For years, we’ve been told again and again (and again) that Kinder Morgan’s proposed expansion of the Trans Mountain pipeline is desperately needed for producers to export oil to Asian countries and get much higher returns.

The way it’s been framed makes it seem like it’s the only thing standing between Alberta and fields of gold.

Small problem: Canadian producers already have the ability to ship their heavy oil to Asia via the existing 300,000 barrel per day Trans Mountain pipeline — but they’re not using it.

“Virtually no exports go to any markets other than the U.S.,” economist Robyn Allan told DeSmog Canada. “The entire narrative perpetrated by Prime Minister Trudeau and Alberta Premier Notley is fabricated.”

In 2017, the Port of Vancouver only shipped 600 barrels of oil to China. That’s less than a tanker load. That same year, the port shipped almost 13 million barrels of oil, or about 24 Aframax tanker loads, to the U.S.

In other words: oil tankers are being loaded in Vancouver, but instead of heading to vaunted Asian markets, they’re heading south to California.

Shipments to Asia reached their peak seven years ago when the equivalent of nine fully loaded tankers of oil left Vancouver for China. Since then, oil exports to Asia have completely dropped off.

Some experts suggest exports to Asia are very unlikely to rebound in the short-term, with producers from many other countries continuing to dominate such markets. Others take a more long-term view, remaining optimistic that opportunities will arise over time — and only after the pipeline is actually built

“There’s no appetite in Asia for heavy oil,” said Eoin Finn, former partner at KPMG, in an interview with DeSmog Canada. “They don’t have the refineries to refine it. And the world is swimming in light sweet crude that’s cheaper and easier to refine, and altogether more plentiful.”

“There’s no appetite in Asia for heavy oil. They don’t have the refineries to refine it. And the world is swimming in light sweet crude that’s cheaper and easier to refine, and altogether more plentiful.” https://t.co/XCN92a02eS

— DeSmog Canada (@DeSmogCanada) April 19, 2018

No guaranteed access to Asian markets

One challenge is that the Port of Vancouver can’t even physically fit the size of tanker required to economically compete with other shippers of oil to Asia.

The largest class ship that is allowed in Burrard Inlet is what’s known as an “Aframax.” It can only be filled to 80 per cent capacity due to depth restrictions. That means a tanker from the Port of Vancouver can only ship 550,000 barrels at a time.

Meanwhile, Very Large Crude Carriers — yes, that’s actually their name — are now embarking from Louisiana via its brand new port, carrying two million barrels each. They’re also used by many Middle Eastern producers.

Practically, this means that Trans Mountain will have a harder time competing with producers in countries that can pay far less to ship their cheaper-to-refine oil in much larger ships. Trans Mountain supporters suggest this could become quickly irrelevant if situations change: say, a war breaks out in the Middle East and takes millions of barrels per day offline.

There’s also no guaranteed demand for Alberta’s lower quality crude on the other side of the Pacific. While 13 producers and shippers have signed long-term contracts with Trans Mountain — a fact that’s leaned on heavily by the company to make its business case, as they represent 80 per cent of expanded capacity — none have buyers in Asia yet.

“It’s a bit of a chicken and egg scenario. You need to build that pipeline before people are going to spend billions of dollars configuring their refineries to take your crude,” Jackie Forrest of ARC Energy Research told the CBC in a 2017 interview.

It’s expected that “sample shipments” of oil would be sent to various markets for testing once the pipeline was built.

But there’s very little proven interest in Alberta’s hard-to-refine oil. Instead, Asian countries are continuing to rely on imports of light sweet crude from Middle Eastern locales like Saudi Arabia, the United Arab Emirates, Iran, Qatar and Iraq. At this point, that appears unlikely to change in a significant enough way to make Alberta oil competitive.

Price discount results from lack of capacity, not location

The reality is that Alberta oil will always sell at a discount to lighter crude with greater market access.

In fact, back in 2014 a vice-president at the Canadian Association of Petroleum Producers told the Toronto Star that “there’s always a natural discount in the range of $15 to $25 [per barrel].”

In recent years, the “discount” has hovered around $10/barrel.

Nothing about a new pipeline will change the fact that Alberta’s heavy oil takes more effort to refine into usable products and is located farther from major markets than most other sources.

“It’s the lack of pipeline capacity that creates the price discount for Alberta. It’s not where that pipeline capacity goes. It’s not the difference between the U.S. Gulf and Asia,” Tom Gunton, professor and director of Simon Fraser University’s resource and environmental planning program, told DeSmog Canada.

