Kinder Morgan – the View from Over the Fence

When we had to rebuild our wooden fence a few years back, I let our contractor talk me into a six- footer. “It’s the legal limit” he said.

Right after the last nail was hammered, we immediately regretted the decision and longed to have back our more “neighbourly” five- foot fence. But it was too late. Our close neighbours made fun of us. Heavens know what everyone else thought! Were we unfriendly, or worse, hiding something?

As Alberta and B.C. spiral out of control in the battle over Kinder Morgan, we can only wonder how many irreversible fences are being built between two otherwise friendly neighbours.

I find with divisions this immense – we are usually dealing with a significant difference in world view. And these can be hard to resolve. However, I do believe civility and logic can be restored if we ratchet down emotions and peer over the fence to understand each other.

The Kinder Morgan pipeline – what exists today?

The Kinder Morgan pipeline expansion project, also known as Trans Mountain Pipeline Expansion, or TMX for short, is a project that would triple the capacity on the current pipeline that can transport up to 300,000 bbl/d (barrels per day) of oil products from Edmonton, Alberta to three terminals in British Columbia.

The three lines, 24, 30, and 36 inch pipe, began with the original build in 1953. Product from Alberta, a mix of conventional and synthetic crudes, refined oil products, and more recently, diluted bitumen (“dil bit”) is piped from Edmonton for sales or refining in either British Columbia or Washington State.

Product is delivered to B.C. to three locations. In Kamloops, oil is both received from northeast B.C. and distributed locally off the pipeline. In Abbotsford, crude oil is re-routed to either Burnaby or via Kinder Morgan’s 180,000 bbl/day Puget Sound pipeline to Washington State . From Burnaby, crude is distributed locally to the Parkland refinery (previously Chevron), the Westridge Marine Terminal, and other nearby terminals.  At the marine terminal, product is loaded onto ships for export, and jet fuel is routed to the Vancouver airport.

What is being proposed?

The expansion project would follow an 1150 km route, of which 73% is on existing right-of-way, 16% would follow other infrastructure (hydro lines for example), and 11% would be on new right-of-way. New pump stations and tanks would be installed along the route. And the Westridge Marine Terminal would be upgraded to enable loading of up to 34 oil tankers per month.

The capacity of the overall system when the new lines are installed will be 890,000 bbl/d. The oil tanker traffic leaving Vancouver could increase seven- fold from today’s operation.

Finally, the product slate on the pipeline system will be different. The current mix includes crude oil refined product and some diluted bitumen (“dil bit”). The new line would carry significant more dil bit, most of it slated for export to foreign refineries. The market is still being developed but could include the California or Gulf Coast complex refineries and/or Asian refineries.

How does this fit into the Canadian context today?

Canada produces about 4.0 MMbbl/d (million barrels per day) of crude oil products, 2.5 MMbbl/d of which comes from oil sands. Canadian refineries process 40% of the light, sweet crude and the rest is exported to the U.S, primarily to the Midwest. There, complex refineries upgrade and refine it into retail products. The incremental TMX capacity, 590,000 bbl/d, represents 15% of the Canadian total, or put another way, equates the output of about 2 oil sands plants.

What are B.C.’s concerns?

First, I am not from B.C. and can only peer over the fence to get some insights and so my view is limited. However, I think it’s important to try to understand the perspectives offered.

Many citizens of British Columbia, environmental groups, and other Canadians have concerns that if more fossil fuel infrastructure is built, it will lock us in to higher greenhouse gas emissions. In addition, opponents have grave concerns that the increased tanker traffic, and the risk of a spill, will negatively impact that coast, affecting both the environment and coastal livelihoods. There are significant Indigenous engagement issues with the project and concerns about the fairness and depth of the NEB approval process. In addition, there are more localized concerns around pipeline safety, the tank farm expansion site, pipeline toll rates, and the overall project risk versus benefit for British Columbia.

I will only discuss a few of these in any detail here but encourage readers to read widely on the other topics.

Will the project contribute to increased Greenhouse gas emissions in Canada, and if so, so what?

Environment and Climate Change Canada (ECCC) tried to answer this question. There is significant debate over whether pipelines or other fossil fuel infrastructure projects contribute to global greenhouse gas emissions on a project basis.

Many see the global demand for oil as more or less fixed, with different crude supplies coming on/off the market based on their competitiveness and access. So, these folks would say that the oil moved on Kinder Morgan pipeline would displace other supplies into Asian or U.S. refineries. In this case, the greenhouse gas contribution would be the difference between the carbon-intensity of oil sands product versus other heavy crudes.

