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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Last week gasoline prices soared in southern B.C., with the price at the pump in Vancouver hitting over $1.55 per litre. This was not due to a restriction of supply, although Alberta Premier Rachel Notley jumped on the opportunity to once again misrepresent reality in order to draw erroneous conclusions supporting the need for Kinder Morgan’s Trans Mountain expansion.

“There are a lot of ways in which the province of B.C. can assure an adequate supply of gasoline in order to combat the ridiculous prices that they pay,” Notley said in Calgary last week.

If B.C. wanted to keep gasoline prices low, she said, it should stop opposing the Kinder Morgan oil pipeline expansion as it would increase “the ability of Alberta to ship more product to the West.”

Notley assumes B.C. needs more crude oil to supply the Parkland refinery in Burnaby and more refined petroleum product to supply the retail outlets that Parkland’s refinery does not. She also assumes that building Trans Mountain’s expansion means Alberta’s oil producers and refiners will ship more product to B.C. Neither assumption is correct.

Let’s review the facts.

High gas prices are not due to a shortage of supply.

Gas prices are not high because of a lack of supply. There is plenty of supply to serve the B.C. market.

High gas prices are the result of a decades old strategy in Alberta to charge what the market will bear, not charge based on the costs of production and delivery (including a reasonable return on investment) as would be the case in a well-functioning market. This unfair or predatory pricing is sometimes referred to as price gouging. This reality exists to varying degrees all across Canada, although it is more prevalent in Lower Mainland and Vancouver Island markets.

Every time the pain at the pumps from this inappropriate pricing practice becomes obvious, it appears industry apologists are standing at the ready to trot out phoney “reasons” for the increase in gas prices.

The facts show B.C. exports more gasoline than it imports. Port of Vancouver statistics reveal that during 2017, exports to the U.S. exceeded imports by almost 70 per cent, giving rise to net gasoline exports of 6,000 barrels a day. There is no supply shortage in B.C. — chronic or otherwise.

Kinder Morgan’s new pipeline will not increase the shipment of product to B.C.

Trans Mountain’s expansion is intended to ship 540,000 barrels a day of diluted bitumen — heavy oil — to the Westridge dock for offshore export. None of this crude is destined for B.C.

The Parkland refinery already receives all the light crude oil it can refine from the existing pipeline so there is no shortage there. Further, the refinery is not configured to use heavy oil like diluted bitumen from the oilsands. This is why a heavy oil pipeline through B.C. is of no benefit to B.C.

As far as refined product is concerned, Kinder Morgan’s business case for the Trans Mountain pipeline is explicitly based on no increase in crude oil or refined product supply to B.C.

Kinder Morgan told the National Energy Board (NEB) that “refined product shipments will not increase as a result of [the Trans Mountain Expansion Project].”

Unfair pricing at the pump will not change no matter what happens with the Trans Mountain expansion because it is not due to a scarcity of supply. Addressing the failure of the market to fairly determine gasoline prices requires policy direction from government and meaningful regulation.

If the Trans Mountain pipeline expansion is built, B.C.’s gas prices will increase. https://t.co/htqlwYcGeC

— DeSmog Canada (@DeSmogCanada) March 28, 2018

If the Trans Mountain expansion is built, B.C.’s gas prices will increase.

We know regional gas prices will rise if Trans Mountain’s expansion proceeds because the NEB approved an increase in toll rates on the existing pipeline that guarantees it. The board gave Kinder Morgan permission to more than double the cost of delivering a barrel of gasoline or diesel to B.C. motorists on the existing pipeline in order to help pay for the new one.

Higher transportation costs on the existing line will ratchet up pump prices. Producers and refiners consider increased transportation costs a cost of doing business and they get passed onto end-users.

Trans Mountain’s expansion — a heavy oil pipeline Notley maintains is for the benefit of offshore markets in Asia — is not commercially viable unless B.C. consumers and businesses subsidize it through higher gas prices here at home.

Big Oil needs B.C.’s market demand more than B.C. needs Alberta’s refined product.

Notley has threatened B.C. with an ultimatum — stop resisting the expansion or face serious supply restriction. But her threat to “turn off the taps” is idle.

Kinder Morgan and Alberta’s oil producers and refiners will not allow this kind of behaviour. It would send shock waves through the international business community and will fundamentally cost Alberta’s oil sector more than it will cost B.C.

B.C. is an important market for Alberta’s refiners and light oil producers.

If supply from Trans Mountain is shut off, the Parkland refinery can turn to offshore crude while other retail distribution systems can seek imported refined product — likely at lower prices if existing supply agreements are rendered invalid through Alberta legislated restrictions. A marine terminal to deliver jet fuel to the Vancouver International Airport is in the process of being constructed with the expressed purpose of being able to access jet fuel supply at lower cost from numerous markets.

Turning off the taps in B.C. would flood the Prairies and end up costing Alberta’s refinery sector.

Since the Trans Mountain pipeline delivers gas from Edmonton refineries to B.C., if supply were to be curtailed, downward pressure on retail prices in Prairie markets would mount because of a corresponding over-supply there.

That would mean every barrel supplied in Alberta would take some hit — not just the barrels diverted from B.C.

In order to limit supply in one market without a corresponding loss, there needs to be demand in another. The demand is not there.

Which companies are poised to take the hit in Alberta? Suncor, Imperial and Shell.

Suncor is poised for a double whammy. Suncor is the major shipper of refined gasoline and diesel product to B.C. along Trans Mountain for sale in Petro-Canada stations, but also under agreement with other retail outlets.

There is little likelihood Suncor will break contracts and destroy long-term business relationships with others in B.C. undermining not only its short-term, but long-term profitability in order to support Notley’s political posturing.

Kinder Morgan has too much to lose if shipments along its pipeline are curtailed — including the ability to finance its project.

Notley has not connected the dots between Kinder Morgan Canada Limited’s (KML) revenue stream and the company’s ability to proceed with the Trans Mountain expansion, either.

Current toll rates charged on the existing pipeline provide a significant portion of the company’s cash flow. It is not trivial.

Interrupting Kinder Morgan Canada’s revenue stream by limiting supply impedes the company’s ability to pay dividends to its shareholders. This not only hurts Canadian investors, it particularly hurts Kinder Morgan’s ’s Texas-based parent Kinder Morgan Inc. (KMI) in Houston.

