Is Canada headed for a pipeline bubble?

Will the TransMountain pipeline expansion still be needed if the world takes significant action on climate change?

Jimmy Jeong/Bloomberg/Getty Images

Jimmy Jeong/Bloomberg/Getty Images

The National Energy Board hearings into the Kinder-Morgan TransMountain pipeline expansion will not consider the climate change impact of oil production or oil combustion associated with the pipeline project. In the view of the National Energy Board, consideration of so-called upstream or downstream impacts is outside their jurisdiction and outside the relevant project scope for an individual pipeline. This decision is currently subject to a legal challenge, and the City of Vancouver has requested that the board reconsider its decision.

I’m not a big fan of the board’s decision: considering the impact on the global energy system of an individual piece of transportation infrastructure is complex, but it is done as part of the market analysis for most pipeline applications. Without demanding much additional complex analysis from the proponents, the NEB could request similar analysis of upstream and downstream emissions and environmental impacts with or without the project. The question that would be more complex is how to value local and global environmental impacts within a pipeline hearing. However, as I wrote here, just because it’s complex doesn’t make it wrong. We either need to be clear that we’re assuming that certain impacts don’t occur, that we’re assuming they have zero net benefits, or we need to assess them. Let’s also be clear that if you want to extend the scope to upstream and downstream impacts you can’t only include the costs: you’d have to include the benefits accruing as a result of increased production and consumption as well.

More importantly though, I believe that in their haste to contain the scope of their analysis, the NEB has overlooked a key area of their responsibility—that of the needs assessment for the pipeline—in the context of national and global action on greenhouse gases.

So far as I can tell, in both the assessment of Enbridge Northern Gateway or the TransMountain Pipeline Expansion, the NEB did not request or note the absence of analysis of a case in which Canada meets its national climate change goals or in which global climate change policies become more significantly more stringent than they are today.

The National Energy Board Act states that a pipeline may be permitted if “the board is satisfied that the line is and will be required by the present and future public convenience and necessity.” In other words, it must consider whether the line will be used while not causing other lines to become unused, and the board must be assured that it will not unnecessarily endanger people or property. When it comes to the question of demand for the pipeline, there’s an important climate change risk, which the NEB appears to be ignoring. Will the pipeline still be needed if Canada acts to meet its domestic commitments on climate change or if the world takes significant action on climate change, with or without Canadian participation?

We do have a model to consider, and it shows why this discussion is important. As part of its annual World Energy Outlook, the IEA has been for several years evaluating the impacts of global policies designed to stabilize carbon dioxide equivalent atmospheric concentrations at 450ppm. This 450ppm scenario is designed to provide a reasonable (50/50) degree of certainty that climate changes would be limited to the equivalent of two degrees Celsius.

In 2010, the IEA World Energy Outlook specifically assessed the implications of the 450ppm scenario for the Canadian oil sands, and the results should give the NEB pause: under the policies they propose, world oil production is reduced to 81 million barrels per day by 2035 (this figure is further reduced to 76 million barrels per day in the 2013 World Energy Outlook), with oil sands production effectively capped at three million barrels per day. By contrast, the Canadian Association of Petroleum Producers forecasts oil sands projection to increase much more rapidly and, on the basis of this forecast, is supportive of pipeline projects which would add over three million barrels per day to the current shipping capacity out of Western Canada.

Forecast demand for expanded pipeline infrastructure. Source: Canadian Association of Petroleum Producers, 2013.

Forecast demand for expanded pipeline infrastructure. Source: Canadian Association of Petroleum Producers, 2013.

The second, related issue is the impact of potential Canadian GHG policy on demand for pipeline capacity. Canada committed at Copenhagen to a reduction, by 2020, of national emissions to 17 per cent below 2005 levels. The minister of the environment has repeatedly reiterated the government’s commitment to that target. Government of Canada analysis projects that, with no further policies implemented, we will miss our target by approximately 125Mt, with oil sands emissions growing from approximately 50Mt today to around 100Mt in 2020. That the National Energy Board would not consider the demand for pipeline capacity in a scenario in which Canada meets its international commitments is unbelievable. Let me say that again: our national energy regulator is evaluating projects under a scenario which our own minister of the environment says will not occur.

