Kinder Morgan has significantly overstated the benefits of its controversial Trans Mountain pipeline expansion proposal while vastly understating risks associated with increasing the flow of oil to Metro Vancouver.

That’s the conclusion of a new economic analysis by Simon Fraser University and The Goodman Group Ltd. which also recommended that the proposed expansion be rejected as it is neither in the economic nor public interest of B.C. and Metro Vancouver.

“The jobs created are nowhere near the number claimed by Kinder Morgan and the costs are grossly underestimated when the risks of a major spill, particularly one occurring in the Vancouver area, are factored in,” said Doug McArthur, director of SFU’s Graduate School of Public Policy, which co-authored the report.

“The whole project is highly questionable from a public policy point of view,” McArthur added.

The report — Economic Costs and Benefits of the Trans Mountain Expansion Project (TMX) for BC and Metro Vancouver — said Kinder Morgan maintains building the $5.4 billion expansion project would create 36,000 person-years of short-term employment in B.C.

The analysis, however, shows it would only create 12,000 person-years, or less, of employment.

“We correctly anticipated that the benefits from the pipeline would be small in the context of the overall B.C. economy and mostly short-term,” said Ian Goodman, president of The Goodman Group Ltd. and co-author of the report.

“But we were very surprised that the company has exaggerated the short-term jobs associated with building the pipeline by a factor of three,” Goodman said.

In terms of permanent jobs, the report notes Kinder Morgan says operating the expansion project would create only 50 direct full-time jobs in the province but a wide range of spin-offs could push the total up to almost 2,000 jobs.

“Once again, these claims are exaggerated: even with a wide range of spin-offs [the Trans Mountain expansion] will only create 800 long-term jobs,” the 70-page report, released Monday, said.

It also said that, on the cost side, Kinder Morgan’s miscalculations are even more dramatic with estimations of a worst-case scenario for spill damage in a non-urban, non-sensitive area costing only $100 million to $300 (CDN) million.

The analysis found, however, potential costs for a major rupture in a sensitive but non-urban setting could start at $1 billion (USD). Under a worst-case scenario involving a catastrophic rupture in an urban setting, costs could escalate to as much as $2 billion to $5 billion (USD).

The ruptured Enbridge Line 6B that sent more than three million litres of diluted bitumen into a tributary of the Kalamazoo River in Michigan came with a clean up cost of more than $1 billion after more than three years of remediation work.

Brigid Rowan, senior energy economist at The Goodman Group Ltd., said Kinder Morgan has vastly underestimated the worst-case costs for a catastrophic pipeline rupture.

“Contrary to [Kinder Morgan’s] findings, damage and cleanup costs for major accidents are highly correlated with population density,” Rowan said.

“So a worst-case scenario for [the Trans Mountain expansion] would involve a major accident in a more densely populated area (such as Metro Vancouver) damaging and disrupting key infrastructure, and possibly resulting in a spill to water and losses of human life,” he said.

Costs for that type of catastrophe could escalate to the multi-billion dollar range — more than 10 times higher than the Kinder Morgan estimates, Rowan added.

The existing Trans Mountain pipeline already ruptured in a suburban area in Burnaby in 2007 sending 250,000 litres of crude into the community and 70,000 litres into the Burrard Inlet. Over 250 residents were evacuated and more than $15 million spent on clean up.

The report also outlined a major profit disparity between the province and producers when it comes to the pipeline’s financial benefits. B.C. would receive less than 2 per cent of the increased revenues paid to tar sands producers who will retain 68 per cent of the new revenues.

“The lion’s share of the benefits flows to [Kinder Morgan and Trans Mountain], the Alberta tar sands producers and Alberta, whereas the citizens of B.C., and Metro Vancouver in particular, will bear the lion’s share of the risks and receive very small benefits,” the report said.

The Trans Mountain expansion project proposal, which is hotly contested by local residents and municipal politicians, would increase the capacity of oil flowing from Alberta to Metro Vancouver to 890,000 barrels per day from the current 300,000.

