Tuesday, July 5, 2016

The (non) Future of Pipelines

Pipelines will soon reach their vanishing point
Despite last year’s Paris climate conference clearly demonstrating most nations are committed to reducing greenhouse gas emissions from burning fossil fuels, some in Canada still insist our economic future rests on building new pipelines, primarily to get oil and gas from the Athabaska sands to tidewater for export. Yet many reports now show pipelines are not only unnecessary, but will be an economic albatross around our necks if we do actually build them.
First, let’s sweep aside a few of the false arguments. One is that new pipelines will make Canada become energy-independent by replacing eastern provinces’ oil imports with domestic supply. This simply isn’t true, as the destination for proposed pipelines isn’t Canadian refineries to turn bitumen into gasoline, but rather deep ocean ports where bitumen can be loaded onto tankers for export. And let’s not fall into the silly trap that pipelines are safer than rail as a way to ship energy. When it comes to bitumen, rail is actually safer; tanks of thick, viscous bitumen are not a risk for explosion, fire, or even significant leaks. Taking that same bitumen and diluting it with toxic fluids to make “dilbit” flow through pipelines is, however, a serious risk, as this dilbit is a far more harmful liquid if (when) it leaks or spills. Of course the silliest argument is that our economy will shut down without new pipelines. Is there some problem with the existing ones that get oil and gas to our homes, businesses, and factories now? Are they all about to fail or shut down? That’s news to me.
But ignoring those red herrings, and even if we ignore our own responsibility to reduce, rather than increase, carbon emissions, dollars and cents argue against the viability of new pipe. For new pipelines to ever pay for themselves, much less turn a profit, they need a corresponding expansion of Alberta bitumen extraction. Putting aside that Alberta’s own greenhouse gas cap promise won’t let this happen, the money isn’t there. Oil must be over $68, even towards $100, to fund the infrastructure to pry oil out of sand. Yet they likely won’t rise above that any time soon. The Saudis, who pump oil freely, have seen this coming and are having a fire sale, liquidating as fast as they can to prepare for the post-oil economy of their “Vision 2030”. Meanwhile, cheap oil and gas from US fracking will keep prices down, regardless of Saudis actions. Without money to expand tar sands operations, there’s nothing to send through new pipes.
And that’s looking at oil alone. The other elephant in the room is the rise in supply, and drop in cost, of renewable energy. Solar technology is improving at a similar rate as microprocessors, with costs dropping steadily as demand increases. Wind is already one of the cheapest new power sources around, while improvements to storage tech are making all clean and renewable sources more competitive. There is widespread agreement that electricity is becoming the dominant global energy, supplanting fossil fuels. As this trend continues, investment in electricity infrastructure is a good bet, while investment in pipelines or fossil extraction is a long shot at best. Even in the auto market, the growth of electric cars in the market is set to be exponential, and by the 2020s buying a new gas vehicle will be like buying a black-and-white TV in the 70s. Affordable long-range electric cars are the colour TV of the future.
So all in all, anyone who still insists that new pipelines are a wise investment, or necessary for Canada’s economic future, simply isn’t paying attention to all the key economic indicators and risks, and shouldn’t be trusted.
Published as my Root Issues column in the Barrie Examiner as "New pipelines are not a very wise investment"
Erich Jacoby-Hawkins serves on the board of Living Green and the Robert Schalkenbach Foundation. 


  1. That is not a reasoned article. Nobody is building any dilbit pipelines, anywhere in Canada. If you are referring to conventional oil pipelines, and LNG pipelines, which are actually happening, then your entire article is just bullshit. You cannot just stand up putative arguments that your opponents may or may not make, then call them 'Red Herrings', or 'false arguments' to be swept away. Classic strawman. But the worst is to argue that they may not be able to earn a return. Are you actually serious? Who do you think is supposed to evaluate the economics of a project? Erich, or the guys who spend $billions evaluating projects for their shareholders? Who cares if they fuck it up? That is their job, and they will get axed pretty hard if they screw it up. I will worry about public policy that is meaningful to me, and leave financial analysts to analyse what is meaningful to them. Incidentally, you are mostly right about dilbit. But you are completely off base about pipelines.

  2. I don't know where you are getting your information about nobody building dilbit pipelines. Keystone XL, Trans Mountain, Northern Gateway and Energy East are (or were) all pipeline proposals that would have included new pipe (and in some cases old pipe) carrying dilbit. http://www.theglobeandmail.com/news/politics/a-look-at-major-pipeline-project-proposals-in-canada/article21899131/

    With many of those stalled, there is still the impetus to move dilbit to tidewater through pipe. None of these are "putative arguments" or straw men; these arguments I dismiss are ones constantly being made in the editorial pages of national newspapers, including the Sun and NatPo. I've even linked some, but if for some reason you don't believe me, I can link more. My op-ed is addressing the incorrect arguments made in other, nationally-syndicated op-eds.

    As for the lost money, that will indeed be their immediate problem but my concern is the argument that our politicians need to "get behind" and "support" pipeline projects. Does this mean easing regulations, fast-tracking approvals, providing loan guarantees? Each of these are things that would be ill-advised at best, but even more so for mega-projects doomed to failure. And failed mega-projects, even if not funded with public money, can drag down a whole economy, along with the national banks that might fund them and in which our pensions are invested.