“It’s got to do with that there’s not enough pipeline capacity.”

When Trans Mountain was pitched in 2013, there was a legitimate shortage of pipeline capacity, a reality made more concerning to industry by massive production forecasts for future decades. It seemed like an imminent and long-term backlog was about to emerge — which would actually lead to a price discount.

But then the 2014-15 price crash happened, new pipelines came online and dozens of proposed oilsands projects were either scrapped or put on hold.

When former U.S. president Barack Obama’s vetoed TransCanada’s Keystone XL pipeline in 2015 the backlog idea began gaining traction once again. But the veto has since been rescinded by President Donald Trump.

Gunton said that if you combine Keystone with Enbridge’s Line 3 and the proposed Mainline expansion, “there is more than enough pipeline capacity to meet all of Alberta’s needs without Trans Mountain” meaning that no serious price differential will emerge.

TransCanada spill in South Dakota responsible for current discount

The main reason that Alberta is currently experiencing a larger differential than usual (around $25/barrel) is because TransCanada’s Keystone pipeline spilled almost 10,000 barrels of oil into a South Dakota field in November — the third incident from the pipeline since 2010.

That resulted in a two-week shutdown, and the pipeline has been running at 20 per cent reduced pressure ever since.

As Allan pointed out in a letter to the Calgary Herald, this means that around 120,000 barrels per day have been backlogged, accounting for the widening differential. You can basically see the moment when the spill happened on differential estimations, increasing from $11/barrel in November to $25/barrel in February.

It is not a lack of market access to Asia that gutted returns for oil companies — it’s a pipeline spill. The phenomena of spills squeezing pipeline capacity is something Allan has previously documented.

Gunton said that even the two reports submitted by Kinder Morgan to the National Energy Board — the first of which was striked as evidence after its author, Steven Kelly, was controversially appointed to the regulator — didn’t identify an “Asian premium.” Instead, they argued that some of the shipments out of Alberta would have to go by rail due to inadequate pipeline capacity, reducing netbacks to producers. That’s no longer true.

“That’s another big lie that there’s this big demand in Asia,” said Green Party leader Elizabeth May. “There’s this series of assumptions that are repeated so often that nobody questions them.”

Most expanded capacity will end up in California, not Asia

But while politicians like Rachel Notley continue to repeat the fiction “that there is now and will always be a pretty substantial market for bitumen in the Asia-Pacific” many analysts have identified that most oil shipped from the expanded Trans Mountain line via Vancouver (with a significant chunk already diverted in Abbotsford to Washington refineries) will end up in California in the short term.

A 2013 report from the University of Calgary’s School of Public Policy argued: “Movement of crude supplies originating in Vancouver should satisfy U.S. West Coast demand before the first barrel crosses the Pacific to Asia.”

This is mostly because California is facing declining domestic production and imports from Alaska’s North Slope. Additionally, it already has refineries in place to process heavy oil, and Albertan bitumen could directly compete with Mexican Maya, a similar quality crude.

Based on 2017 data, only 3.4 per cent of California’s foreign crude imports came from Canada. That same year, half of the state’s imported oil came from Saudi Arabia, Ecuador and Colombia — which can all produce at far lower costs than Alberta. The state’s Low Carbon Fuel Standard also rewards crude oil with lower carbon intensity, further benefiting OPEC exporters over Alberta.

“There’s no premium to go to California,” Finn said. “There’s probably a discount because it’s farther and costs more to have ships go down there.”

U.S. Gulf Coast remains most lucrative location

So where is Alberta’s slowly-but-surely increasing oil production supposed to go? Well, where it’s always gone — to the U.S. Gulf Coast, aided by TransCanada’s Keystone XL and Enbridge’s Line 3 pipelines.

Compared to shipping via tankers from Vancouver, the Gulf offers comparatively cheaper transportation fees and existing heavy oil refining capacity.

In addition, both Venezuela and Mexico’s heavy oil production have also been in steady decline in recent years, providing even more potential for Alberta to fill existing refinery capacity in the Gulf.

“As we implement climate policies and as the world transitions away from fossil fuels, production in Alberta is not going to grow very much,” Gunton said.

“It’s the highest-cost producer in the world. Consequently, the demand for pipelines is down. And there is more than enough pipeline capacity to meet all of Alberta’s needs without Trans Mountain.”