The proposed expansion is currently under a controversial review by the National Energy Board.

Image Credit: Kinder Morgan oil facilities in the Burrard Inlet. Photo by Carol Linnitt.

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Quebec will gain “minimal economic benefits” from west-to-east oil pipeline projects such as TransCanada’s Energy East and Enbridge’s Line 9 according to a new report released this month. Both projects would transport western Canadian oil and oilsands (also called tar sands) bitumen to refineries and ports in Quebec, but would only make a combined 0.50 per cent contribution to economic activity and 0.30 per cent to jobs in the province.

“Quebec will bear almost all of the risks and costs associated with spills and other environmental impacts, without any offsetting economic gains,” Brigid Rowan, senior economist with the consulting firm The Goodman Group Ltd., and co-author of the report says.

Oilsands producers, pipeline companies, and the owners of the two refineries in Quebec have the most to gain from Line 9 and Energy East concludes the report by The Goodman Group Ltd. in collaboration with Greenpeace and Equiterre. The fifty-five-page report also refutes claims by pipeline proponents that supplying Quebec with cheaper western Canadian bitumen will make things cheaper at the gas pump for Quebecers.

“Refineries will not provide discounts for Quebec markets when they can also sell their refined products to profitable markets outside Quebec,” the report states.

“Consumers who think that oil companies will give them a break at the gas pump have another thing coming,” Pierre-Olivier Pineau, an energy specialist at HEC Montreal Business School warns.

“The extra profit margin from cheaper Canadian crude oil will most likely be pocketed by the refineries,” Pineau predicts.

Quebec’s coastal location gives both refiners and oilsands producers the opportunity to sell their product overseas if the price is right. DeSmog Canada reported last March as much as ninety per cent of the oil and bitumen TransCanada wants to ship through its proposed 4,600 kilometre Energy East pipeline will be exported out of Canada.

Petro-Chemical Industry Is A Small Share of Quebec’s Economy

Refining jobs in Quebec are well paying and mostly union jobs, but much like the oil industry itself the refining sector involves large sums of money and yet employs very few people.

Ultramar’s Quebec City refinery (owned by Texas-based Valero) and Suncor’s refinery in Montreal employ five hundred people each or less than 0.03 per cent of Quebec’s working population. The production of plastics and chemicals by the Montreal Petrochemical Complex employs 7, 500 or 0.40 per cent of the working population in the city.  

“If it is assumed that each of the jobs directly at Quebec refineries results in up to 11 other jobs elsewhere in the Quebec economy (i.e. for every direct job, there are 11 other jobs from contractors, suppliers and spin-offs), the total for the entire economy is still about 12,000 jobs (or less), equivalent to about 0.30 per cent (or less) of the provincial total. Likewise, even if it is assumed that the Quebec refineries result in a very wide range of spin-offs, the impact on overall economic activity (Quebec GDP) is around $1.5 billion (or less), equivalent to about 0.50 per cent (or less) of the provincial total,” the report states.

Pipeline Construction Will Create A Few Short-Term Jobs in Quebec

The report estimates the economic impact of the construction of Energy East and Line 9 on Quebec’s economy will be 0.20 per cent annually over a four-year period. Line 9 will require very little construction whereas Energy East will involve laying of 1,600 kilometres of pipeline from southeast Ontario to Saint John New Brunswick and the building of marine oil transport ports in Quebec and New Brunswick.

“Once the initial capital investment (i.e. construction phase) is completed and the pipelines are in service, ongoing operations would have minuscule labour requirements and impact (less than 0.04 per cent/year with the Suncor coker and less than 0.02 per cent/year without it) on overall economy activity,” the report concludes.

A Pipeline Rupture Would Cost Billions

If the economic benefits of west-to-east pipelines for Quebec are “insignificant” a pipeline rupture “could have a huge impact on the environment, waterways, human society and public safety.” The Goodmann Group, a consulting firm specializing in energy economics estimates a major pipeline rupture in an urban centre such as Montreal could cost between five to ten billion dollars to clean up and result in a major loss of economic activity.