Kinder Morgan senior still owns 70 per cent of the Canadian company. KMI needs dividends from the Canadian operations to support its ongoing financial challenges. An interruption of Trans Mountain’s existing revenue stream would get in the way of KMI’s cash flow needs .

Interruption of Trans Mountain’s existing revenue stream, by limiting pipeline shipments, would also impede Kinder Morgan Canada’s ability to pay dividends on its $550 million in outstanding preferred shares.

As well, Kinder Morgan Canada still needs to raise more than $2 billion in equity capital to help finance its expansion. Try going to financial markets to raise risk capital while revenues are impaired because of a legislated election ploy.

Finally, if reduced cash flow from “turning off the taps” — even just a little bit — causes a credit rating downgrade for the Canadian operations, Canada’s big banks could pull their $5.5 billion construction loan facility. Without the credit facility keeping the expansion afloat, the Trans Mountain expansion sinks.

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British Columbian taxpayers will be on the hook for $40 million to clean up the worst mining spill in Canadian history and the company responsible has once again escaped criminal charges after a private prosecution was dismissed this week.

In August 2014 the 40-metre-high tailings dam at the Mount Polley mine near Williams Lake collapsed, sending 25-million cubic metres of contaminated sludge and mine waste sweeping into lakes and rivers — but no charges have been laid and no fines have been levied against Imperial Metals, the parent company of Mount Polley Mining Corp.

Since 2005, Mount Polley Mining Corp and Imperial Metals Corp have donated $195,010 to British Columbia’s ruling B.C. Liberal party.

“The key message to Canadians is this was the biggest mining spill in Canadian history and there have been zero sanctions and zero fines, and certainly that’s not because of lack of evidence of damage to the environment,” said Ugo Lapointe, Mining Watch Canada’s program coordinator.

Mining Watch had launched a private prosecution of Imperial Metals and the B.C. government, alleging violations of the Fisheries Act — but federal government lawyers blocked that prosecution on Monday, arguing for a stay of proceedings as there are ongoing investigations by the B.C. Conservation Officer Service, Environment Canada and Fisheries and Oceans Canada.

The stay of proceedings and lack of government action is frustrating as there is a three-year statute of limitations on some offences, Lapointe said.

“This sets the wrong standards and sends the wrong signal to industry and other mines across Canada. It further undermines public confidence in the mining sector and erodes peoples’ trust in the ability of our regulatory system to effectively protect our environment,” he said.

Mining Watch is seeking costs and considering whether to take the case to a higher court, but public pressure is the best weapon and British Columbians should be asking politicians whether charges will be laid and demanding an explanation for the delay, Lapointe said.

A SumOfUs petition signed by more than 30,000 people urging the Trudeau government not to let those responsible off the hook will be presented shortly to federal ministers responsible for enforcing the Fisheries Act.

British Columbians On Hook For Clean-Up Costs

On top of the problem of government inaction, it is galling that Imperial Metals has not paid the full cost of the clean up, said Angus Wong, campaign manager for SumOfUs, which sponsored the petition.

“Instead British Columbians and Canadians picked up a big part of the tab,” he said.

After the dam collapsed, the provincial government assured British Columbians that under the province’s polluter-pay-rules, Imperial Metals would pick up all clean up costs resulting from the catastrophe.

But independent economist Robyn Allan, who has analyzed figures used by Imperial Metals, said in an interview that, despite those assurances by Environment Minister Mary Polak, taxpayers are picking up almost $40 million of the clean up tab, amounting to more than half of the response cost.

That figure is made up of $23.6 million in tax refunds for Imperial Metals and $15.5 million in direct costs incurred by government departments over the past two-and-a-half years, said Allan, former president of ICBC.

“Recoveries for these charges are a paltry $625,000. This is because, under B.C.’s spill cost recovery regulation, cost recovery is severely limited,” she said.

Imperial Metals estimated clean up costs at $67.4 million, a figure that has not changed in more than two years.

Under provincial rules, bonds posted with the province are supposed to cover reclamation after the mine closes, not environmental damage from an accident, and mining companies are not required to prove they have insurance or the financial resources to pay for damage they cause.

“The problem with this provincial government is that they have not made sure, when unintended environmental harm happens, that these companies have enough money to respond,” Allan said.

And, more such spills can be expected according to the independent expert engineering panel that looked at the Mount Polley disaster and predicted two such tailings storage failures are likely each decade unless half the 123 storage facilities in the province are decommissioned.

“The province has taken no steps to develop the recommended decommissioning strategy, but continues to approve wet tailings storage facilities such as Imperial Metals’ Red Chris mine,” Allan said.

“B.C. taxpayers can expect to continue to pay for environmental harm because the provincial government refuses to take steps to implement meaningful policies that ensure that, when the polluter pollutes, it is the polluter and not B.C. taxpayers that pay,” she said.

Mount Polley closed after the dam breach, but re-started full production the following year and Imperial Metals then opened the Red Chris copper mine in north-west B.C. which has a tailings pond and dam instead of dry stack tailings recommended by the expert panel.

Red Chris has raised alarm signals in south east Alaska because the tailings storage facility is upstream from Alaska’s rich, salmon-bearing rivers.

Meanwhile, residents of the area affected by the Mount Polley spill say more work is needed to restore the lakes and waterways.

“We remain concerned with the ongoing discharge of mine effluent into Quesnel Lake,” said Christine McLean of Concerned Citizens of Quesnel Lake in a news release.

“As local residents and businesses, depending on these fish and waters, we want the B.C. government to restore Quesnel Lake and surrounding watershed to pre-breach conditions. We are not opposed to mining development, but we demand that governments enforce laws and ensure all mines operate in a responsible manner,” she said.

The tailings dam disaster is not over for those that live on the land and water and depend on the salmon, said Bev Sellars, chair of First Nations Women Advocating Responsible Mining.

“Nor is it over for those living in the shadows of other existing and planned mines across B.C. What is the point of having laws if governments and industry are not held accountable when they are violated?” she asked.

It is a question being asked with increasing regularity by other organizations concerned about the regulatory system governing B.C.’s mining industry.

