WE’VE SEEN THIS PANAMA SOLUTION ONCE BEFORE

By shipping crude through two oceans, we are choosing Plan B, Darcy Spady writes.

Oh, for the love of Panama!

If I was living in New York City in 1855, in the growing country called the United States, and I wanted to visit my cousin in the new territory of California, which had recently struck it rich in the gold rush, I had a bigger-than-life problem: I had to travel in a tangential direction via waterways that were a long ways apart.

A similar problem exists for a certain carbon and hydrogen organic compound, better known as Western Canadian Select Crude, if I want to get to a refinery in New Brunswick, which is the largest in Canada. The solution to both problems, present and future, is Panama! Panama? Really? Do tell.

The Panama Railway Co. was completed in 1855. It was originally started in 1849 by American interests and was incorporated in the State of New York. It was the first transcontinental railway in the Americas and, at 76 kilometres long, likely the shortest. With the modern transcontinental infrastructure we enjoy today, it seems inconceivable that a land route crossing North America did not exist, not even close. It would be decades before an alternative route would be in existence, which would reduce the crossing from 40 days to 10 days — and stay in the same country. It is today unthinkable that to get yourself or your products to the other side of your own country you would spend days in ships along one coast, make a hazardous east-west crossing in a foreign country, and days again up the opposite coast.

Last week, another unthinkable thing happened. Irving Oil in Saint John, N.B., announced that it would purchase crude oil in Alberta and ship it via the same two oceans and a foreign country to use it as domestic feedstock in its massive refinery. What is the environmental exposure associated with this? All other things equal, the distance alone is almost three times as great (roughly 4,600 kilometres over land versus 11,771 kilometres via oceans). Added to the distance factor is the fact that this is shipping oil in a vessel floating on the high seas exposed to weather, other seacraft and human error. This risk versus the environmental exposure of shipping oil in a buried, regulated piece of pipe. Some risks you endure because you have no choice. Here, there should clearly be a choice.

This route by sea, rail and sea was so popular as a New York-to-california transit it ultimately forced some decades later the creation of the Panama Canal. This was groundbreaking to the point where instead of unloading cargo on one coast and moving it across the isthmus by train to a reload point on the opposite coast, the ship could proceed through the canal-and-lock system to the other ocean, without off-loading, or going around Cape Horn off the southern tip of Chile. According to the website of the Panama Canal Railway Co., as it is now known, between 1855 and 1867 more than US$700 million in gold was carried on the railroad without the loss of a single dollar.

Success: you bet! Logical: maybe not at first glance. More importantly, it eventually forced the construction of several transcontinental railways, each a nation-builder in its own right. Ultimately, our amazing overland grid of rail networks is due to the need to move beyond an upgraded pre-railway canoe passage from Colon to Balboa.

Fast forward to our very Canadian carbon conundrum: Does it make sense to ship WCS crude from Edmonton to Saint John via the Panama Canal? I thought that problem was addressed over a century ago! But is it a logical conclusion to a completely blocked and shelved Plan A pipeline? Absolutely.

I have personally worked with Irving Oil’s Kevin Scott, the chief refining and supply officer and signatory for the application to the Canadian Transportation Agency for permission to use the Panama route. He is a smart and resourceful person. In 2001, when I was CEO of Contact Exploration, Kevin and I worked out a deal to ship the crude oil that we produced in the Stoney Creek Field in New Brunswick to the Irving Refinery in Saint John.

This disrupted Irving’s operations, as it took most of its deliveries via the ocean. Kevin thought outside of the box, and we happily shipped Stoney Creek crude to the Irving Refinery in Saint John, even though our volumes were a mere speck in their feedstock.

Irving had heard the call of the Canadian public that it should refine Canadian crude in Canada, which is only logical. Now, since a pipeline seems to not be in the cards, this Panama option is the only tangible option for Irving to continue to refine Canadian crude, albeit hugely inefficient and carrying greater environmental risk. From Canada’s perspective, is this progress?

I think, like the story of the Panama Railway Co. in 1885, the end result is clear to see. After a few (or few thousand) tanker loads, some bright soul might just have an aha moment and figure out a plan to move those useful carbon compounds in a shorter, safer manner via pipeline, most of which is already built. This brilliant idea will be respected by all who believe that creating wealth in Canada keeps jobs in Canada, and all who believe that we have to consider our global environmental footprint, not just what is happening in our backyard.

I am optimistic that at some point Plan A will resurface. The absurdity of this situation will be obvious. And the Panama Canal will no longer be the Canadian answer to a very real and pressing Canadian opportunity.

Darcy Spady is a partner at Carbon Connect International, global adviser at General Magnetic Canada and 2018 president of the Society of Petroleum Engineers.

This Panama option is the only tangible option for Irving to continue to refine Canadian crude.