Pipelines no panacea for troubles of Canadian oil industry

The conventional wisdom is that pipelines — Energy East, Keystone XL, Northern Gateway, Trans Mountain — will be the saviour of Western Canada’s embattled oil industry.

Politicians, like Alberta’s NDP premier, Rachel Notley, and Premier Brad Wall, believe pipelines are the silver bullet, quick-fix solution to all the problems plaguing the oil industry.

It’s almost an article of faith, a political mantra, that “getting our oil to tidewater’’ will singlehandedly bring prosperity back to oil-producing provinces, like Alberta and Saskatchewan.

Important as they are, pipelines are not the cure-all for everything that ails the Canadian oil industry.

Don’t get me wrong. Pipelines are safe, efficient and proven methods of delivering oil and natural gas to domestic and foreign markets, certainly far safer, more efficient and less expensive that transporting hydrocarbons by rail.

And I’m not one of those ‘greener-than-thou’ types, like Leap Manifesto co-authors and husband-and-wife team Avi Lewis and Naomi Klein, who believe we can live in a world without oil anytime soon — and by soon I mean in the next 50 years.

But it’s a mistake to pin all our hopes on pipelines, as if they can instantly turn around an industry facing an existential crisis — whether it can survive in a world of $40 to $60 oil for the foreseeable future.

For starters, oil prices are expected to remain under pressure from oversupply and slower global economic growth for the short to medium term.

The Conference Board of Canada recently projected world oil prices to rise gradually to US$65 a barrel (WTI) by 2020. While a significant recovery from today’s prices, it’s well below the US$100 oil the industry saw as ‘the new normal’ a few years ago.

But some pipeline projects were based on $100 oil continuing indefinitely into the future.

The question is: how much additional pipeline capacity is needed, given oil’s lower price trajectory? The simple answer is: less than we thought two years ago.

Another problem is the time it takes to design, develop, approve and build pipelines. The National Energy Board recently announced its final report on Energy East should be completed by March 2018, with the Quebec government expected to complete its own review a few months after that.

So it will be two years at least before Energy East goes to the federal cabinet for approval. The $15-billion project to bring 1.1 million barrels of oil per day from Alberta and Saskatchewan to the Maritimes will take another two to three years to build. That takes the startup date for the project past 2020.

But interim Conservative Party Leader Rona Ambrose recently chastised Prime Minister Justin Trudeau for not endorsing Energy East before the NEB process is complete. And Wall has repeatedly asked Trudeau to be a “champion’’ for Energy East.

Presumably, Ambrose and Wall believe Trudeau should behave like his predecessor, Stephen Harper, whose government openly pushed pipeline projects and denounced opponents as “environmental and other radical groups,” lumping them in with terrorists and other enemies of the state.

This simply undermines the NEB process and reinforces the view the Calgary-based board is biased in favour of those projects supported by the government and powerful business interests.

For all those reasons and more, Trudeau can’t and shouldn’t be a cheerleader or champion for any project that’s before a federally appointed regulatory board, like the NEB. Doing so would only lend more credence to critics that “the fix is in.’’ As for Trudeau lobbying “his friend’’ President Barack Obama to approve the Keystone XL pipeline, as Ambrose and other commentators have suggested, that wouldn’t bear any more fruit than Harper’s hectoring approach, i.e. that KXL is a “no- brainer’’ and that Canada “won’t take no for an answer.’’

The fact is pipeline projects are costly, complicated, time-consuming and controversial, with pros and cons on both sides. We cannot expect the PM to wave a magic wand and make them happen.

They must be approved on their own merits, using a science-based approach, with no undue influence exerted on either side. Even if they’re built, they’re not the be-all and end-all, as some believe.

The best we can hope for is further reducing the Western Canadian Select discount from WTI, which is currently about $15 a barrel. But don’t hold your breath.