A report from the University of Victoria’s Environmental Law Centre, released earlier this month, recommended a judicial inquiry into regulation of the industry saying that the public has lost faith in the province’s ability to protect the environment and communities from poor mining practices.

The ELC report singled out the Mount Polley disaster and ongoing acid mine drainage from the Tulsequah Chief mine as examples of government failing to enforce reclamation and clean up regulations.

Adding to public discomfort around enforcement of mining regulations is a stinging report, released last year by Auditor General Carol Bellringer, who concluded that government’s enforcement efforts were inadequate.

“Almost all of our expectations for a robust compliance and enforcement program were not met,” she wrote.

“The compliance and enforcement activities of both the Ministry of Energy and Mines and Ministry of Environment are not set up to protect the province from environmental risks.”

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Access to world markets for Canadian oil has been available since 1956 when the Westridge dock was constructed in Burnaby, B.C., and linked to the Trans Mountain pipeline.

The dock’s export capacity has rarely been used to its full potential in more than 60 years — yet the oil industry and politicians continue to make the argument that Canada needs new pipelines to get oil to world markets.

Here are four reasons that argument doesn’t fly.

1) Existing Export Capacity Isn’t Being Used

In 2011, the National Energy Board (NEB) provided Kinder Morgan with a favourable and unprecedented ruling when it allocated guaranteed access to the dock under 10-year take-or-pay contracts with five crude oil shippers.

Kinder Morgan promised that 79,000 barrels a day of tidewater access would lead to the development of international markets for Alberta’s crude.

It didn’t.

Guaranteed access means the dock can service 60 crude oil tankers a year. But according to statistics compiled by Port Metro Vancouver, not even a third of that number were loaded during 2016 — and most of those tankers went to U.S. ports. The equivalent of one tanker was loaded with Alberta’s heavy oil and destined for a non-U.S. port during the entire year. Seventeen went to U.S. destinations.

If Canadian oil needs to get to world markets as desperately as some claim, why isn’t existing access being used? It’s because there is no demand for it.

2) Energy East Won’t Reduce Reliance on Foreign Oil

“The lamentable state of crude oil pipeline infrastructure makes parts of this country reliant on foreign oil and our petroleum exporters dependent on the United States, which buys Canadian product at a deep discount,” wrote Conservative Senator Michael MacDonald in the Hill Times.

Eastern Canada has a dependency on imported oil because the refineries located there are configured to process primarily light oil. Energy East is intended to facilitate the transport of diluted bitumen from Alberta’s oilsands so will not reduce eastern Canada’s reliance on imported crude to any significant degree.

But there is another source of dependency on imported oil that is rarely acknowledged. Oilsands producers are dependent on imported condensate as a diluent for bitumen blending purposes. This is because oilsands heavy does not flow down a pipeline unassisted — it’s too dense.

Canada does not produce enough condensate to meet oilsands producers’ demand. Since 2005, condensate imports from the U.S. have increased significantly. For every three barrels of increased oilsands production, a barrel of condensate is imported. Thus, as oilsands production expands, Canada’s import dependency expands with it.

So if we want to see a reduction in Canada’s reliance on foreign oil imports we must advocate for a reduction in oilsands production or an increase in upgrading and refinery capacity in Alberta. Otherwise, the minute bitumen is shipped along a pipeline, it generates a growing dependency on crude imports.

3) Canadian Oil Producers Are Not Truly Dependent on U.S. Markets

Some suggest that Canadian producers are somehow dependent on U.S. markets. The majority of Canadian producers are not “dependent” on the US. They have integrated refinery operations there. To a significant extent Canadian producers supply their own crude to themselves or their joint-venture partners as U.S. refiners.

When Suncor sells into its Commerce City, Colorado, refinery, or Cenovus supplies its facilities in Wood River, Illinois, and Borger, Texas, owned in a joint venture with Phillips 66, or Husky supplies its refinery in Toledo, Ohio, it owns in partnership with BP, or Imperial and its parent, ExxonMobile, deliver crude from their joint venture to ExxonMobile’s U.S. facilities, it is hardly accurate to suggest that they are “dependent” on the U.S. market.

4) Canadian Oil Is Not Selling at a ‘Discount’

Many argue that the U.S. “buys Canadian product at a deep discount,” but that’s incorrect. There is a natural price discount between U.S. oil and Canadian heavy oil that will always exist because of quality and transportation cost differences.

Oil is traded in U.S. currency. Canadian crude is priced against a benchmark to U.S. produced light oil; West Texas Intermediate (WTI). To examine the differential and whether there is a discount that is outside the expected natural range requires that we compare WTI to Canadian crude prices. To do this for oilsands crude is to look at the price for WTI as compared to the price for Western Canadian Select (WCS)—the highest grade of Canadian heavy.

The natural discount for WCS compared to WTI, according to the National Energy Board is about 30 per cent — or roughly $20 US per barrel. A price differential of WCS to WTI of less than $20 U.S. would therefore be considered a “premium” price for WCS. WCS has been trading at “premium” since 2014. Currently, the differential is only $14 U.S. a barrel.

Robyn Allan is an independent economist and was an expert intervenor at the National Energy Board Trans Mountain Expansion hearing.

Photo: Jon Olav Eikenes via Flickr

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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

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Thursday marks two years since the Mount Polley mine disaster in Likely, B.C. where a tailings pond collapse spilled 25 million cubic metres of mining waste, laced with contaminants like arsenic, lead and copper, into the once-pristine Quesnel Lake, a major salmon spawning ground and source of drinking water.

To mark the occasion, B.C. Minister of Energy and Mines Bill Bennett issued a press release praising the government’s world-class mining standards, saying the province is now “at the forefront of global standards for the safety of [tailings storage facilities] at mines operating in this province.”

“We’ve taken a leadership position and have done all we can to ensure such a failure can never happen in B.C. again,” Bennett said.

B.C. Mining Still Far From ‘World-Class’

But experts and victims of the spill say the province has all but ignored the impacts of the spill, which to this day remains the largest mining disaster in Canadian history.

And rather than taking a precautionary approach to mining in the province, the government is doing everything it can to put British Columbians and Alaskans at risk of another Mount-Polley style disaster, according to Robyn Allan, economist and risk analysis expert.

“All the discussion about world-class and changes that are going to avoid these problems in the future is nothing more than rhetoric,” Allan told DeSmog Canada.