“Typically spill risks are socialized with local inhabitants (human, wildlife and plants) bearing large costs: the area where the spill occurs is often never fully restored; waterways and drinking water can be polluted; humans can lose their homes and livelihood and/or be subject to a deterioration in their quality of life; and wildlife and plant life are killed. Tar sands heavy crude is particularly difficult to clean up,” the report states.

Pipeline companies in Canada do not carry liability insurance for pipeline spills anywhere close to five billion dollars. Canada’s largest pipeline operator – Enbridge – has $685 million for all its operations.

“Quebec citizens should be concerned,” the report warns.

Refining Bitumen Puts Quebec’s GHG Reduction Targets in Jeopardy

“In the current Canadian context Quebec can play a key role: if the province rejects the pipeline projects, then tar sands expansion will be constrained – allowing more time for the emergence of green alternatives. Moreover, Quebec has tremendous risk exposure from Energy East, as this pipeline will use Quebec as a conduit to export enormous quantities of dirty oil from the tar sands", says Patrick Bonin of Greenpeace Canada.

Quebec has proposed greenhouse gas (GHG) emissions reductions targets of a twenty-five per cent cut (1990 baseline) in the GHG emissions the province produces by 2020. These targets to reduce global warming emissions far surpass Canada’s own national emission reduction goals. Refining bitumen in Quebec, a heavy unconventional oil that produces up to forty per cent more GHG emissions to extract and refine than conventional oil, will put these provincial targets in jeopardy.  

“Not only would approval of the projects increase greenhouse emissions from refining more heavy crude in Quebec; but they have the potential to have a much greater incremental impact on Canada’s overall GHGs by enabling tar sands expansion,” the report concludes.

Refineries in Quebec currently lack the necessary equipment to refine large quantities bitumen, although it appears Suncor may make the two billion dollar investment to retrofit its Montreal refinery for bitumen. Bitumen needs to be ‘cooked’ longer during the refining process and at higher temperatures than conventional oil to be turned into liquid fuels.

Enbridge’s Line 9 pipeline project from Sarnia to Montreal was approved by the National Energy Board – Canada’s federal energy regulator – last March but faces two legal challenges that are ongoing. TransCanada announced earlier this month the pipeline company will apply for its 1.1 million barrels a day Energy East pipeline from Alberta to Saint John New Brunswick in mid-August of this year.

Image Credit: David Suzuki Foundation, Economics of Transporting and Processing Tar Sands Crudes in Quebec report, Enbridge, TransCanada's Energy East: Export Pipeline, Not For Domestic Gain Report

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The international pipeline safety expert who last August described Enbridge’s Line 9 pipeline as “high risk for a rupture” now says the probability of Line 9 rupturing is “over 90%.”

“I do not make the statement ‘high risk for a rupture’ lightly or often. There are serious problems with Line 9 that need to be addressed,” Richard Kuprewicz, a pipeline safety expert with over forty years of experience in the energy sector, said in an interview with DeSmog Canada.

Hundreds rallied in Toronto on the weekend to voice their opposition to Enbridge’s plans to ship Alberta tar sands bitumen from Sarnia to Montreal through the 37-year-old Line 9 pipeline.

Kuprewicz also expressed concerns about transporting diluted bitumen through Line 9 saying it will increase the growth rates of cracks on the pipeline. Line 9 lies in the most populated part of Canada and crosses the St. Lawrence River and major waterways flowing into Lake Erie and Lake Ontario. A Line 9 spill could pollute the drinking water of millions of Canadians.  

Extensive Stress Corrosion Cracking on Line 9

“Existing SCC (stress corrosion cracking) on Line 9 can worsen due to the increase in pressure cycling associated with shipping dilbit (diluted bitumen). This could lead to a rupture,” explains Kuprewicz.

The thick heavy crude bitumen is diluted with a condensate (natural gas or naphtha) so it can flow through pipelines. ‘Pressure cycling,’ or the variations in operating pressures of a pipeline, increase with dilbit, because dilbit can vary more in composition than light conventional oil. The greater swings in the levels of operating pressures can create cracks in a pipeline.

