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Banning crude exports would be stupid, but don’t take my word for it

Sometimes consultants say the damndest things.


 

Sometimes consultants say the damndest things.  When the Alberta Federation of Labour brought in consultant Ed Osterwald to justify their push for limits on exports on raw bitumen or more government participation in the refining sector, calling on Alberta to act like an owner and add value to the bitumen in the province through more refining, I wonder if they knew what he’d say.  It turns out he said a lot.

How would you make refining work in Alberta? Osterwald spelled it out for you in plain detail—either the government pays for it, or you create what he called a disadvantaged feedstock.

The first option, contained in a couple of spots in his report, is that the government could, “through the appropriate use of incentives and/or joint venture partners, take a prominent role in encouraging investment in the oil sands.”  We’ve seen how this might work with the current refinery boondoggle under construction in Redwater, Alta., which the government estimates will cost the government of Alberta over $60 per barrel to transform government royalty bitumen into refined products.  Never mind that, at the depths of the bitumen bubble, the spread between those bitumen and refined products averaged about $50 per barrel and peaked at $60 … the refinery will create jobs, the minister of energy tells us.

The second option would be to ban or restrict exports of raw bitumen, the effective result of a proposed new private member’s bill brought forward by NDP MP Nathan Cullen that would make it more difficult to export raw bitumen. Export restrictions would make bitumen available to refiners here at a discount to what those who would seek to export it would otherwise receive.  Here, what Osterwald had to say, was pure gold—you can watch it for yourself, starting at the 7:00 mark.


Osterwald shows that recently, U.S. mid-continent refiners have been earning “the highest margins he had ever seen.” How did he explain this? “The reason is, because in the U.S., they did two things: they did something really stupid which was to ban crude oil exports, and then they found shale, so what you’ve got is a disadvantaged feedstock and a really nice refining system and boy are the refiners happy.”

So, there you have it—if you want more refining in Alberta, you can pay for it or you can do something really stupid and ban exports to create a disadvantaged feedstock to make refiners really happy, which you’ll also pay for through reduced royalties and taxes from extraction. But don’t take my word for it—this is coming to you courtesy of the Alberta Federation of Labour.

 

 


 
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Banning crude exports would be stupid, but don’t take my word for it

  1. Well, if you are of the opinion or perspective that complete unfettered development of this resource is the way to go, I suppose anything that puts a roadblock in the way could be viewed as a “disadvantage”.

    I have yet to see any scholarly work that suggests the Klein approach to development starting in the 90s when royalty rates for secondary/tertiary/oil sands projects were changed from negotiating on a project by project basis (ie what tax breaks /royalty rates do we need to make this project a “go”) , to the across the board postage stamp rates for all projects – was optimal (seems to me a lot of money was left on the table when AB prices were deeply discounted not that long ago.)

    So, in that context, the twitter bun fight and conditioned “TL” response from the usual suspects is not at all that surprising.

    • Perhaps that’s true, Dot, but if you can cite anything I’ve ever written which says that, complete unfettered development of this resource is the way to go,” or anything remotely similar to that, please go ahead. Even Mr. McGowan’s AFL has cited my work on cost inflation in their submissions to the NEB in support of their claims that development should be managed to maximize bitumen value, not maximize bitumen production.

      • Wasn’t singling you out. Just a general observation.

        I’m personally for more controlled development. How that comes about (through less permits issued, fewer development plans approved, higher royalties, etc) wouldn’t make much difference to me to meet that objective. But, clearly through another lens this may be deemed to be disadvantaging someone/something (say the bitumen that gets left in the ground for longer).

  2. Banning the export of diluted bitumen would be the only sane thing to do. It is an unprecedented environmental disaster waiting to happen. Will dwarf Deepwater Horizon because clean up is enormously difficult (see Kalamazoo River oil spill.)

    It is Canada’s responsibility to stop this disaster from happening. There’s no reason why the bitumen should not be upgraded in Canada. The only objection is that it will dig into corporate profits and oil company shares. But this is a prime example of an externality not being factored into the price of dirty energy. The risk premium is being passed onto society. People with a vested-interest are gambling with other people’s future. It is an appalling moral hazard.

    Like Deepwater Horizon there’s no contingency plan for a dilbit oil spill off any coast. As David Suzuki would say, this is a “we don’t give a sh*t” externality whose cost is being socialized.

    Free-market ideology: privatize the profits; socialize the losses; criminals police themselves.

  3. BTW, here’s Gil McGown’s response to this column. He’s the president of the Alberta Federation of Labour.

    “@andrew_leach @MacleansMag Wow. We never said ‘ban crude exports.’ Please get your facts straight! This is hachet-job journalism.”

    Of course, Andrew Leach is not a journalist, he’s an economist. So this would be an example of hatchet-job “science”…

    • Sorry, typo: Name is Gil McGowan: @gilmcgowan

    • Perhaps, had you chosen to attend the briefing, you would have seen that a glossy handout was given to all guests from the AFL. In that handout, these words appeared: “The Government of Canada should amend the National Energy Board Act to ensure resources are not shipped out of Canada prior to processing.” If you followed my Twitter over the last 24 hours, you would see that I’ve cited at least a half dozen other examples where similar positions were advanced. If you bothered to read the article, you’d also see that it says, “he Alberta Federation of Labour brought in consultant Ed Osterwald to justify their push for limits on exports on raw bitumen or more government participation in the refining sector,” and nowhere does it state that the AFL supports a broad export ban of crudes. Get my facts straight, indeed.

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