“It’s shocking to me that a disaster of this nature could take place and our regulatory bodies spend more time covering up what’s going on than ensuring a proper cleanup and remediation.”

Allan said government and industry have discussed small changes to mining rules but more is required to ensure British Columbians are protected from another Mount Polley.

“There is very good evidence that says we can expect two of these every decade,” Allan said, adding a recent investigation by B.C. Auditor General Carol Bellringer found serious, chronic and unresolved problems with mining regulations.

“Even under these facts the provincial government is doing nothing to ensure this doesn’t happen again,” Allan said.

“We’re in a situation where we’ve seen what can happen and what will happen and nothing meaningful is being done to stop it but all the government rhetoric that is being used is providing a false sense of security for the public.”

“It’s not getting better. It’s worse than it’s ever been,” Allan said.

Government Painting Rosy Picture of Mining Regs

Jacinda Mack, member of the Xat’sull First Nation and coordinator of the First Nations Women Advocating Responsible Mining, echoes Allan’s sentiments.

“Right from the beginning Minister Bennett has tried to sweep this under the rug and minimize it,” Mack told DeSmog Canada.

“The province says they have the best [tailings pond] regulations in the world when really all they’ve done is come up to a minimum standard of where they should have been years ago.”

Mack said B.C., compared to other jurisdictions around the world, is way behind on mining regulations. For example, she said since Mount Polley there is now a requirement that a qualified person be responsible for managing tailings facilities.

“I would have assumed a qualified person was in charge of those dams,” Mack said.

“If meeting only the basic minimum requirements means they’re world class, that really shows how bad the situation is in B.C.”

Mack said she didn’t want the two-year anniversary of the Mount Polley disaster to pass marked by only a positive government press release.

“The rosy picture the province and mining industry have been painting, it’s really not the situation in the communities and we want to speak truth to power.”

Taxpayer Funds Subsidized Cleanup

In the wake of the Mount Polley disaster, the government was quick to assure British Columbians that Imperial Metals, owner and operator of the Mount Polley mine, would take responsibility for the cost of clean up.

The ministries of environment and mines assured the province “cost of the clean up of the breach is the responsibility of Imperial Metals, and is not a cost borne by B.C. taxpayers.”

This past June the province reiterated the claim that a robust a polluter-pays system is in place for mines: “The Environmental Management Act ensures that those that pollute are held responsible under a polluter pay principle so the taxpayer does not have to assume these clean up costs.”

But that talking point just doesn’t hold water, according to Allan, who recently reported in an op-ed in the Vancouver Sun that an Imperial Metals shareholder report shows B.C. taxpayers subsidized Mount Polley clean up to the tune of $23.6 million.

“On top of everything else we’re being misled about the polluter pay system that doesn’t exist,” Allan said.

“To layer onto an incredibly dangerous situation deliberate misinformation is reprehensible.”

Still No Government, Industry Accountability

Richard Holmes, fisheries biologist and resident of Likely, B.C. said despite what the government says in press releases, the clean up and response to the spill has been disappointing.

“I thought we would have been a lot further ahead of where we are by now.”

Part of the frustration of local residents, who live with the knowledge that the millions of cubic metres of spilled mining waste remains in Quesnel Lake, is the difficulty of dealing with a company that is first and foremost concerned about the bottom line, Holmes said.

“These companies don’t carry enough money to respond to these disasters,” he said. “And Imperial Metals is getting a ride on this whole breach because of the government.”

Holmes said despite the damage to the lives of local residents and business owners — some of who are pursuing litigation against the company — neither Imperial Metals nor the government have taken responsibility.

“There is no ownership of this disaster. Neither of them will say sorry,” he said. “That’s something that would go a long way to easing relationships in the community.”

“But with them it’s always the same: deny, deflect, defend.”

Holmes said despite multiple government reports and investigations no one has laid any blame or assigned responsibility. Yet, he said, there has been plenty of finger-pointing.

“Now Imperial Metals is suing the two engineering firms it contracted to manage the tailings pond. That suggests to me that the Mount Polley legal team recognizes now they may be in a little trouble so they’re trying to put the blame somewhere else.”

Quesnel Lake Remains Dumping Ground for Mine’s Waste

Christine McLean, member of Concerned Citizens of Quesnel Lake, said trying to hold the government accountable has been a “daunting task.”

No compensation has been paid out to local property owners like McLean or to affected businesses that have suffered a decline in customers since the spill.

“We’re really disappointed in how the government and the mine have moved forward,” McLean said, adding this summer the province granted Mount Polley a waste discharge permit that allows the company to resume full operations and release more mining waste into Quesnel Lake.

“As concerned citizens it’s bad enough that all that waste went into the lake,” McLean said. “Now it’s made so much worse by the fact that the government has given the mine the rubber stamp to directly dump their waste into the lake.”

“I don’t feel like anyone in our province is working for us,” she added. “They are working for the mine to make it as easy as possible to resume operations.”

McLean, who sits on the mine’s public liaison committee said she fears the discharge permits will create a new normal, where the lake is used as a perpetual dumping ground.

“These permits are like taxes: once they’re in they’re hard to get out.”

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Costs associated with the closure and reclamation of 84 abandoned industrial sites, mostly from mining, in B.C. have increased to $508 million, according to new information released from the Crown Contaminated Sites Program.

Responsibility for the sites has fallen to the province because the owners or operators of the projects “no longer exist,” according to a provincial press release.

The estimated cleanup costs have grown by $231 million since 2014, representing an increase of 83.4 per cent, watchdog group MiningWatch notes.

According to the province, a number of the mines, like the Britannia Mine near Squamish, or the Bralorne-Takla Mine in northern B.C., that now present a risk to human and enviornmental health, operated before 1969 when modern environmental legislation was created.

Although the province is quick to highlight work done over the past two years to clean up contaminated sites, Ugo Lapointe from MiningWatch says the significant growth in overall liability signals an urgent need for reform in the mining sector.

“Almost two years after the Mount Polley mine disaster, multiple cases of environmental mismanagement, and exponentially growing costs to clean up contaminated mine sites at taxpayers’ expense, it’s about time the B.C. government starts ‘walking the talk’ on desperately needed reforms in the province’s mining sector,” Lapointe said.