Economic circumstances have shifted dramatically since 2013 when Kinder Morgan first proposed the pipeline, which raises the question: does the company want to back away from the project for reasons that stretch beyond the opposition its facing in British Columbia?

Even with both the Alberta and federal governments discuss bailing out the private project, in an investor call on Tuesday, Kinder Morgan indicated the investment may still be “untenable.”

If the company walks, a government could either purchase the $7.4 billion project as hinted at by Premier Notley. Or, Kinder Morgan may opt to sue the Government of Canada via NAFTA.

Whatever happens, one thing seems certain at this stage: it’s not going to be predictable.

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The federal government has announced over $12 million to enhance protections for endangered whales on the West Coast, especially the endangered Southern resident killer whale.

That population, at 76 animals, is at its lowest point since live capture for aquariums was banned in 1975, prompting urgent calls for federal intervention.

As part of the $1.5 billion federal Oceans Protection Plan, $9 million of the newly announced funds will go towards reducing collisions between ships and whales.

Another $3.1 million is set aside for research into threats to whales, underwater listening stations and research into the health of chinook salmon populations, the prefered food source for Southern resident killer whales.

David Hannay, chief science officer of JASCO Applied Sciences, which operates a listening station in the Strait of Georgia, welcomed the news.

“I think it’s a very good thing. I believe that noise has been overlooked,” he told DeSmog Canada. “These animals use sound the way humans use vision.”

Hannay says traffic noise has been steady over the two-and-a-half years the company has been monitoring the area.

Andrew Trites, director of the UBC Marine Mammal Research Unit which will receive $1.1 of the new funding, said he welcomes a federal government friendly to research and science.

“We only have to think back to the previous federal government when so many scientific programs were cut. I’m quite excited for what lies ahead.”

“The population is small and declining, and the decline is expected to continue.” https://t.co/QTdLKFvctr

— DeSmog Canada (@DeSmogCanada) March 16, 2018

More action to protect killer whales urgently needed

While some are celebrating government’s commitment to further research, some scientists say what’s urgently needed is action, not more study.

“We could study them literally to death at this point,” says Paul Paquet, adjunct professor at the University of Victoria and senior scientist with the Raincoast Conservation Foundation.* 

“What we’re really looking for from the federal government right now is threat reductions,” says Misty MacDuffee, a biologist at Raincoast.

In February, Raincoast, along with a number of other prominent NGOs including Ecojustice, David Suzuki Foundation, and the World Wildlife Fund, asked the government to immediately issue an emergency order under the Species At Risk Act to protect salmon stocks and habitat for the whales by the beginning of March.

The groups pointed out killer whales’ feeding grounds and the salmon populations they depend on have been deteriorating at the hands of noisy and dangerous ship traffic, chemical pollutants, commercial and recreational fisheries, warmer water temperatures and other industrial activity for decades.

The federal government did not impose emergency orders to protect the whales by March 1, as the groups requested, but fisheries minister Dominic LeBlanc told the Canadian Press Thursday that there could be action coming soon.

“We’re going to be making a series of decisions in the coming weeks that may necessarily represent some disruption for certain sectors but will be guided by scientific advice and our solemn responsibility to ensure the protection and recovery of southern resident killer whales,” LeBlanc told the news service.

According to the scientists, some follow-through is long overdue.

“Our major concern is that most of this has been well known since the early 2000s,” Paquet said.

In 2008, the federal government released a recovery strategy for Southern resident killer whales, which at times took on a gloomy tone.

“The population is small and declining, and the decline is expected to continue,” it read.

“Southern residents are limited by the availability of their principal prey, Chinook salmon. There are forecasts of continued low abundance of Chinook salmon. Southern residents are also threatened by increasing physical and acoustical disturbance, oil spills and contaminants.”

“It was clearly acknowledged by our federal government in 2008,” Paquet said. “We’ve been waiting and waiting for the government to take some sort of action that would at least contribute to the protection of killer whales, but none has been taken to date.”

But Trites welcomed the opportunity to do more research, saying the vast majority of studies done on B.C.’s killer whales is focused on the Northern resident population.

“The Southern resident population — they’re the outlier. Other killer whales are doing extremely well. On top of that other marine mammals off the coast of B.C. are doing well,” Tites told DeSmog Canada.

The Southern resident population resides in waters near Vancouver Island and travel as far south as California, some of the busiest waterways for the species, Tites said. He added there are other species putting pressure on the whales, like an increasing population of sea lions that compete for chinook.

