Pipelines are good politics, bad economics

Eyeview
By David Charbonneau
January 26, 2017 - 5:00am

KAMLOOPS — New pipelines get politicians elected. However, they will remain empty; much like election promises that remain unfulfilled. There are environmental reasons not to build new pipelines but the economics are rarely discussed.

First the politics. Workers in the resource extraction industry like new pipelines because they symbolize well-paying jobs. NDP leader Adrian Dix learned that bitter lesson in 2013 when he opposed the proposed Kinder Morgan pipeline and regular unionized workers flocked to the BC Liberals.

Prime Minister Trudeau understands the politics of pipelines when he approved three pipelines and placed one under review (Trans Mountain, Enbridge Line 3 and Keystone XL approved and Energy East under review.)

However, approval of pipelines does not guarantee that oil will actually flow. Thomas Gunton, Director of the Resource and Environmental Planning Program at Simon Fraser University, has done some number-crunching. His analysis suggests that we are going to end up with a lot of empty pipelines:

“Building all four projects would therefore result in 2.4 million to 2.7 million bpd [barrels per day] of excess capacity in 2025, equivalent to about four Trans Mountain expansion projects worth of empty pipeline space (Globe and Mail, January 12, 2017).”

To put these numbers in context, our current capacity for pipeline and rail is five million bpd. The Canadian Association of Petroleum Producers (CAPP) forecasts that the current capacity will fill needs up to 2025. Note that this prediction is not coming from some environmental group but the very industry that produces the stuff.

Even existing pipelines may remain empty. The National Energy Board (NEB) projects that the price of oil will be less than expected by $17 a barrel.  New climate policies that could further reduce production further.

Empty pipelines are expensive. Guess who’s going to pay for them?

“The capital cost of empty pipeline space would be about $25-billion, which would be borne by the Canadian energy sector in terms of higher tolls and by the Canadian taxpayer in terms of lower tax payments to government due to lower corporate profits. If current rail capacity is included, the surplus capacity would be even higher (Globe and Mail)."

You, dear reader, will pay for empty pipelines in higher fuel costs. The pipeline builders will recover the cost through higher tolls that oil producers will have to pay in order to move their fuel to market.

Politicians like to build monuments. Premier Clark is doing just that in proceeding with Site C dam. Like empty pipelines, transmission lines from the dam on the Peace River will remain empty. The market for electricity is flat and with conservation, consumption could be reduced by twice the output of the proposed Site C dam, according to the B.C. Sustainable Energy Association . They add:

“In its 2013 Integrated Resource Plan, BC Hydro assessed Site C and other possible resource options in relation to forecast energy and capacity needs over the next twenty years. BC Hydro concluded that Site C is needed for its earliest practical in-service date of 2023.”

Like the Egyptian pyramids, new dams and pipelines will create jobs but serve no practical purpose. The difference is that tourists will not flock to see them.

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