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Is there really an economic case for Kinder Morgan? 

By Susan Riley      

The future is unknowable, but perhaps Alberta oil will find a market in Asia. Maybe the oil will flow for 40 years so that Kinder Morgan makes back its investment. Maybe governments will kick our climate targets down the road a few more decades and keep pretending.

Pipelines, politics and people: People pictured April 7, 2018 protesting against the Kinder Morgan Trans Mountain pipeline at Burnaby Mountain. Photograph courtesy of Flickr
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CHELSEA, QUE.—The environmental dangers involved in the controversial twinning of the Kinder Morgan pipeline through British Columbia are easy to see, if not to quantify. The first is increased odds of a calamitous spill in the face of a sevenfold increase in oil tanker traffic in Vancouver Harbour. The second is that, by extending the life of existing oil sands plants, if not stimulating new production, the pipeline will lead to greater greenhouse gas emissions and make our already remote Paris climate targets unreachable.

Two protesters pictured on May 15, 2018, on the Hill. The Hill Times photograph by Andrew Meade

What is murkier—and rarely questioned, in the federal Parliament, at least—are the economic claims made for the project. In a stroke, Kinder Morgan is supposed to rescue Alberta’s supposedly floundering economy, bring new life to the oil sands, and adjacent businesses that support them, and fill the province’s coffers with ready cash for hospitals, schools, affordable housing, and green technologies.

That is the mantra repeated constantly by Prime Minister Justin Trudeau, Alberta Premier Rachel Notley, and federal Environment Minister Catherine McKenna. They often describe the pipeline as being “in the national interest”—as if protecting the harbour of one of the country’s largest (and most beautiful) cities and decreasing, rather than adding to our national carbon footprint, isn’t.

But even leaving aside environmental consequences, the depiction of Kinder Morgan as an economic lifeline ranks somewhere between unproven and utter nonsense. As B.C. Premier John Horgan rightly said: “One company is not an economy.”

Still, with other pipeline proposals rejected or stalled, Kinder Morgan is advanced by proponents as the best way of getting Alberta’s bitumen to “tidewater” to exploit new markets, especially China, and end the stranglehold imposed by having one customer. As it is now, some 97 per cent of Alberta oil goes to the United States, where it sells at an often-significant discount—but only partly because there is no other buyer. Alberta bitumen is among the most energy-intensive fuel on the planet, expensive to refine and to transport.

Prime Minister Justin Trudeau, pictured April 15, arriving on the Hill for his meeting with British Columbia Premier John Horgan and Alberta Premier Rachel Notley to discuss the expansion of the Kinder Morgan Trans Mountain pipeline. The Hill Times photograph by Andrew Meade

And, for all the hype, no one should be surprised when (if the pipeline is eventually built) most of those extra tankers head south to California where there are refineries tooled to handle the sticky, Alberta product. It will sell at a discount there, too, for the usual reasons. The hope—and it is only that—is that once more Alberta oil is flowing from the B.C. Coast, it will attract the interest of Asian markets.

But will it? China has a voracious appetite for energy but it is also supposed to be decarbonizing. And the oil world has changed since the KM twinning was first proposed in 2013, when existing pipelines were nearing capacity. A boom in readily-accessible fracked oil in Texas, and elsewhere, has flooded markets, played havoc with prices and made the tarry, heavily-polluting Alberta product even less attractive.

Some environmental economists have also argued that the lack of refining capacity for bitumen in Asia and the cost of transportation mean Alberta oil will always sell at a discount—especially when competing with lighter oil from places like Kazakhstan, Iran, and Saudi Arabia. They note that oil tankers have been leaving Vancouver Harbour, sporadically, for years and only a fraction of those shipments are bound for China. There is no significant Asian market and that isn’t likely to change overnight, say critics.

Some counter that Kinder Morgan wouldn’t be proceeding with a $7.4-billion project if it didn’t believe in the Asia gambit. Perhaps, but the Texas-based company may also be trying to cut its losses; it has made clear, in its response to British Columbia’s latest legal challenge, that its shareholders interests are paramount. In fact, it is becoming so impatient with protests and legal hurdles that it has imposed a May 31 deadline on Ottawa to clear all remaining obstacles.

B.C. Premier John Horgan, pictured arriving on the Hill on May 15, 2018. The Hill Times photograph by Andrew Meade

Notley and Trudeau not only jumped when threatened—they have mused about paying Kinder Morgan not to abandon the project. It is hard to recall a more craven capitulation to a foreign investor, especially one not known for its sensitivity to local concerns. So, the economic stakes for Alberta must be very high.

But are they? Last week, Statistics Canada reported that Alberta is leading the country with a 4.9 per cent hike in GDP. Job vacancies are up, unemployment is down and wage rates still top the national average. Part of the activity has been spurred by an uptick in the price of oil and ongoing production in Fort McMurray, where mammoth new plants are simply too expensive to shut down.

However, former federal scientist David Hughes, in a recent study, notes that jobs in the fossil fuel sector have flatlined since 2006 and that short-lived construction work makes up 52 per cent of the total. For all the talk of a job bonanza, oil and gas workers make up just 12 per cent of Alberta’s workforce and a mere three per cent nationally. In an effort to cut costs, many oil companies have automated their workforce in recent years.

As to Alberta’s bottom line, its royalty regime is the most undemanding in the developed world with royalty rates tied to the price of oil and sinking as low as one per cent in some cases. Since the 1980s, oil and gas production in Alberta has doubled, but royalty revenues are down 90 per cent, as subsequent premiers essentially bribed their powerful investors not to leave. Instead of having a bulging contingency fund like Norway, Alberta is facing $45-billion in accumulated debt.

Alberta Premier Rachel Notley, pictured on May 15, 2018, arriving for the meeting with the PM and B.C. premier in Ottawa. The Hill Times photograph by Andrew Meade

Notley, like every Alberta premier after Peter Lougheed, is a captive of the well-financed oil industry, former Alberta Liberal leader Kevin Taft argues in his trenchant new book, Oil’s Deep State. Even if she gets the pipeline, however, she is likely to lose her job to Jason Kenney. As to Trudeau, he may be trying to undo the damage done to Liberals in Alberta by his father’s National Energy Policy by championing an American energy company, even if it means betraying the trust of west coast indigenous groups and the electoral prospects of his own B.C. ministers. Having nixed the Northern Gateway and done nothing to champion Energy East, Trudeau may think he owes Alberta a pipeline. Whatever the explanation, he has reached peak hypocrisy on the environment.

The future is unknowable, of course. Perhaps Alberta oil will find a market in Asia. Maybe the oil will flow for 40 years so that Kinder Morgan makes back its investment. Maybe governments will kick our climate targets down the road a few more decades and keep pretending.

But as Green Party leader Elizabeth May once said of this tortured pipeline proposal: “There’s this series of assumptions that are repeated so often that no one questions them.” It is time someone else in Ottawa did.

Susan Riley is a veteran political columnist who writes regularly for The Hill Times.

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