“There are lots of things at play here. I think we know enough to take some initial steps to lesson stressors on these whales. But we need more research to be effective.”

“I can tell you I’ve spent my entire career studying ecosystems and changes and usually what you think is the most obvious cause it not the cause at all,” Tites said.

Trans Mountain pipeline clashes with species at risk

MacDuffee said announcements like today’s obscure the federal government’s lack of concrete steps like habitat restoration, creation of protected areas, noise restrictions, fisheries closures and quota reductions — actions she says are less politically palatable than research funding.

Southern resident killer whales were listed as endangered in 2003, the same year Northern resident killer whales were listed as threatened. It look the federal government five years to release a recovery plan.

Despite the listing, the federal government has failed to introduce key measures to protect critical habitat.

In 2012 the environmental legal firm Ecojustice took Canada to court for failing to protect critical habitat for Northern and Southern resident orcas within the 180-day window mandated by the Species At Risk Act.

“The government has produced a recovery strategy and it’s produced an action plan, but so far these documents are just plans to make plans,” Dyna Tuytel, a lawyer for Ecojustice told DeSmog in February.

“What’s needed is to actually implement what we’ve learned about the species and what needs to be done.”

In October 2017 Raincoast and the Living Oceans Society took the federal government to court for approving the Kinder Morgan’s Trans Mountain pipeline without assessing how the project’s seven-fold increase in oil tanker traffic would affect Southern Resident killer whales.

According to the two groups, the Trans Mountain project represents an existential threat to the population.

The project’s approval has led some experts to criticize Canada’s soft approach to species at risk legislation.

Ship noise is already harming the whales, according to a recent study. It found noise from up to 1,600 ships over the two-year study period was blocking their ability to find their prey.

The Port of Vancouver’s ECHO program has received international recognition for its trial of a slowdown zone in Haro Strait, which concluded that slowing down had a measurable effect on ambient noise in nearby critical killer whale habitat.

The goal of the EcoAction Incentive Program, developed as a result of research conducted by ECHO, is eventually to develop a fee system for ships that would depend on the noise they generate, incentivizing companies to invest in quieter, but more expensive ships.*

MacDuffee and Paquet say that such reductions in speed and the associated noise are essential — but that they need to be implemented now, rather than waiting for the results of further study.

* Update: March 19, 11:38 am PST. This story was updated to note the fact that Paul Paquet is a senior scientists with the Raincoast Conservation Program and to clarify the goal of the EcoAction Incentive Program.

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With news of the Port of Vancouver ruffling the feathers of the federal government by issuing a permit for a jet fuel pipeline without so much as a heads up, the port authority’s integrity has been thrust into the spotlight yet again.

While the port has apologized to Transport Minister Marc Garneau, the thorny issue of the port conducting environmental reviews of projects, while profiting from the same projects, remains.

Complicating matters, the Vancouver Fraser Port Authority (which regulates the Port of Vancouver) is a member of the Coal Association of Canada — a lobby group that glosses over the impacts of burning coal on climate change and that has gained notoriety in recent weeks for spreading misinformation about the phase-out of coal-fired electricity in Alberta.

The port authority has also been outed in the past for a covert and intimate relationship with the Vancouver-based Coal Alliance, an aggressive lobby group with a membership that includes rail companies, export terminals and other lobby groups.

Meantime, the port authority was responsible for reviewing the $50-million Fraser Surrey Docks coal-transfer terminal that would export more than four million tonnes of thermal coal to Asian markets — which it approved in December 2015.

“If you’re going to be a member of some other organization or alliance and you approve the projects that are related to that membership, it puts into question the fairness of the decision-making process and leads one to question whether or not they’re biased — whether or not things are predetermined,” says Paula Williams, who co-founded Communities and Coal, a Vancouver-based organization that opposes the export of thermal coal from the port.

Port Authority Part of Coal Lobby, Also Responsible for Regulating

The transportation of coal has been critical to the port’s recent financial successes. In 2015, the port sent out 35 million tonnes of the stuff, compared to 25 million tonnes of grain, speciality crops and feed and 23 million tonnes of forest products — and that was a slow year on the coal front.

If the port authority was just serving as landlord, it would make sense for it to collaborate with coal lobby groups to push for increased exports and generate as much profit as possible for its owners.

