Robyn Allan Q&A: Trudeau Government ‘Dangerously Misled’ on Kinder Morgan Pipeline

Economist Robyn Allan has a penchant for details. The former president and CEO of the Insurance Corporation of British Columbia also sees the benefits of informed decision-making, which is why Allan recently wrote a myth-busting letter to federal minister of natural resources, Jim Carr, on the issue of oil pipelines.

The minister, Allan said, had been “dangerously misled” by senior ministerial staff about the economic benefits of the Kinder Morgan Trans Mountain pipeline project. An internal document provided to Minister Carr, and subsequently released through Freedom of Information legislation, was “riddled with factual and analytical mistakes and displays a lack of attention to detail” Allan wrote in her letter.

Among her findings, Allan stated the minister had been misinformed about the need for increased oil pipeline capacity in Canada especially when considering Canada’s pipelines — despite claims to the contrary — are not operating at full capacity and market conditions have substantially altered the oil production landscape in recent years (see Allan's evidence in the full letter below).

With the federal decision on Kinder Morgan expected to come down by December and the recent (rather spectacular) collapse of public trust in the National Energy Board, pipeline politics are heating up in Canada.

DeSmog Canada asked Allan five questions about her take on Canada’s pipeline debate and the quandary of the Kinder Morgan pipeline.

.@RobynAllan: Natural Resources Minister @jimcarr_wpg ‘dangerously misled’ on $ benefits of #KinderMorgan https://t.co/KVhiWWFrXZ #bcpoli

— DeSmog Canada (@DeSmogCanada) October 7, 2016

Q:  What are the greatest misconceptions Canadians have about the need for new pipelines in the country?

A: The first major misconception is that there is an urgent need for new pipeline capacity to deliver Western Canadian crude oil supply to market. There is sufficient transportation infrastructure to meet market demand not only now, but up until at least 2025. 

The second major misconception is that markets in Asia exist and we need West Coast tidewater access to serve these markets.

There is no market for Alberta’s heavy oil in Asia. Oil industry groups, such as the Canadian Association of Petroleum Producers, make statements that suggest there is a market in Asia but these representations are not consistent with the facts.

Oil producers have been actively trying to create a market in Asia for more than half a decade. The National Energy Board granted them guaranteed access to Trans Mountain’s Westridge dock to help them do so, but their attempts have been unsuccessful. If markets in Asia ever develop it will take many years and Asian purchasers are not going to pay a higher price for Alberta’s crude than it commands in North America. 

The third major misconception is that new pipelines are needed to generate economic prosperity.

Pipeline proponents like Kinder Morgan claim that when new pipelines are built, access to markets will allow oil producers to capture higher prices on every barrel produced and these increased revenues will trickle down as increased gross domestic product, fiscal revenues and jobs.

This was the argument used to promote Northern Gateway, Keystone XL and now Trans Mountain but there is no basis in fact to support this idea. New transportation capacity will not enhance the price received for Western Canadian oil. What enhances the price of a raw resource is value added —upgrading and refining. Producers in Canada want to ship that value down the pipeline along with meaningful jobs so the benefits are realized in foreign economies. 

Q: Canadians are constantly being told we desperately need new pipelines. Is that true? Or, how do we best understand that claim?

A: When crude oil prices were rising the industry believed these prices would be sustained, and in fact, continue to rise. For a time prices were over $100US a barrel. The industry based its production projections on these high prices.

These prices made numerous projects appear economic and it was easier for oil producers to strategize to export the crude than invest in value added in Canada. Up until about 2008 a number of upgraders and new refineries were planned in Alberta. Then the plan changed to a raw resource export strategy. When bitumen is exported rather than turned into synthetic crude oil (SCO) twice as much pipeline capacity is needed per barrel of bitumen. (There is a need for pipelines to import condensate to dilute bitumen so it will flow through a pipeline and then because its still heavier than SCO it takes longer to move it back out as diluted bitumen.)

These two factors — an aggressive production outlook based on higher prices and a new strategy to export bitumen raw rather than process it in Canada — meant a huge increase in the expected need for future pipeline capacity space. These factors brought forward new pipeline projects — the first was Keystone XL. As questions began to be asked about the desirability of diluted bitumen exports the industry became concerned and turned up the heat on the need and benefits from new pipelines. 

There is no desperate need for new pipelines, but the industry — concerned that its social licence window is closing — is trying to get one approved.

Q: You complied some really interesting data on stalled or cancelled oilsands projects. Do you think we underestimate how quickly market forces can change production projections?

A: The market forces now are more normal than the high prices that stimulated the aggressive production projections. There has been a rapid expansion of crude oil production as industry tries to get it out of the ground and to market — any market — before their assets become stranded.

That behaviour has contributed to the price decline, but as we see, countries like Saudi Arabia, don’t want to lose market share. They don’t want to restrict production because the fossil fuel industry is an industry in decline. There is a structural shift occurring.

Governments all over the world acknowledge a need to limit greenhouse gasses. Canada will not meet its targets by building infrastructure to ship more heavy oil. We need to move away from fossil fuels, not subsidize their extraction by approving transportation systems to deliver more to market — to markets that don’t yet exist. We need meaningful decisions to support achievement of Canada's climate change obligations under the Paris Agreement.

Q: Did the National Energy Board err in its recommendation the federal government approve the Kinder Morgan Trans Mountain pipeline?

A: The National Energy Board did not do its job. It did not hold a quasi-judicial hearing based on the rules of fairness and natural justice. It limited the scope of issues, refused to allow cross-examination, did not test the evidence, and failed to protect the public interest.

The National Energy Board report is not credible — the Board does not know if its recommendation is correct because it did not undertake any reasonable amount of due diligence to be able to arrive at a considered recommendation.

Prime Minister Trudeau knows this. He promised that the Trans Mountain review would be redone and he has betrayed Canadians by breaking that promise.

Certainly I believe that the Trans Mountain expansion is not needed and its economic impact will be negative not to mention the environmental harm it will do even without the inevitable fresh and marine water spills. However, because due process has not been followed, the NEB recommendation cannot be trusted. Until due process is followed, permission for Trans Mountain’s expansion should never be given.

Q:  Some Canadians feel like pipelines are being rammed down their throats for the benefit of the energy industry. Other Canadians feel like ignorant environmentalists just don't understand how critical new pipelines are for Canadian prosperity. The Prime Minister seems caught between the desire to please both camps. How do you make sense of this very messy national conversation?

A: Environmentalists are not ignorant and the Trans Mountain pipeline expansion — first and foremost — is for the benefit of Kinder Morgan — a U.S.-based multinational that does not contribute its fair share of tax revenues.

Kinder Morgan plans to siphon $1 billion a year from the Canadian economy if this project is approved. Is this in the public interest? We don’t know: the Board refused to consider it.

The Board pretended to listen, but it refused to hear. Mr. Trudeau pretended to hear and now he’s not listening. 

The situation would not be getting messy if the elected officials who promised due process delivered on their promise. That is all that is being asked by concerned Canadians — that the due process that is our right be given. 

Robyn Allan Letter to Minister Carr re: 'Economic Benefits of Oil Pipelines' memo | September 14, 2016 by DeSmog Canada on Scribd

Image: Prime Minister Justin Trudeau and Natural Resources Minister Jim Carr. Photo: Government of Canada