provincial Governments have failed to facilitate new global export infrastructure, even though Canada and Canadians now “own” the TMX expansion.  Worse still, the current federal government’s environmental pretentions and hubris are rapidly undermining any opportunity to rebuild the state of the national economy.  Bill C-69 (the Impact Assessment Act) delays all project approvals almost indefinitely.  Bill C-48 (the Oil Tanker Moratorium Act) bans oil tanker traffic offshore northeast B.C.—all the while ignoring a vastly greater amount of oil tanker traffic plying the St. Lawrence Seaway to feed much of Québec’s need.

Capital Investment is fleeing and shunning Canada.  Much of what needs to be done to stop the flight of capital lies in restoring the Canadian oil & gas sector to its former health, and allowing it to continue innovating and improving as it comes to terms with demand reductions later in the century.

All Canadians need to pull together “in the national interest”!
(…and US vested interests should butt out).

George Eynon PGeo FGC FEC [hon].
President, geos – eynon & associates consulting inc

 



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