But the port authority’s mandate also requires it to fulfill duties such as the “safety and security of all land and waters” and the “permitting of all projects proposed for the use of federal port land.” In a single word: regulating.

“They shouldn’t be doing both,” says Voters Taking Action Against Climate Change (VTACC) director Kevin Washbrook, who notes the port authority has approved every coal export project that’s come before it in recent years.

VTACC is one of four plaintiffs that have taken the port authority to court on allegations of bias and failing to consider climate change impacts when approving the permit for the Fraser Surrey Docks coal terminal.

A federal court is currently evaluating a request by Vancouver Fraser Port Authority and Fraser Surrey Docks to toss out the lawsuit filed against them.

“That’s really why we’re taking them to court: we think the public interest isn’t being met by this dual mandate,” Washbrook told DeSmog Canada.

Port Authority Covertly Sponsored Coal Conference in 2013

A series of disturbing revelations about the port authority’s intimate relationship with the coal industry came out in late 2013, courtesy of digging by Voters Taking Action Against Climate Change.

First came the news the port authority had been swapping e-mails with National Public Relations (a firm connected with the Coal Alliance that has lobbied the federal government on behalf of Fraser Surrey Docks). The Vancouver Sun described the exchange as seeming “as if they were allies, rather than as a public regulator and private proponent.”

In one instance, the two entities traded information on a VTACC protest, with the port authority directing media inquiries to Alan Fryer, a senior consultant for National Public Relations and lobbyist for the Coal Alliance.

A month later, it was revealed the port authority covered up its sponsorship of the 2013 Coal Association of Canada conference, including a $5,000 contribution and golf swag, because it was concerned about “press and public backlash.” The Vancouver Sun noted the Vancouver Fraser Port Authority had publicly sponsored the conference in 2012.

“They get it in the sense that it doesn’t look good,” Washbrook says. “Whether they think that it’s actually a bad thing: I’m not sure.”

Washbrook notes the port authority’s response to pressure for more regional involvement and transparency has been to launch a Twitter feed, YouTube channel and run some TV commercials. None of those PR products mention coal at all, he says.

Tangled Web of Business Relationships 

Williams of Communities and Coal suggests it may also be worth paying attention to some other business relationships that encircle Vancouver Fraser Port Authority and Fraser Surrey Docks.

In 2011, SNC-Lavalin, the embattled Montreal-based engineering services firm, bought a 23 per cent share in AltaLink (an electricity transmission company) from Macquarie Essential Assets Partnership .

The partnership is owned by a subsidiary of the Macquarie Group, a member of which owns Fraser Surrey Docks.

In 2013, Fraser Surrey Docks contracted SNC-Lavalin to prepare the environmental impact assessment, which was described by Vancity credit union as “entirely inadequate” and criticized by activists as being limited in scope.

Then, in 2014, SNC-Lavalin sold AltaLink to Warren Buffett’s Berkshire Hathaway, which owns BNSF Railway, the company transporting the coal to the Port of Vancouver. Both BNSF Railway and Fraser Surrey Docks are members of the Coal Alliance.

Williams emphasizes that a trail of prior business isn’t necessarily a problem. But given the port authority’s habit of getting a bit too cozy with private industry, it’s a trend that might be worth paying attention to in the future.

“[Vancouver Fraser Port Authority] should not have a say in the decision of whether or not to approve a project at the port,” she reiterates. “This should not happen. They should be removed from that. They can have an opinion and give their input, but they shouldn’t be part of the decision-making process.”

Citizens Push for More Input

Opposition to the way the port is doing business continues to build.

Washbrook notes that people in North Vancouver are fighting the proposed G3 grain terminal, while folks in Delta are concerned about the Roberts Bank Terminal 2 project. Meanwhile, people in Richmond worry about Agricultural Land Reserve property being bought up and the small leaseholders the port is “shaking down” for exorbitant increases in water lot lease rates.

All have common interests, he says: more regional inputs, more representation, a more transparent and open processes.

If the VTACC lawsuit doesn’t get derailed by the port authority and Fraser Surrey Docks, the verdict could help shape the future conversation. But ultimately, solving the issue seems to come back to the federal government and its power to amend the Canada Marine Act to redefine the mandate of port authorities.

“I think there are discussions happening in Ottawa right now about how to reform the ports,” Washbrook says. “The question will be about how much of that is an inside discussion that tweaks things, and how much of it brings about meaningful reform.”

Image: Jason Mrachina/Flickr.

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