Others see new fossil fuel infrastructure as enabling an increase supply of crude oil to enter the world market, suppressing crude prices and driving up demand for fossil fuel products.

The ECCC analyzed a complex set of scenarios and eventually concluded that Canadian emissions would increase between 13-17 Mt/year, (million tonnes) enabled by this project if oil price rests between $60-$80/bbl. Below $60/bbl, they believe no expansion will occur and above $80, expansion will occur anyway, whether there is a pipeline built or not. ECCC does try to argue that global incremental emissions will be lower than this as Canadian crude will simply displace other heavy crudes and so only the difference in carbon intensity can be counted.

My own view is that “if you build it, they will come” – expansion barrels and emissions that is, such that 17 Mt/year is a given.

Is this a lot? Doesn’t Canada have a plan to reduce emissions anyway?

Canada’s 2017 emissions levels were 704 Mt/year of CO2e (CO2 equivalent). An increase of 17 Mt/year represents 2.4% of Canada’s overall emissions. Canada has committed to reduce emissions by 187 Mt/year by 2030 under the Paris agreement. 17 Mt/year represents 8.5% of this target, for which additional offsets would need to be identified.

Alberta’s Climate Leadership Plan (“CLP”) calls for a 100 Mt cap on oil sands expansion. Would the 17 Mt/year fit under that cap? Yes. Oil sands emissions are currently 70 Mt/year and so there is 30 Mt/year of “room” left under that cap, and this one project, if it enables expansion, may use up a little more than half of the cap.

Where does Canada plan to find the 187 Mt/year of emissions reductions anyway? The federal government is currently promoting both a growth-economy and reduced emissions. If this is the case, then specific offsets for oil sands, and other industrial growth, need to be identified.

I don’t believe a tax at $30/tonne will have any direct effect on consumer’s behaviour resulting in significant emissions reductions. Alberta’s own Climate Leadership Plan admits that carbon taxes at this price point don’t have direct effect, but instead must be re-invested into green initiatives to get the credits –homeowner rebates for energy retrofits as one example. I will discuss this in more detail in a future blog, “The Carbon Tax for Dummies”.

How much will tanker traffic increase, and is it of concern?

The project will enable oil shipments to increase seven-fold out of Vancouver; or 34 tankers a month versus five today. So what? Doesn’t Vancouver handle a lot of ship traffic? Don’t other coastlines already receive lots of tankers today?

Yes and no. The port of Vancouver is a major shipping destination but only handles up to 4 Mt (million tonnes) of crude and refined oil products a year. By contrast, about 82 Mt of oil product moves through 23 Atlantic coast ports with 25 Mt of that moving up the St. Lawrence Seaway into Quebec.

Some other arguments tabled that I think are fair concern the fact that Vancouver’s narrow seaway is less compatible with Aframax tankers than other world ports. Also, although there is a small trickle of dil bit that leaves the port now, given the potential for a lot more oil tanker traffic, many in British Columbia fear they will become the “dil bit spill cleanup pilot project” for the world.

It is a major step change in oil tanker traffic for B.C. and I’m pretty sure most Atlantic Canadians would react to a seven-fold increase in tanker traffic off the east coast. If you  look at the recent fishery restrictions in play for Right Whale protection, I think it is fair to say we have entered a new era of concern over our marine environments.

What about pipeline safety?

From my view, pipelines are the safest form of transport for natural gas, crude oils, and refined products – for the volumes we decide we need to move. However, regulators and citizens need to be vigilant, particularly with Canada’s aging infrastructure, to ensure that operators follow their filed inspection, maintenance and operating procedures.

What are Alberta’s concerns?

Alberta is primarily concerned that pipeline opposition is blocking its right to make a living expanding resource extraction and competing in the world crude oil market. It feels unfairly targeted; after all, B.C. natural gas and hydro energy resources are exploited, Ontario relies heavily on nuclear power, and Quebec’s hydro and manufacturing sectors don’t appear, on the surface, to suffer the same degree of scrutiny.

Although most Albertans are aware that oil sands are somewhat more carbon intense than other world crude supplies, they don’t see equivalent restrictions being placed on U.S. shale oil extraction, Mexican offshore production of heavy Maya crude, or even B.C.’s high CO2 natural gas processing in northeast B.C.

They see a world oil market in which conventional reserves are dwindling (e.g. light, sweet, crudes that have lower energies required for extraction) and other players coming on-stream to compete in the heavy crude market without restriction.

Why is Alberta’s oil price suppressed?

Alberta historically produced conventional crude, and then oil sands “synthetic crude” which is bitumen upgraded into oil of similar, sometimes superior, quality to West Texas Intermediate (WTI) – the North American benchmark. Up until about 2007, the synthetic and conventional crudes coming out of Alberta enjoyed the WTI price, with only a slight discount.

