It's a phrase that has wafted up from the oil sands to the airwaves. It pops up in speeches by politicians and editorials by journalists: A "fair price" for Canadian oil. The key to this, we are told, is pipeline access to "tidewater" (another marketing term adopted by media and government).

The basic argument goes like this: A barrel of oil sands crude currently trades at a lower price than other global oil benchmarks. That price gap means Canadians are losing money on every barrel sold. Access to world markets will fetch higher prices, elevating our collective prosperity.

It's a persuasive story, tickling the part of the brain associated with loss aversion. No one wants to bleed money day after day. At the same time it paints a picture of one nation, our fortunes rising and falling in unity. It's good politics. But the reality is more complex. As individuals and businesses calculate whether the risks of these pipelines outweigh the rewards, three broad trends should be kept in mind.

First, what kinds of energy do those global markets want? Second, who can get it there at the lowest price? And most importantly, who wins and who loses if the price of Canadian oil climbs? The answers point to 2014 as a crucial year in the pipeline battle. That's because the window in which these projects are viable may be closing faster than we think.

Comparing apples

If an apple is light and sweet, an orange is more heavy and sour. That's the difference between Western Canada Select (WCS), blended out of oil sands bitumen, and West Texas Intermediate (WTI), the benchmark often cited on the news as "the price of oil." They're not the same product.

As the National Energy Board website explains, "all crude oil is not valued equally. Light oil that is low in sulphur (sweet) is more valuable to refiners than heavy oil with higher sulphur content (sour)." In a chemical sense, oil containing more carbon and less hydrogen delivers less energy — unless refiners inject more hydrogen molecules, which costs them money. So the price gap is partly due to geography, and partly due to a difference in quality.

University of Alberta environmental economist Andrew Leach explains it this way: "People could say, 'Oh, this hotel owner in Red Deer is really getting ripped off. He only charges $120 a night, versus New York, where it costs $500 a night. If only he could get world prices for his hotel room.' But that's not how it works."

Leach, who was appointed last year as the Enbridge Professor of Energy Policy at the Alberta School of Business, says "as far as the world price for Canada's oil, there's a lot of confusion created in general. People mix up geographic discount versus quality discount." Pipelines can help with one, but not the other.

The business case for a pipeline depends on what margins it can create for its clients, the companies shipping oil. The longer the pipeline and the more it costs to build, the more shippers pay to use it. Northern Gateway, for example, has jumped from a $5.5 billion project to $7.9 billion — money Enbridge will have to make back from its customers. On top of that, those producers are factoring in the costs of mining bitumen and diluting it for transport. The bottom line is the price of other countries' crude, against which, in a global market, Canadian oil must compete.

Maya, Brent, meet Barack.

Refineries equipped to handle light, sweet crude must be retooled at considerable expense if they're going to switch to heavy, high-sulphur oil — and vice versa. The argument for the Keystone XL pipeline is that it would carry Canadian crude to refineries on the U.S. Gulf Coast that are currently set up for heavy oil. But those refineries have another supplier, just a short tanker ride away.

Mexico's heavy crude, priced on the Maya benchmark, is chemically closer to WCS and arguably a better comparison for oil sands crude than WTI. Either way, Mexican producers are gunning for the same heavy-oil refineries. "Mexico is recovering from depressed oil outputs, in part due to low investment," says Werner Antweiler, Chair in International Trade Policy at UBC's Sauder School of Business. That's because last month, the country's new president broke a 75-year state monopoly on oil production, opening up underproducing fields to the world's energy giants.

"The shortest path is to refineries on the southern coast of the United States, meaning there could be even more of a glut in the North American market, driving down prices," says Antweiler. Meanwhile, thanks to hydraulic fracturing, the U.S. itself is in the middle of a oil-drilling renaissance. Pipelines and refineries are suddenly awash in lighter crude, from the Bakken formation.

With the U.S. lumbering toward energy independence, some lawmakers argue the country should focus on refining its domestic riches. Others say it's time to break a decades-old ban on exporting crude oil. That's right: Canada, which has no such law against exporting unrefined bitumen, could find itself competing with output from both Mexico and the United States.

Antweiler also points to Venezuela, another heavy-oil producer opening up markets after the death of Hugo Chavez, and even Iran — which could further add to global oil supply as sanctions lift. "These markets change, and they can change quite rapidly," says the economist. "When you speculate on these price gaps persisting, others see that too. Everybody is trying to go after these margins." As easier, higher-quality sources of crude come online, Antweiler is doubtful that prices for Canadian oil will climb for long. "Put it this way. The people who forecast oil markets have gotten it wrong more often than they've gotten it right."

Either way, the long-term trend starts to flatten. The International Energy Agency forecasts slowing growth in the demand for oil as climate change forces the adoption of more natural gas, renewables, and nuclear power.

Oil price differentials before and after the shale boom in the U.S. Kristen Smith, University of Alberta.