The oil sands industry has been clear that significant reductions in emissions would only come at the expense of competitiveness, which we must conclude would imply that some forecast production would not occur. The oil industry has, at least in the cases of Exxon and Shell, made it clear that their development decisions do not assume action on climate change consistent with meeting either Canada’s emissions targets or with global action sufficient to limit climate change to the two degrees Celsius threshold agreed to at Copenhagen.

Beyond any doubt, either the National Energy Board must address whether proposed pipelines would still be needed under a scenario in which Canada meets its international commitments on emissions, or the government must instruct the National Energy Board that it has no intention to meet these targets so that the board may credibly exclude them from its analysis.




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Is Canada headed for a pipeline bubble?

  1. Looks like you are advocating for a National Energy Strategy.

    • No, it doesn’t.

      • Looks can be perceiving.

    • Glo-Bull Warming is the biggest fraud ever perpetrated in human history.

  2. Beyond any doubt, either the National Energy Board must address whether proposed pipelines would still be needed under a scenario in which Canada meets its international commitments on emissions, or the government must instruct the National Energy Board that it has no intention to meet these targets so that the board may credibly exclude them from its analysis.

    - Andrew Leach, May 27, 2014

    Northern Gateway proponents, for example, say the NEB should approve it because it connects Canada’s oil producers to strategic markets in Asia. Opponents are concerned about the greenhouse-gas emissions that would result from the oil sands production that eventually would flow through the pipeline.

    But these issues have little to do with the pipeline itself. Although they may be significant, such as employment benefits, energy security or first nations sovereignty, they go beyond the scope that a regulator should address.

    Instead, the NEB should focus on the project-specific concerns of a pipeline proposal.

    -Joseph Doucet, March 2, 2012 .Former Enbridge Professor of Energy Policy. Currently dean of the Alberta School of Business at the University of Alberta.
    http://www.theglobeandmail.com/globe-debate/unclog-the-pipeline-process/article4092479/

    • Actually, if you want to find the part of my article relevant to Dean Doucet’s comments, read higher up. “I’m not a big fan of the board’s decision: considering the impact on the global energy system of an individual piece of transportation infrastructure is complex, but it is done as part of the market analysis for most pipeline applications. Without demanding much additional complex analysis from the proponents, the NEB could request similar analysis of upstream and downstream emissions and environmental impacts with or without the project.”

      • He covered this off as well, higher up in his op-ed.

        Ottawa says it plans to reform this review process, but it must do more than work on process: The federal government must be clear about which issues should be dealt with by regulators and which by politicians and policy-makers. Hard decisions on energy or environmental policy should not be shunted to regulators. A review process should focus on project-specific issues.

        Doubtful, though, the cabinet is reviewing these factors, post NEB decision.

        • Different point again. NEB should not impose policy. Maybe you should worry less about trying to sow conflict and more on reading comprehension.

          • I’ll go with the white haired guy. He’s probably earned them.

    • Bull. There project specifics have to take in to account climate impacts which will even directly affect the pipeline itself for example increased landslide activity.

      And again, the NEB has to consider if policy does change to address emission seriously, which it will soon, then the investment in the pipe infrastructure is stranded and a was of money and time and footprint.

      They would come to the conclusion that It would be better to invest in carbon free energy now rather than a this destined to fail pipeline.

      It is clear to all who do take full account of the overall economics of carbon energy that we can not invest in carbon lng and oilsands infrastructure any more.

      • Actually, that’s not remotely clear. IEA 450ppm scenario has growing gas production through 2035, and has significant oil production (76 million bbls per day). You can argue about where that should be produced, but there’s going to be investment somewhere.

        • there is but there shouldnt be…

    • Should it also look at the inflationary aspects of more capital investment on other parts of the economy, skills shortage, temporary worker’s program, the likelihood that Obama will approve Keystone and other capital expansion programs in the US, etc?

