Yes Virginia, Canada needs more pipelines
Mark Milke, Financial Post, December 19, 2019
In early December just as the federal government returned to work, the Russian and Chinese governments jointly turned on a 3,000-kilometre natural gas pipeline that runs from Siberia to northeast China. The Power of Siberia pipeline was a US$55 billion project and the geopolitical nature of it was noted by the Financial Times which characterized it as “a symbol of Moscow’s diplomatic pivot towards Beijing at a time of worsening relations with the West.”
It was that but also a real-time rebuttal to Canadian critics of pipelines who wonder if Canada ‘really’ needs more pipelines.
Some background: Pipelines have, as anyone not in hibernation well knows, been a political football since at least 2009 when Barack Obama entered the White House. He then artfully blocked Keystone XL for eight years. Other proposed pipelines, domestic and cross-border, have also been killed by a combination of politics and regulation (the Northern Gateway and Energy East), or delayed by court judgments (the Trans Mountain) though construction recently started on that pipeline’s twinning.
While Canadian-origin pipelines have been cancelled with remaining ones slow to be built, Canada’s main competitor for energy investment, the United States, has barreled ahead with pipeline construction.
A comparison with data from the International Energy Agency and the Canadian Association of Petroleum Producers illustrates the divide: Since 2014 and to the summer of 2019, in Canada, four oil pipelines were built or are now under construction. Their capacity is 890,000 barrels a day. A completed Trans Mountain twining will add another 590,000 b/d. The total for Canada since 2014 inclusive once Trans Mountain is complete will thus be nearly 1.5 million b/d in total new capacity.
Meanwhile, 68 oil pipelines have been completed in the United States with another five under construction. Those 73 pipelines already or will possess the extra capacity for another 16 million b/d.
On natural gas, Canada has just one pipeline under construction which will add 2.1 billion cubic feet (bcf) daily in new capacity. In the United States, since 2014, 118 natural gas pipelines have been completed with another 25 under construction for 143 in total. New capacity will total 58.5 billion cubic feet daily once the remaining projects come online, including pipelines for liquified natural gas (LNG) export.
All that construction is not driven by fantasies but demand including estimates of future oil and natural consumption. Here, consider two recent scenarios on oil from the International Energy Agency (IEA). One, the Sustainable Development Scenario, forecasts daily oil consumption will decline to 67 million barrels daily by 2040. Another scenario (“Stated Policy”) predicts 106 million barrels of day (up from just under 101 million barrels at present.
The wildly varying estimates—67 million or 106 million barrels—hint at the problem of parsing through pipeline estimates and then as some do, arguing against pipelines with the assumption of a dramatically lower demand curve. It is possible some low-fuel technologies may advance significantly over the next 20 years and crater demand for oil. Alternately, as the IEA notes in its Stated Policy Scenario, if one of its assumptions in that specific forecast— that people will drive fewer SUVs in the future—is incorrect, arrels of oil will be needed every day by 2040 (on top of the forecast 106 million).
To wade through the forecasts, consider the research from Vaclav Smil, University of Manitoba Professor Emeritus in the Faculty of Environment. Prof. Smil supports lowering carbon emissions to reduce their impact on climate. He also points out that the energy density of alternative energy (i.e., non-fossil fuels) cannot replace energy-dense sources any time soon.
Unless critics wish to assert a decades-long expert such as Prof. Smil Is wrong about energy density and present technological capabilities, demand for oil may well follow the curve in the IEA’s Stated Policy scenario. So too natural gas (even more, with a one-third rise in consumption to 2040 under status quo assumptions). Relevant to Canada and possible LNG exports and thus natural gas pipelines, the IEA projects that “70% of the increase in Asia’s gas use comes from imports – largely from LNG.”
Those who argue against pipeline construction in Canada based on future, hypothetical demand scenarios are offering up a diversion: It is not up to activists, governments or regulators to approve or deny a pipeline based on demand estimates. The starkly different scenarios are already weighed daily by energy investors who bear the financial risk, and proceed (or not) on that basis.
Demand is driving pipeline construction especially in the United States but also in Russia and China among other jurisdictions. The only question is if the majority of Canadians (including in British Columbia and Quebec) who support responsible energy development will one day see re-investment in Canada’s own energy sector, including pipelines, or if such infrastructure will mainly be built in other nations.
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Mark Milke is executive director of research at the Canadian Energy Centre. Image credit: Pixabay.