Enbridge’s Northern Gateway opens door to inflation
It is regrettable that Gerry Angevine of the Fraser Institute didn’t do his homework and actually read the Enbridge documents submitted to the National Energy Board regarding the proposed Northern Gateway pipeline ( Proposed pipeline to have no effect on gas prices, Issues & Ideas, Feb. 20).
If he had, he would be well aware that the increase of domestic crude oil prices arising from the pipeline is Enbridge’s assumption, not mine. He would also realize that Enbridge has applied this price increase to all oil produced whether it is sold to customers in the United States, Canada or Asia, not just oil marketed to Asia.
The only way Enbridge can build its benefits case is to raise the price of oil on all barrels produced in Canada, from the sweetest of synthetic to the heaviest of bitumen. If the assumption is unrealistic, as Angevine suggests, well, then Enbridge has no economic case for the project between the Alberta oilsands and Kitimat and should be forced to withdraw its application.
Although you have to dig to connect all the dots, Enbridge asserts in Volume 2, Appendix A, Table A- 18 cross-referenced with Table A- 1 and Appendix B of their filing, that Northern Gateway will bring about an increase in the price of every barrel of oil produced in Canada by $ 2-$ 3, every year, for 30 years, over and above what it would be without Northern Gateway. Since my report, An Economic Assessment of Northern Gateway, was filed as evidence with the National Energy Board, Enbridge has confirmed that this is indeed their conclusion.
The purpose of my report was to take Enbridge’s case as detailed in their documents and assess the likely impact on the Canadian economy should their assumptions prove achievable. According to the Enbridge documents, the purpose of the Northern Gateway pipeline is to irrevocably place the Canadian economy on the Asian demand curve for crude oil in order to achieve higher international prices in our domestic economy.
When this occurs, prices for Canadian and U. S. refineries rise and are passed on to consumers and non- oil producing businesses. The impact of higher prices — given that real incomes for most Canadians have not increased in any meaningful way in over 30 years — is a transfer of income from consumers and non- oil producing businesses to oil producers. The impact of this transfer is of negative consequence since it will lead to a decline in domestic demand for other goods and services and lead to downsizing and layoffs within Canada, not to mention the added pressure higher oil prices have on the competitiveness of Canada’s refining industry.
Most people are unaware that not only does Enbridge assume access to Asian markets will raise the price of all western crude production, their analysis also assumes the same supply of crude oil with or without the pipeline. In order to meet Asian demand, the Enbridge case assumes crude oil must be redirected from eastern Canadian and U. S. markets; this is how Enbridge will get the crude oil to ship to Asia.
By limiting supply by about 20 per cent within Canada, and about 14 per cent in the U. S., North American refineries attempting to adjust to these supply restrictions will be forced to source foreign markets to meet their needs. This exacerbates Eastern Canada’s current heavy dependence on Organization of the Petroleum Exporting Countries countries for crude oil. Almost all the needs of Quebec and the Atlantic provinces are already sourced from vulnerable and uncertain international markets. The details of Enbridge’s supply restriction plan are clearly identified in Appendix A, Tables A9- A14 of their documents.
The Canadian public should expect from professional economists — at the very least — a rigorous examination of filed documents before cavalier critique is advanced in support of a particular view.
For almost two years Enbridge, the oil industry, and federal and provincial politicians have aggressively advanced this pipeline project but have not mentioned its intent to increase crude oil prices in Canada, for all Canadians. The continued obfuscation of what this project means in terms of longterm economic growth and meaningful energy security for Canadians puts the public interest at serious risk.