      • NEB? It should, and does, assess mkt impacts. So, insofar as inflation affects the likelihood of meeting a particular growth forecast, it should. Most inflationary impacts are rent-dissipating, so in terms of assessing impact, you’d have to account for the fact that different agents are receiving rents than would receive them in a different scenario. Also easily possible to do.

        • The NGP economic analysis in its application implicitly looked at this in its cost/schedule. But a lot of it was based upon rosy forecasts (IMO) of the net impact of ALL of AB’s production, including that going south in justifying a CPCN.

          Btw, the proposal for importing condensate (twinning of pipeline) seems obsolete due to the glut in NA (RBN Energy had a blog on this today).

          So, should they amend their application, withdrawing that portion of the project, or keep it in place – so that they have the option of having two exporting lines, converting the condensate importing line to a dilbit exporting line ?

          • Here’s today’s RBN Energy blog I was referring to:
            https://rbnenergy.com/imagine-there-s-no-export-ban-no-need-to-split-the-condensate

            And there are a couple of other interesting ramifications to an end to the US lease condensate export ban to contemplate. (Apart that is from the furrowed brows we would expect to see at the condensate splitter project meetings the next day). One likely big change would be that Canadian heavy crude oil blended with diluent would suddenly become far easier to export via US ports. Just a couple of weeks back, Platts reported a cargo of Western Canadian Select crude sold to Repsol for export to Spain – loaded at Freeport, TX after an export license was obtained from the BIS. That cargo reportedly was shipped to Freeport by rail in order to ensure that none of the diluent used to blend it was actually US condensate (which could not be exported to Spain). If the lease condensate export ban is lifted, it would be far easier for Canadian producers to ship dilbit crude by pipeline to US ports without concern about diluent originating from the US getting blended in by mistake.

            That the type of changing “market impacts” that someone should now be considering?

          • and, here’s what was said today about the CFL collective bargaining agreement discussions:

            “Honestly I don’t think anyone wants to look that far, but if games have to be missed, then games have to be missed. It would be a shame if both sides couldn’t come to a free agreement that both feel comfortable with. But … if we don’t get what we feel is fair, then we’ll miss games if we have to miss games.”

            Why did you not address this in your comments?

          • Why don’t you invite both sides over for a bowl of lentils (aka nature’s mini footballs)?

            Preferably picked by non union members.

    • Thanks for the link. Just tweeted it out.

  3. The NEB is right! It shouldn’t be policy on a pipeline by pipeline basis.

    They doe have Climatic impacts for Canada though so the NEB should refuse to rule on these pipelines until the Fed Gov put in place a working GHG emissions plan and policy.

    It really is straightforward.

    • I don’t agree. NEB should assess pipelines in light of reasonable assumptions of future markets. That assessment should include Canadian and global climate policy impacts. In particular, it should include an assumption, until they are instucted otherwise, that Canadian policy attempts to meet Canada’s international commitments.

      • By refuse to rule on the pipeline I do mean not allow it to proceed…

        • Those are very different things.

  4. Even if one were to dismiss climate change as a serious threat, market forces alone warrant careful consideration of these issues. Canada’s over-reliance on bitumen at the expense of diversified industries could come to haunt it. The pipeline is just one more symptom. The current oil boom is making other industries noncompetitive due to the high dollar and diverted investment and labor.

    Currently Canada’s biggest market is the USA, which is heavily invested in fracking and alternative energy. In fact, 80 percent of new utility capacity in the last year has come from alternative energy, primarily solar. That will eventually result in depressed prices, as has already occurred in the natural gas sector.

    Another big market is China, which has the largest untapped reserves of natural gas in the world. It is also choking to death on smog. If Chinese policymakers do not address their energy issues, the people of China will eventually demand it. If China follows the USA and makes major investments in alternative energies, conventional coal and oil demand in China will also decline.

    Oil and gas companies are motivated by quarterly earnings, so these longer term concerns are not going to move them to action. However, the author could be right about potentially wasted resources if pipelines are built and demand never materializes. Pipeline bubble indeed!

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