National Post (National Edition)
Why this pipe dream had to die
Dreams and fantasies die hard, especially ones that have little or no basis in reality. Many of us may imagine ourselves as sports stars or corporate CEOs or Nobel scientists, but we all must come to terms with who we really are and the circumstances of our lives. Few of us are the next Jose Bautista or tomorrow’s Angelina Jolie.
So it is with nations whose people must at times learn that their national destiny is not as they once imagined. Canada is one such nation and Energy East is one of those times.
TransCanada Corporation’s decision to terminate the Energy East pipeline to ship oil from Alberta to the east coast and beyond means that Canada must now seriously begin to give up on what may always have been an impossible dream. Canada is not and may never become a global energy superpower.
The political and environmental fevers unleashed by the termination decision should not be allowed to dominate the debate over Energy East, a project that maybe looked somewhat feasible when political circumstances were different and oil was trading at $120 a barrel.
Albertans may cry foul and accuse Prime Minister Justin Trudeau of abandoning the province by shafting Energy East with regulatory overkill. “It’s a shameful moment in Canadian history, an attack on Alberta,” said one Alberta political leader.
Environmental activists may claim victory for the climate and the success of their ignoble campaigns. “Another one bites the dust,” joyfully tweeted U.S. anti-pipeline activist Bill McKibben.
Most such commentary should be dismissed as part of the political games that will be played for partisan political reasons or to score green propaganda points. What really happened is a different matter.
The reality is that Energy East may well have been an unrealizable national project from the start. It grew out of a set of circumstances that were temporary and in the belief that those circumstances would help Canada fulfil its destiny as a state superpower on the world energy market.
The “global energy superpower” mantra was widely promoted by the Harper Conservatives and became part of the promotional backdrop for an Energy East pipeline that would take Alberta’s oilsands production 4,600 kilometres to deep water and all the way to China or India via Quebec and New Brunswick.
Whether that was ever seriously possible or not, it became part of Canada’s big-stick bluster in its dealing with the United States. When former U.S. president Barack Obama waffled on approval of the Keystone XL pipeline to move oil from Alberta to Texas, Canadian political and business leaders began playing what they must have believed was a reasonable game of hardball: If Obama doesn’t green-light Keystone XL, Canada will take its oil elsewhere.
The peak of Canadian energy superpower arrogance came when prime minister Harper delivered these words in a 2014 speech: “We know that the United States is unlikely to be a fast-growing economy for many years to come,” Mr. Harper said. “We’re in a globalized economy.” Canada doesn’t need you stinkin’ Americans and we can export our oil somewhere else. No problem.
When oil traded at $120 a barrel, the economics of Energy East may have added up. But by the time TransCanada got around to announcing the pipeline in October, 2014, the price of oil was already streaming down through $85 and heading for $40. A feasibility study by IHS in 2015 estimated that the cost of piping oil from Alberta to New Brunswick/ Quebec to be $16 per barrel. Exports to India or wherever could add another $2 to $4. Pretty soon half the $40 market price would be consumed by shipping costs.
At the same time, Energy East’s oil source, the oilsands, was being overtaken by new technology. As early as 2011, shale gas and shale oil technology was expected to shake up the global oil and gas market. U.S. energy economist Daniel Yergin called it “the shale gale.” Expensive conventional oil was at risk, the oilsands even more so.
Another industry report warned in 2011 that Canada’s oilsands producers are “operating in a narrow financial window” that is shrinking. Canada, it said, needs an oil price floor between $65 and $95 “to justify such long term, capitalintensive investments. Oil markets have rarely maintained such stability.”
These business risks have long overshadowed the political and environmental risks, real or imagined, that have dominated political and regulatory debate in recent years.
It’s a good bet that, even with full regulatory approval, Energy East would still look like a long-term investment loser without some confidence that oil prices would stabilize at something like $100 a barrel.
Another reason to doubt the viability of Energy East was the nationalist hype that surrounded the project. The pipeline, TransCanada said, was a national infrastructure project that would liberate Canada from the mythical burdens of imported oil. “Canadians want to choose where we get the oil we need,” said a company headline promoting a poll result. As a result of imported oil, $35-million “was leaving Canada each day.” As if that matters.
It was a specious play for support as a national economic champion, the Bombardier of energy, layered on top of the original global energy superpower dream. Neither survived economic reality, which is good. That’s how Canadians should assess the decision to kill Energy East.