Winners and losers

Still, what if the best-case scenario described by politicians comes to pass? The pipelines reach salt water, tankers reach overseas customers, and suddenly the price of Canadian oil jumps. Who benefits then? Oil producers, says Andrew Leach, and government treasuries. But that money will not flow to all parts of Canada equally. "Oil sands royalties are ridiculously complicated," he warns. But the end result is predictably skewed. "Pretty much any way you model the benefit flows, it's all in Alberta. And though I loathe economic impact analysis, if you look at GDP or employment, a lot of it is still in Alberta."

That would be presumably help the province's long-governing Progressive Conservatives, who have drained the Alberta Heritage Savings Trust Fund and racked up a $2.8 billion dollar deficit, which they blame on the bitumen price gap — and massive floods last June.

As for federal taxes, Leach says "I can probably weave you an example where the federal government is better off either way, pipeline or no pipeline." He compares it to suddenly banning wheat exports. "Farmers would be mad and pasta producers would be overjoyed. Would that change the world price for pasta? Probably not. But you would see a transfer of wealth from the food producing sector to processing."

In other words, pipelines giveth jobs, but they also taketh away — in particular, at Canadian refineries. That's why unionized refinery workers pledge to employ civil disobedience if pipeline construction ever proceeds.

Who else loses? Former CIBC World Markets chief economist Jeff Rubin says everyday consumers. As Rubin wrote in the Globe & Mail, "connecting land-locked oil to an ocean is a great outcome for the Suncors, Shells, and Imperial Oils of the world, but what does it do for Canadians filling up at the pumps?" Rubin argues that "as more Alberta oil ends up on the high seas, the more Canadian oil prices will mirror the higher prices paid in the rest of the world. When the price of oil rises, clearly, the cost of gas at your neighbourhood station goes up as well."

Other economists, including Leach and Antweiler, say it's not that simple. However, most can agree on one result: as the price goes up, oil sands operations will expand. Bitumen is complicated and costly to extract. When the price of a barrel falls too far, the product is not worth mining. A report published in December by two former Deutsche Bank analysts calculates that break-even minimum at $65 per barrel. Werner Antweiler says even below $80, most deeper reserves are effectively locked away. But new export pipelines would prompt a surge in new production — at least until the next supply glut.

The showdown

Last month Bloomberg Businessweek magazine called Canada's oil sands a "shaky investment". State-owned Chinese oil companies are frustrated with the slow pace of pipeline approval, voiced most memorably by CNOOC executive Chen Weidong: "It’s the same situation as the leftover single women. It will be the same for the oil sands, they will be outdated." That was more than a year ago. If Chen was right, perhaps the window is already closing.

Certainly a sense of urgency is gripping both camps. On the one side are those with the most to gain from a hypothetical spike in WCS prices: foreign and Canadian-owned oil producers, pipeline companies, and Alberta politicians. On the other side are those who bear the most risk: First Nations, refinery workers, B.C. municipalities, the B.C. government, and citizens concerned about oil spills or climate change. Whether the pipelines are worthwhile depends on one's personal situation.

The proponents spend impressive sums to fund think tanks, ad campaigns, and lobbying — all of which helps push their language into the mainstream. Like a "fair price" for Canadian crude. But in a free market, fairness is determined by the buyer, not the seller. It's curious that journalists and government officials would feel bitumen needs their help to sell. The fact is, if crossing B.C. is not an option, the product will find buyers in other directions. Or it won't.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

This is a guest post by Seth Godin, originally published on Seth's Blog.

Today would be his 124th birthday. A fine occasion to think about the effects of industrialization, and what happens when short-term profit-taking meets marketing.

Midgley is responsible for millions of deaths. Not directly, of course, but by, "just doing his job," and then pushing hard to market ideas he knew weren't true—so he and his bosses could turn a profit.

His first mistake began when he figured out that adding lead to gasoline appeared to make cars perform better. At the time, two things were widely known by chemists: 1. Adding grain alcohol to gasoline dramatically increases octane and performance, and 2. Ingesting or sniffing lead can lead to serious injury, brain damage and death.

The problem for those that wanted to be in the gasoline business was that grain alcohol wasn't cheap, and the idea couldn't be patented. As a result, the search was on for a process that could be protected, that was cheaper and that could open the door for market dominance. If you own the patent on the cheap and easy way to make cars run quieter (and no one notices the brain damage and the deaths) then you can corner the market in a fast-growing profitable industry…

As soon as the lead started being used, people began dying. Factory workers would drop dead, right there in the plant. Even Thomas himself contracted lead poisoning. Later, at a press conference where he tried to demonstrate the safety of the gasoline, he washed his hands in it and sniffed it… even though he knew it was already killing people. That brief exposure was sufficient to require six months off the job for him to recover his health.

Does this sound familiar? An entrenched industry needs the public and its governments to ignore what they're doing so they can defend their status quo and extract the maximum value from their assets. They sow seeds of doubt, and remind themselves (and us) of the profts made and the money saved.

And we give them a pass. Because it's their job, or because it's our job, or because our culture has created a dividing line between individuals who create negative impacts and organizations that do.