“This is only the tip of the iceberg, as yesterday’s report indicates that only 18 of 84 identified sites have been remediated to date, 16 are still under investigation, and 48 more are categorized as ‘lower priority’ and have yet to cleaned up. About 90 per cent of these sites are mining sites.”

Lapointe said at current rates it will take B.C. 64 years to clean up the remaining sites.

Polluter-Pays System a Failure in B.C.

In May B.C. Auditor General Carol Bellringer issued a scathing report that criticized B.C.’s weak mining liability regime. Bellringer estimated the province’s mining operations carried a $1 billion liability shortfall that ultimately falls onto taxpayer shoulders.

Economist Robyn Allan followed up on that report with a new analysis that showed, when combined with underfunded mining reclamation costs, the liability ballooned to $1.5 billion.

B.C. claims a polluter-pays system is in place for mines: “The Environmental Management Act ensures that those that pollute are held responsible under a polluter pay principle so the taxpayer does not have to assume these clean-up costs.”

Although, according to Robyn Allan, that claim is misleading.

“This statement is not true from the perspective of protecting human health and the environment, nor is it true that polluters are paying for the damage they cause,” Allan told DeSmog Canada. “The polluter pay principle is not working in B.C. For the polluter pay principle to work, polluters must pay for the damage they create. Instead, we find time and again, that it is taxpayers who are paying, or else much of the damage mining companies have caused is going unaddressed.”

Allan’s recent report detailed “decades of neglect in compliance and enforcement activities” within the B.C. Ministry of Mines and the Ministry of Environment.

“The regulators are not protecting the environment from substantial harm or protecting taxpayers from bearing extensive financial cost to fix it,” Allan told DeSmog Canada.

She added the province has standards in place, but doesn’t do enough to ensure the protection of human health or the environment. Both the Snipgold Johnny Mine and Chieftan Metal’s Tulsequah Chief Mine are prime examples of a failed compliance and regulatory system in B.C.

Allan added financial failure in the mining sector, especially in relation to coal, increases these concerns. The collapse of Walter Energy, which Allan outlines in her report, will likely lead to water contamination at the company’s coal mine in northern B.C., Allan said, “because the company was not required to post full financial security” and “is now under bankruptcy protection.”

Allan added a similar situation could unfold with Teck Resources that could see “taxpayers picking up billions of dollars of reclamation and water treatment costs in the Elk Valley in the future.”

“The polluter doesn’t pay if the polluter becomes unable or unwilling,” Allan said. “This is why it is imperative that a fully secured financial assurances system with accurate estimates of reclamation costs and responsibilities be introduced as soon as possible.”

Underfunded Liability Concerns Alaskans Downstream of B.C. Mines

B.C. has at least 10 new mines planed or proposed for northwest B.C., many located above salmon-spawning rivers that travel directly into Southeast Alaska.

Weak regulations, limited liability and a lack of mining oversight has Alaskans living downstream of the mine sites worried another Mount Polley-style disaster will negatively affect local tourism operations and salmon populations.

Concerns over the recent increase in mining activity in northwest B.C. were heightened with the approval of the Red Chris Mine, located in the Iskut and Stikine watersheds. The Red Chris Mine is owned and operated by Imperial Metals, the same company responsible for the Mount Polley mine disaster which sent an estimated 25 million cubic metres of mining waste into the pristine waters of Quesnel Lake nearly two years ago.

The majority of that mining waste, which contains mercury and arsenic, remains on the bottom of Quesnel Lake. No charges or fines were issued in response to the Mount Polley incident.

Recently Alaska’s Congressional Delegation asked Secretary of State John Kerry to step in to protect Alaskan interests from B.C.’s mining boom.

In a letter to Kerry, the delegation wrote, “Alaskans need to have every confidence that mining activity in Canada is carried out just as safely as it is in our state. Yet, today, that confidence does not exist.”

“Should there be an impact to the transboundary waters that flow from Canada to Alaska, our state’s fisheries, tourism and native peoples could all be hurt.”

“Clearly, this program has not been a priority for the B.C. government and nothing in the report indicates that this will change in the future. Nor is there anything to indicate that the B.C. government will seriously enforce the ‘polluter-pays’ principle so that the industry pays for the mess it created,” Lapointe said.

“That’s a shame, because at the end of the day, it’s B.C. taxpayers who will be left with a bigger hole in their pocket to clean up the mess.”

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The National Energy Board (NEB) recommended a conditional approval of the Kinder Morgan Trans Mountain pipeline expansion today after a years-long review process many participants criticized as inadequate, rushed and lacking in transparency.

In a filing posted Thursday the NEB recommended cabinet approve the project, subject to 157 conditions.

“Taking into account all the evidence, considering all relevant factors, and given that there are considerable benefits nationally, regionally and to some degree locally, the Board found that the benefits of the Project would outweigh the residual burdens,” the filing states.

Yet many individuals and organizations involved in the process say today’s recommendation comes on the heels of a beleaguered review process that did not consider many of the risks of the project.

“Today’s recommendation is exactly as we expected given the way this panel approached the review,” Robyn Allan, former CEO of ICBC and economic risk expert, told DeSmog Canada. “It was simply set up as a way to get to yes.”

Allan publicly withdrew from the Kinder Morgan review process, saying she could no longer “endorse a process that is not working.”

“The NEB we all know is not credible, but somehow today we’re behaving as if it means something,” Allan said, adding the 157 conditions the board placed on the project are “predicated on a false scope of the issue.”

“The scope that the board reviewed is so limited it doesn’t look at risk or cost for our society from this pipeline system,” she said. “From that view it’s very easy to say the benefits outweigh the costs.”

The expansion project involves twinning the existing pipeline that runs from near Edmonton to the Burrard Inlet in Burnaby B.C. The project will nearly triple the pipeline capacity from 300,000 to 890,000 barrels of oilsands crude and other fuels per day.

The NEB recommendation will be taken under review by the federal government and cabinet is expected to make a final decision on the project by December.

Recommendation Made Under Broken Process

The NEB-led review process was plagued with credibility issues from the outset.

Restrictive participation guidelines meant hundreds of applicants were denied the opportunity to give oral or written testimony in the hearings. In total, 468 citizens had their intervenor applications rejected, including a group of 27 climate experts.

