EDMONTON, AB, Mar 20, 2014/ Troy Media/ – The Council of Canadians, Ecology Action Centre, Environmental Defence and Equiterre recently released a study on the impact of the Energy East pipeline. They argued that only 122,000 barrels per day of the total 1.1 million barrel per day pipeline capacity would be used domestically and concluded that, because of this, the risks outweighed the rewards.
It is true that, if built, the Energy East pipeline – a 4,600-kilometre pipeline which would carry crude oil from Alberta and Saskatchewan to refineries in Eastern Canada – will not be a long-term job-creator or provide an immediate economic windfall to the East Coast. No pipeline can do this. What it will do is reduce the supply risk for refineries in Quebec and New Brunswick and allow Canada to become a major exporter of politically-secure oil at a time when secure sources of energy are of paramount political importance to our trading partners.
While eastern refineries will continue to use offshore Atlantic oil, U.S. shale and, in the future, oil from Enbridge’s reversed Line 9 pipeline, the myopic and inward-looking conclusion, by the Council of Canadians et al., fails to grasp the importance of the oil the pipeline will supply to these refineries and the economic stability it will provide internationally.
Assuming that 122,000 barrels of oil per day will be used domestically means that the Energy East pipeline will supply the “marginal barrel” of oil to Eastern refineries. In economics, the “marginal barrel” is the cost to buy one more barrel of oil – the costliest barrel.
The boom in North American production and lack of export options for Alberta’s oil has meant that the cost of the “marginal barrel” of oil has dropped in most of North America, but not on Canada’s East Coast where the majority of the oil is imported and priced using the higher-cost Brent Sea reference price, not the West Texas Intermediate (WTI) reference that is used in the rest of North America.
The Energy East pipeline removes this arbitrage by reducing the cost of the “marginal barrel,” which will benefit consumers. It also has the added benefit of reducing the supply risk to the refineries while maintaining the competitive advantage of Quebec’s petrochemical industry.
The positive impact of the pipeline will not only be felt in Eastern Canada; our international trading partners, specifically the EU and India, will also benefit by being able to access a politically secure source of oil in an increasingly insecure world.
Political leaders in Europe and North America are looking at ways to buffer Russia’s increasing energy influence in Europe. One way is through exporting gas; this will take time but is achievable. Another option is opening the U.S. Strategic Petroleum Reserve (SPR), but this is politically sensitive and not a good long-term strategy. However, diversifying European supply through Canada by utilizing the Energy East pipeline could have a real and long-term impact on Russia’s imperial objectives in Europe.
In addition to Europe, India, which currently imports 3.86 million barrels per day of crude oil, has become increasingly interested in East Coast oil. The shipping routes to Mumbai are shorter from Canada’s East Coast (15,628 km) than from Canada’s West Coast (20,061 km) and demand for a stable source of oil in India is increasing.
By extending the Energy East pipeline to Canso, Canada would have a main Atlantic port that the largest oil tankers in the world would be able to access and Canada would be able supply the EU, India, and any other customers with a politically secure source of oil.
The Energy East Pipeline may not have the direct job benefits that many hoped for but that does not mean it is bad for Canada. It will benefit consumers and businesses on the East Coast by reducing costs and risks, while allowing Alberta and Saskatchewan to maximize their potential. Internationally, it has the added benefit of being a buffer against Russia’s petro-politics and other international supply risks.
These rewards, as long as the pipeline is built safely and maintained, will be far greater than the risks.
Ryan Lijdsman is a Canadian-based international business consultant. Follow Ryan on twitter @ryanlijdsman
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