People who just might, in other circumstances, stand up and speak up, decide to quietly stand by, or worse, actively lie as they engage in PR campaigns aimed at belittling or undermining those that are brave enough to point out just how damaging the status quo is.

It took sixty years for leaded gas to be banned in my country, and worse, it's still used in many places that can ill afford to deal with its effects.

After leaded gasoline, Midgeley did it again, this time with CFCs, responsible for a gaping hole in the ozone layer. He probably didn't know the effects in advance this time, but yes, the industry fought hard to maintain the status quo for years once the damage was widely known. It's going to take at least a millenium to clean that up.

We might consider erecting a statue of him in every lobbyist's office, a reminder to all of us that we're ultimately responsible for what we make, that spinning to defend the status quo hurts all of us, and most of all, that we have to balance the undeniable benefits of progress, innovation and industry with the costs to all concerned. Scaling has impact, so let's scale the things that work. No, nothing is perfect, but yes, some things are better than others.

I can't imagine a better person as the symbol for a day that's not about honoring or celebrating, but could be about vigilance, candor and outspokenness instead.

Image Credit: wikipedia

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The Harper government has been using taxpayer money to sharpen its marketing toolkit in the debate over natural resource development. According to a recent report from Léger Marketing, Natural Resources Canada (NRCan) commissioned the company to perform pre- and post-testing of their $9 million Responsible Resource Development advertising campaign.

Aside from revealing the extraordinary cost the Harper government is willing to foot in order to assure that the country gets a sunny picture of its economic policies, the report provides a unique behind-the-curtain view of the mechanics involved in selling energy and resource development to Canadians.

The reasoning behind the move to hire a marketing firm seems relatively innocuous: “It will be important in this environment to encourage Canadians to become better informed about the development of Canada’s natural resources and the critical impact to Canada’s economy that contributes to our economic growth and jobs, and through generated tax revenues helps to maintain important social programs like health, education and pensions.”

However, the report reveals Léger used focus groups to test not only comprehension and recollection of the message in the ads, but also “the extent to which Canadians were impacted by the language, content and context of the advertising concepts.”

The first round of ads was tested on people who represented “a good mix of ethnic, educational and socio economic backgrounds” in Vancouver, Prince Rupert, Moncton, Mississauga, London and Quebec City in November 2012. In total, 2000 Canadians were interviewed.  

The first two concepts entitled “Let’s do Both” and “Canada’s Moment” highlighted the ways in which Harper government’s Economic Action Plan (EAP) was balancing environmental impact and job creation.

This first round of commercials were said to leave subjects feeling confused. The images they saw didn’t give respondents an adequate idea of how they might personally benefit from resource development. Worst of all, they felt that they couldn’t see how the government would balance resource development with environmental protection. They believed “the concepts were missing hard facts or evidence regarding the claims presented.”

This prompted NRCan to request another $4 million for their advertising budget to produce a second round of ads. These three new ads offered a much more pleasant and focused picture of Canada’s natural resource policies, with heavy emphasis on oil extraction and transportation.

This time they got the desired result. Focus groups in Vancouver, London and Quebec City “readily understood the messages conveyed by the ad concepts and mostly viewed them as uplifting, many spontaneously saying that it made them proud to be Canadian.”

The third of the new ads, “Environment and Safety” even “reassured many people that the Canadian government was doing something to protect the environment for future generations.”

Without changing a single policy, the EAP went, in the eyes of focus groups, from hurting the country’s environment to saving it.

Never mind that several of the examples presented in the commercials—shipping safety along BC’s coast, oil pipelines in Ontario—refer to issues that are being hotly debated on ethical grounds. The stirring nationalistic tone banished any questions.

Using Canadian identity to sell environmentally questionable resource development is nothing new. Many are familiar with the advertisements from Cenovus that played before films at Cineplex movie theatres last year. Alongside stirring images of the Canadarm and the majestic peaks of the Rocky Mountains, it told us that the word Canada is “spelled with a can — not a can’t,” implying that if we don’t use all the technology available to extract and sell our oil, we've failed at being Canadian. 

Vision of Alberta's tar sands, as artistically rendered by Cenovus.

NDP Treasury Board Critic Mathieu Ravignat told the Canadian Press the government ads are nearly indistinguishable from ads released by the Canadian Association of Petroleum Producers, Canada's largest and most powerful oil and gas lobby. 

"If you put the ads next to each other — the government ads and the Canadian Association of Petroleum Producers ads — what's going on is damage control," Ravignat said.

"We've got an industry which doesn't have the best reputation, we've got a government helping part of the industry in order to sell itself as responsible."

The difference here is that our government is paying for the EAP advertisements with our taxes. Sure, it’s important for our government to keep us up to date but if, as the interviews uncovered, most Canadians already understand “the importance of natural resources for Canada’s economy and for job creation,” what is the function of this kind of advertising?

Is the Harper government using its advertising budget to inform us of neutral facts or to sell us on practices that it knows make us queasy?

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.