The board also deemed climate impacts of the project irrelevant to the hearings and on that basis excluded information on upstream environmental impacts of oilsands extraction. The panel eventually excluded oral testimony and cross-examination from the process altogether.

Chris Tollefson, law professor and counsel for B.C. Nature and Nature Canada in the hearings, said today’s recommendation reflects the inadequacy of the review process.

“What this process and report today underscores is how urgent the need is for restructuring the review of these projects,” Tollefson said.

“This panel never secured a credible, scientific record upon which to make a decision for a variety of reasons.”

“At the end of the day what a process like this needs to be asking is, will this project make a net contribution to a sustainable economy, will this projects put us on a path to meeting our international climate commitments?”

“Neither of those questions are asked or answered in this report,” he said.

Canada's currently regulatory structure has "outlived it's usefulness," Tollefson said.

"We need to have a process that is multi-governmental, that brings together all levels of government, including First Nations government in the review. We need to have a process that is informed by independent science and allows for a true ability to challenge science put forward by the proponent.

"We need a process that integrates as opposed to fractures the spheres of responsibility."

Trudeau’s Broken Promise

On the campaign trail prior to the last federal election, the Liberal party and Prime Minister Justin Trudeau promised to overhaul Canada’s pipeline review process in order to restore public faith in the process.

During a campaign stop on the west coast in August 2015, Prime Minister Trudeau told Kai Nagata, communications director with the Dogwood Initiative, the NEB overhaul would apply to the Kinder Morgan review process.

“That process needs to be redone,” Trudeau said, but later backed down from that promise and allowed the review process to continue on as it had begun.

“I think it’s disappointing the Liberal government did not follow through with its campaign promise to overhaul the NEB,” Nagata told DeSmog Canada

“What they have is a shell that has lost all democratic accountability, that is 90 per funded by industry and has said yes to every pipeline that has come their way. That’s a 100 per cent track record, so good for them.”

This week the Liberals established a three-person panel to conduct consultations with First Nations and communities along the pipeline route, something Natural Resources Minister Jim Carr said will help restore credibility to the pipeline approval process.

The creation of the panel, however, has been roundly criticized as a smokescreen meant to placate a public frustrated with an inadequate review process.

In the House of Commons Burnaby South NDP MP Kennedy Stewart said the Prime Minister promised to fix the broken review system, “and the people of B.C. believed him.”

Questioning the Minister on Kinder Morgan

Today in Parliament, I asked the Liberal Government why it broke its promise to British Columbians on Kinder Morgan. Check out the clip below…

Posted by Kennedy Stewart on Tuesday, May 17, 2016

“But this week the National Energy Board will report on Kinder Morgan using the exact same broken process as the Conservatives,” he said.

“The Liberals’ new ad-on process,” Kennedy added, “little more than a smokescreen, actually does nothing to fix the NEB review process.”

Nagata said Minister Carr’s defense of the consultation panel was troubling.

“Minister Carr came very close to promising an approval by this December, making fun of the previous government for not successfully approving a pipeline and ensuring industry the advisory panel he appointed will not get in the way.”

“Ultimately we think these decisions are too important to leave up to politicians. These people are in office for four years, their timelines are short, whereas the First Nations and citizens who live here have to live with the costs for decades.”

Nagata said Dogwood is campaigning for a provincial vote on tankers off the B.C. coast. “Luckily we have this mechanism in B.C. to put the decision to citizens directly.”

Rueben George, chief of the Tsliel-Waututh First Nation, which lies directly across the Burrard Inlet from Kinder Morgan’s facilities, said he is not at all surprised by today’s NEB recommendation.

“My reaction….I barely had a reaction,” George told DeSmog Canada. “I had no faith in the process. The process historically approves pipelines. I’m not surprised in the least.”

George said the news comes as he is attending a Burrard Inlet Science Symposium at Stanley Park.

“We’re going to clean up the Burrard Inlet and eat shellfish from here for the first time in 30 years,” George said. His nation is currently leading a legal challenge against the Kinder Morgan review, saying the process failed to adequately involve First Nations.

“We’ve been implementing our plan for how we’re going to stop Kinder Morgan and we’re going to continue on with that, being stewards of the land. What we’re really doing here when we stand up against Kinder Morgan we’re looking out for the best interest of the land and waters but it’s truly for the best interests of Canadians.”

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Taxpayers are being put at serious financial risk by gaping holes in B.C.’s mining regulations that allow companies to underfund mine remediation or disaster costs, says a new report by economist Robyn Allan.

The report, funded by the Union of B.C. Indian Chiefs, describes financial assurance policies for mine site reclamation as “woefully inadequate” and estimates there is more than $1.5-billion in unfunded liability — meaning taxpayers are on the hook both for mine site reclamation, when a company leaves a contaminated site, and for catastrophic events when a company is unable to pay.

“A regime to ensure mine owners have sufficient financial resources to pay for environmental damage and third-party losses from unintended mine accidents is non-existent,” wrote Allan, former CEO of ICBC and former senior economist for B.C. Central Credit Union.

The UBCIC report comes on the heels of a scathing assessment of B.C.’s mining practices by B.C. Auditor General Carol Bellringer and renewed pressure from U.S. politicians to have transboundary mines along the Canadian/U.S. border come under the scrutiny of an International Joint Commission.

Bellringer estimated a shortfall in financial security deposits of $1-billion, but Allan said the Ministry of Energy and Mines had $1.3 billion in site reclamation costs not funded by mine operators by March 2014 and the province has assumed responsibility for reclaiming abandoned mines which will cost another $275-million.

The costs could be higher today, but exact figures are not known as the province no longer makes the figures available, Allan said.

In theory, B.C.’s rules are based on polluter-pay principles, but, as there is no effective system of financial assurances to hold parties liable, B.C. residents and First Nations are picking up a burgeoning bill for mining-related environmental harm, Allan said in the report.

“The province’s failure to ensure that whenever polluters pollute, polluters pay, represents an obvious cost to taxpayers because taxpayers end up bearing the burden instead. If the cost does not fall to taxpayers, then it falls to society along with much of the clean-up, compensation, remediation and/or reclamation going unattended,” she said.

To make matters worse, provincial policies increase the risk of disasters as, with no clear liability, some companies cut corners and flout safeguards, according to Allan.

