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Opinion: Offshore markets? What markets?

In his May 23 opinion piece, Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers, claimed that “New pipelines will help connect Canada’s landlocked oil reserves, the third-largest in the world, to tidal ports and from there to global markets where demand for oil is growing.”

It may be true that pipelines can be built to get oil to marine ports, and it may be true that demand for crude oil in global markets is growing, but it is not true that demand in global markets for Alberta’s heavy crude oil is growing — but that is what Mr. McMillan pretends when he links these statements together in one sentence.

Trans Mountain has had more than half a decade to build demand for Alberta’s crude in offshore markets with support from favourable National Energy Board rulings. It has failed to do so. In 2010, Kinder Morgan promised NEB that if the Board approved its application for firm service to the Westridge dock in Burnaby that offshore markets would, unequivocally, be developed.

The Board bought Kinder Morgan’s story. It relied on the promise of increased trade and new markets as the main reason for approving guaranteed access to the Westridge dock even though Chevron intervened at the hearing to explain how such a move would undermine oil supply security for its refinery in Burnaby and — along with other oil producers such as Suncor — that it would also inappropriately distort market signals and increase toll rates because of the surcharge Kinder Morgan asked to charge on firm dock shipments.

The Board, in its decision to approve guaranteed dock access back then said, “Trans Mountain identified “continued offshore market development” as a significant benefit of Firm Service to the Canadian oil industry. Trans Mountain submitted that the certainty provided by Firm Service to the Westridge dock would allow Firm Service Shippers to develop long-term relationships with new and existing offshore markets for Canadian crude oil. It would expose Canadian crude production to diversified markets, resulting in increased acceptance and utilization of Canadian crude oil in those markets. This would provide other producers with improved and more diversified market opportunities.”
You would think that the recent Panel would have checked to see if access to diversified offshore markets did in fact develop as promised as a reasonable test of the market’s response to increased overseas heavy oil supply. It didn’t. If it had, the Panel would know that oil tanker shipments from Westridge have fallen significantly since 2010 because crude oil producers have not successfully created the new markets they promised.

In 2010, there were 71 crude tanker arrivals in Vancouver harbour, by 2013 at the height of oil prices the number had fallen to 48, and in 2015, while Trans Mountain was telling the public that 60 tankers a year on average were arriving in Vancouver, the number had actually fallen to half that. Only 32 crude oil tankers arrived last year. In January, according to the Port of Vancouver, only one crude tanker arrived and that tanker was likely filled to serve US Oil’s refinery demand in Washington state. There is no Asian demand for Alberta’s oil.

Regrettably, the NEB does not undertake even a reasonable degree of due diligence in its rush to approve heavy oil pipelines. It does not follow up on prior decisions and check whether the promises made by pipeline companies are promises kept. Without any verifiable evidence that the new pipeline will be used or useful during its lifetime the Panel states in its recent report the same kind of wistful rhetoric included in its report five years ago. It lists as its first major benefit from the project that there would be “a considerable benefit gained by providing Canadian shippers with more flexible and diverse markets.”

Now CAPP, as represented by McMillan, is flogging the Board’s conclusions as if they were reasonably arrived at in a deliberate attempt to pretend the economic benefits from the project outweigh its environmental cost. This is a false dichotomy, and British Columbians deserve better.

Robyn Allan is an economist.