Two changes in the last decade contributed to discounting. When dil bit was first transported in earnest to the U.S, marketed as Western Canadian Select (WCS), a quality discount was applied. It was named the “heavy oil discount”. Complex refineries in the U.S. Midwest had to both upgrade and refine the bitumen into retail products. Later, when pipeline bottlenecks emerged, additional discounting came into play. In the U.S. the main competitor to WCS is heavy Maya oil from offshore Mexico. In 2017 the discount between Maya heavy and WCS was $8/bbl. Alberta wants to relieve pipeline bottlenecks and get more for its WCS.

Why a pipeline, why don’t activists target other fossil fuel infrastructure?

Very few Albertans, me included for a long time, can understand why activists target projects like pipeline for global concerns, like climate change. Why not picket in Washington or Ottawa for better climate legislation? Why target pipelines as fossil fuel infrastructure specifically, why not target highways, or car manufacturers, or sprawling suburbs?

One reason I believe this to be true is that of the entire fossil fuel infrastructure built, very little comes under federal jurisdiction and the scrutiny of a public hearing. Even oil and gas production facility approval usually happen at the provincial level, with more localized attention.

David Roberts answers these questions very well in his blog, ” What Critics of the Keystone Campaign Misunderstand about Climate Activism”. In his blog he indicates that activists aim to change culture around climate change – not the project in question per sea. The idea is to take away the social licence for expansion until legislators move towards better climate policy.

Toxic Labels and the Alberta Spirit

In the early 90’s, I moved to southwestern Ontario to work for a gas company. It was a well respected Canadian corporation and I took pride in my job to help move natural gas from western reserves into the greater Toronto area, so people could heat their homes in the winter.

A few decades later and pipeline became a dirty word. “Dirty oil”, “toxic bitumen”, “petro state” – the language of disruption is harsh to hard working Albertans, many of whom have spent their careers working in the fossil fuel industry to deliver energy for agriculture, transportation, homes and cars.

Albertans are “solution-ists”, not activists. They like to fix things, not complain. I admire this contrast in the culture compared to other places I have lived.

However, if Albertans are to steer our own future, we need to contemplate deeply our place in it. If the world will transition to a low carbon economy, will we lead or lag? Do we still embrace the boom, bust cycle, or find a clever way to make our natural resource economy more resilient? Do we have the portfolio right on profits versus future liabilities for many of our assets – like orphan wells and tailings ponds?

I am deeply concerned that the Pan-Canadian Framework signed by eight provinces will not prove to be a solid base from which we can leverage substantial carbon emissions reductions. I don’t believe we spent ample time to really do, what I call, the “big think” about how we pair emissions targets with resource extraction rates. If the details were robust, then it would inform the direction, and perhaps some of the in-fighting could have been avoided.

Clearly, cooperation is a preferred path for solving our world’s problems. To do that, people must sit in the same room, and champion mutual understanding.

And, as for my fence, well, I have tried different things over the years to make it friendly. I’ve hung artful metal butterflies, installed solar lights, and planted flowers. Sadly, nothing has produced the effect I would have had, had I simply built one I could see over.

Alisa Caswell has a degree in chemical engineering. She spent ten years working in the natural gas pipeline industry and another ten in oil sands.   She has had roles in operations, energy conservation, and previously held the position of Chair – Oil Sands, Canadian Industry Program for Energy Conservation (CIPEC). She lives in Fort McMurray, Alberta.

References:
[1] Roberts, David, “What Critics of the Keystone campaign misunderstand about Climate Activism”, https://www.vox.com/2015/11/8/9690654/keystone-climate-activism
[2] http://www.kindermorgan.com
[3] http://www.energy.alberta.ca
[4] http://www.nrcan.gc.ca
[5] http://www.neb-one.gc.ca
[5] http://www.oilsandsmagazine.com, “Western Canadian Select Explained”
[6] http://www.oilsandsmagazine.com, “Products from the Oil Sands, Dil bit/Synbit and SCO Explained”
[7] Upstream Greenhouse Gas Emissions Estimates for the Trans Mountain Expansion”, Environment and Climate Change Canada, https://www.ceaa.gc.ca/050/documents/p80061/116524E.pdf
[8] Donner, Simon http://blogs.ubc.ca/maribo/2016/08/17/statement-on-greenhouse-gas-emissions-associated-with-the-trans-mountain-pipeline-expansion/
[9] https://www.tc.gc.ca/eng/marinesafety/facts-oil-tanker-safety-canada-4513.html