“In contrast, when a mining operator is unequivocally held financially responsible for its environmental impacts, positive outcomes result,” she said.

Under B.C.’s rules there are few inducements for companies to invest in techniques such as dry-stacking tailings that lower reclamation costs and reduce the risk of spills because the operator may never be held accountable if disaster strikes, Allan said, adding she wants to see companies post full security bonds for reclamation costs.

Other recommendations in the report include requiring companies to hold sufficient financial assurances to meet the full costs of environmental damage and third-party losses from mine accidents — with companies annually providing proof of those financial assurances — and creation of an industry-funded pool to cover catastrophic events if a polluter is unable to pay.

A claims process, independent from the mining company, should be set up for those who suffer environmental damage or losses and companies should publicly report every year on their reclamation plans, risk assessment and amount of security posted, Allan recommended.

Currently the province relies on reclamation estimates by mine operators and, despite the risk presented by the increasing number and growing size of tailings storage facilities, there is no requirement for mining companies to undertake an environmental risk assessment, says the report.

“Neither is there a requirement that companies provide proof to regulators that access to sufficient financial resources, including insurance, exists to meet obligations if an environmental harm event occurs.”

Grand Chief Stewart Phillip, Union of B.C. Indian Chiefs president, said B.C. is enabling a dangerous disregard for environmental monitoring and protection by letting mining companies off the hook.

“Other industrial sectors treat accident insurance and security deposits as a routine and fundamental cost of doing business and, if a warehouse catches fire, a pipeline bursts or a factory has to be shuttered, companies have money set aside to respond effectively and immediately,” Phillip said.

Instead of following the lead of jurisdictions such as Quebec and Alaska that insist on full funding for reclamation — something that creates a powerful incentive for companies to focus on safety and best practices — B.C has placed taxpayers at huge financial risk, Phillip said.

“Factor in the poor performance, lack of enforcement capacity and muddled political direction of the ministries of energy and mines and environment and the failure to ensure all mines are safe and held accountable and British Columbians have a great number of reasons to mistrust the mining sector,” he said.

UBCIC is calling on the B.C. government to adopt Allan’s and Bellringer’s recommendations.

After Bellringer’s report was made public, Mines Minister Bill Bennett said he accepted most of the recommendations, except for creation of an independent mining compliance office, and he agreed that the province’s compliance and enforcement regime needed improvement.

Bennett has also committed to acting on many recommendations that followed the collapse of the Mount Polley tailings dam in August 2014 — a disaster that spilled millions of litres of sludge and mine waste into Quesnel lake and surrounding waterways in central B.C.

The ministry did not respond to questions from DeSmog Canada on the Allan report in time for publication.

The report is underlining concerns of Southeast Alaskans who have watched a proliferation of mines along the B.C./Alaska border and, as an example of the lack of enforcement in B.C., they point to continued pollution, stretching over decades, from the Tulsequah Chief mine where rusty, acidic water is draining into a tributary of the Taku, one of Alaska’s major salmon producing rivers.

The report underscores existing grave concerns about the lack of financial assurances, said Heather Hardcastle of Salmon Beyond Borders, who wants to see an adequate bonding system in place.

“We are demanding that the state, the province and both federal governments come up with a mechanism to make sure we will be protected downstream,” she said.

“This is why we need an international solution to an international problem. The money has to be set aside to adequately cover a catastrophe that most likely will happen.”

The Allan and Bellringer reports are timely as the issue is gaining increasing traction with both federal governments, Hardcastle said.

Chris Zimmer of Rivers Without Borders said the reports are significant because mines in the Taku, Stikine and Unik watersheds will have long-term acid mine drainage and water treatment needs that are not currently funded.

“It’s now more important than ever that Secretary (John) Kerry work with the Canadian federal government to ensure Alaska’s water and salmon are not harmed by mining in B.C.,” he said.

Image: Tulsequah Chief mine on the banks of the Tulsequah River, a tributary of the Taku/Rivers Without Borders.

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Economist and former ICBC president  Robyn Allan withdrew from the National Energy Board’s (NEB) review of the Kinder Morgan Trans Mountain pipeline expansion project Tuesday, saying she can no longer “endorse a process that is not working.”

In a letter addressed to Sherri Young, secretary of the NEB, Allan said the “review is not conducted on a level playing field” and that because the panel is “not an impartial referee…the game is rigged.”

Allan said she began to seriously question the process when oral cross-examination was removed from the process.

“I had concerns with what that would do to the overall calibre of the process,” she said.

Allan said she wanted to “participate in good faith through the process of information requests” but now that it has been completed “it’s very clear it has been an exercise in futility.”

“I wanted to see the process through enough to unequivocally conclude that it’s broken,” she said. “ Now I see it’s beyond repair.”

Allan said the limited scope of the board’s review of the process is an “unconscionable betrayal of Canadians.” 

“The board does not include the very serious issues the Canadian public expects the scope to include. And that’s not just the absence of greenhouse gasses in the review and the very serious implications of those for climate change — we don’t even have a classical economic scope of issues,” Allan said.

Allan said the review does not give full consideration to the impact the added Trans Mountain pipeline will have on the whole system, including the increase of tanker traffic in the Burrard Inlet.

Concerns are running high in the Vancouver area after the accidental release of bunker fuel from a cargo vessel in English Bay called the city’s oil spill response capabilities into question.

“You’ve see even just from the bunker C fuel spill in the Burrard Inlet that they were totally incompetent in their ability to deal with [a spill],” she said, adding that the board will only consider the incremental rise in tanker traffic in Vancouver’s waters resulting from the Trans Mountain expansion, but not the impact on tanker traffic as a whole.

“They’re not looking at the whole system,” she said. “This is a deception being perpetrated on the public.”

Allan also said the board relies too heavily on Kinder Morgan’s assessment of risk. Recently the City of Vancouver, City of Burnaby and Tsleil-Waututh Nation commissioned an oil spill assessment by modelling experts Genwest Systems that found two key faults with Kinder Morgan’s oil spill assessment.

Allan said she expects the board to support Kinder Morgan’s risk assessment over those submitted by third parties and downplay the significance of spill risks for the project as a whole.

“The board will say — because Kinder Morgan says — that a spill is ‘not likely’ and therefore we don’t have to consider the cost or the implications.”

Recently NEB chair and CEO Peter Watson addressed public concern over the review process in British Columbia where opposition parties, several major environmental organizations and municipal leaders are calling on the provincial government to pull out of the federal process.   

Allan called the public outreach “duplicitous.”

“The public relations activities that Mr. Watson has been involved in are media spin,” she said. “It’s part of a strategy to lull the Canadian public into a sense of safety when none exists.”

Allan said intelligent Canadians don’t necessarily have the time to investigate the federal government’s review process. She felt she might be able to help: “from the beginning with my expertise and ability and concern I felt that was an effective role I could play.”

Now, after a year of pro bono engagement with the process, Allan says she can no longer participate in good faith.

“What I’ve concluded is the game is rigged, the National Energy Board is a captured regulator and their actions are putting the healthy and safety of the economy, society and environment at risk.” 

Robyn Allan Withdrawal Letter NEB May 19, 2015

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This article originally appeared on the Vancouver Observer.

Industry Minister James Moore who represents the Port Moody-Westwood-Port Coquitlam riding engaged in blatantly false fear mongering last week. He threatened a Lac Mégantic disaster if we don’t accept Kinder Morgan’s Trans Mountain pipeline expansion. In order to springboard from a disgusting reliance on a horrific tragedy to reach his ridiculous conclusion, he had to make stuff up.

These are desperate tactics from someone who as an elected Member of Parliament and Minister of the Crown should know better. He said, “The people of Lac Mégantic wished they had pipelines instead of rail.” If Mr. Moore and his Tory government colleagues had done their job, Lac Mégantic would not have happened. 

Instead of acting responsibly, Mr. Moore follows up his toxic logic with a distasteful chaser. “It’s very dangerous for the Lower Mainland … to have the massive spike in rail transfer of dangerous goods,” he said. Moore is reported to have pointed to the huge rail yard in the heart of Port Coquitlam claiming an increasing number of trains are arriving there carrying diluted bitumen crude that has no other way to get to foreign markets.

That’s just not true. There are no facilities on the west coast to transfer crude oil from tank cars to marine shipping vessels. CP spokesperson Jeremy Berry confirmed, “CP does not ship oil along its line to Vancouver for export.”

Mark Hallman, CN’s director of communications and public affairs explained by email that, “CN has never transported crude oil or diluted bitumen to any British Columbia port or terminal for export via ocean-going vessel, and has no plans to do so.”

As for the so-called “massive spike in rail transfer of dangerous goods” there is neither a massive transfer nor a spike. Transport Canada figures of about 5,000 barrels a day relied on by Mr. Moore date back to 2013. CP confirms that, “2014 numbers are lower than 2013.” It is interesting that Mr. Moore would not use recent figures—maybe because they don’t support his false narrative.

Both the Vancouver Sun and Financial Post printed the grossly misleading story (same article different title). 

Mr. Moore is quoted as following up his falsehood about a massive spike in rail transfer with “The people of Port Coquitlam and Burnaby and New Westminster, with dangerous goods going on those rail lines, should be concerned about that.”

If Mr. Moore is concerned about rail transport, he should do everything he can to stop crude transport until its safe, not blackmail Canadians with incineration if we don’t accept pipeline projects.

The truth is it is the Harper government’s unrelenting willingness to cheerlead on behalf of Alberta’s tar sands that is putting us at risk and failing the Canadian economy—including the economic health of our fossil fuel industry.

The Chevron refinery in Burnaby imports a small amount of crude by rail. Chevron began rail-to-truck-to-refinery deliveries in May 2012 and rail-to-refinery deliveries in April 2013 because Chevron couldn’t get enough space on the existing Trans Mountain pipeline—exports took priority over domestic needs.

Crowding out domestic demand is why the relatively small volumes of crude by rail to B.C. have increased since 2011, not because diluted bitumen is seeking foreign markets. But even if Chevron could export all the crude oil it can now receive by rail, it would take more than two months for them to fill an oil tanker. Mr. Moore’s “heavy oil exports to foreign markets” spin doesn’t even make business sense.

Our safety is not threatened by rail transport of heavy oil. Our safety is threatened by the Federal Government’s de-regulation of transport safety. Since 2010 marine safety budgets have been slashed 28 per cent and rail and aviation by more than 20 per cent. Had Transport Canada done its job regulating the rail industry Lac Mégantic would not have happened. 

Our safety is also threatened by the Harper government’s unwillingness to ensure Canadian energy self sufficiency. The oil transported to Lac Mégantic on that fateful night in July 2013 was Bakken crude—a highly flammable light oil imported from New Town, North Dakota destined for the Irving refinery in New Brunswick. More than 40 per cent of the crude oil used in eastern Canada is imported. The public policy answer is to ensure more bitumen is upgraded in Alberta—what Harper promised would happen in 2008 before foreign multinational interests made him change his mind—not build more pipelines.

Oil sands bitumen is dense like tar or wet cement. It requires imported condensate as diluent to move it through a pipeline. If more bitumen were upgraded in Alberta instead of transported as diluted bitumen for upgrading in other countries we would have plenty of pipeline space. 

Barrel for barrel, diluted bitumen requires twice as much pipeline capacity as upgraded bitumen. You need dedicated condensate import pipelines, like Enbridge’s Southern Lights and Kinder Morgan’s Cochin, to bring condensate in, and then you need 30 per cent of the heavy oil pipeline export capacity to re-export condensate as diluent in bitumen. What’s more, diluted bitumen moves 20 per cent slower than light or synthetic crude oil.

Transporting diluted bitumen, even by pipeline, unnecessarily exposes Canadians to a condensate spill. Condensate becomes airborne when released. It’s highly toxic and causes severe respiratory damage. Rail transport of heavy oil requires little or no condensate because oil in rail cars is stationary—the cars move, not the heavy oil.

Mr. Moore was elected to protect his constituent’s interests, not mislead them with erroneous statements and distastefully false arguments. Instead of busying himself inventing boogie men as a front for big oil he should protect the safety and business interests of Canadians—while he still has time.

Robyn Allan is an economist, former president and CEO of the Insurance Corporation of British Columbia and qualified expert intervenor in the NEB Trans Mountain Expansion Project Hearings.

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