Kuprewicz examined Enbridge’s assessments of Line 9 and found evidence of extensive stress corrosion cracking on Line 9, most likely caused by the pipeline’s external protective coating (polyethylene tape or PE-tape) separating from the sections of Line 9, allowing water to damage the pipe.

Kuprewicz has seen this problem before. He researched the US federal investigation into the Kalamazoo, Michigan dilbit spill – the largest onshore oil spill in US history – on behalf of various concerned parties. The disbondment of PE-tape on Enbridge’s Line 6B pipeline and subsequent SCC on the pipe caused the rupture. Three million litres of dilbit were spilled into the Kalamazoo River and the surrounding waterways, and the $1 billion cleanup continues to this day. 

No Line 9 rally in Toronto on October 19th.

Enbridge claims that its in-line inspection tool can detect any serious SCC threats to the pipeline. According to Kuprewicz, the in-line detection technology Enbridge is using has yet to be proven effective.

Hydrostatic Testing of Pipelines is the “Gold Standard” for Safety

“Enbridge needs to conduct a hydrostatic test on Line 9. It is the gold standard for pipeline integrity and safety. Canada has a well-established history of hydrotesting its pipelines,” Kuprewicz told DeSmog Canada.   

A hydrostatic test would pump water through Line 9 at similar pressures to those the pipeline is expected to operate at, but there is no indication that Enbridge plans to conduct hydrostatic testing.

Kuprewicz also questions Enbridge’s claims of an automatic shutdown in the event of a pressure drop in Line 9 or a 10-minute shutdown if an unexplained reading comes in from the pipeline. When a pipeline ruptures, pressure loss as well as detecting the drop can take quite a while. The 10-minute shutdown procedure existed at the time of the Kalamazoo spill and it still took Enbridge 17 hours to shut down the ruptured pipeline.

“I am not trying to be hard on Enbridge. There are definite improvements they could make to their pipeline management system that would significantly reduce the chances of a Line 9 rupture,” says Kuprewicz.

Enbridge Lacks Adequate Liability Insurance for a Line 9 Spill

The Goodman Group Ltd found that, in the event of a Line 9 spill, Enbridge’s US$685 million liability insurance for all its operations (not just Line 9) would be inadequate. The California-based consulting firm says Enbridge needs $3 billion of liability insurance for Line 9 alone.

"This is especially true in Toronto and Montreal, where the pipeline runs parallel to or across key urban infrastructure and could threaten the drinking water supply, resulting in multi-billion dollar costs," warned Ian Goodman, president of the Goodman Group.

No Line 9 rally in Toronto on October 19th.

Cleanup costs of other onshore oil spills such as Lac-Megantic in Quebec and the Kalamazoo spill were analyzed by the Goodman Group, and Line 9’s location in a highly populated area was considered. The firm concluded that a bad Line 9 spill would cost at least $1 billion. The worst-case scenario was pegged between $5-10 billion.

Ontario Demands Independent Third-Party Assessment of Line 9

The Ontario government in some ways echoed the recommendations of Kuprewicz and the Goodman Group on October 17th during a National Energy Board (NEB) public hearing in Toronto.

Ontario demanded that Enbridge conduct a hydrostatic test on Line 9, and that the company maintain US$1 billion in insurance for the pipeline. The province also called on the NEB to initiate an independent third party assessment on the state of Line 9, and not rely solely on Enbridge’s findings.

“Given the age of the pipeline, its location in a large part of southern Ontario, its additional service life of 30 years or more, and the potential adverse consequences of a rupture, it seems a matter of simple prudence and common sense to ensure the (assessments) are as thorough, comprehensive and as accurate as possible,” Rick Jennings, an assistant deputy minister with Ontario’s Ministry of Energy told the NEB panel.

“In our view, an independent third-party review is required for that assurance,” said Jennings.

No Line 9 rally in Toronto on October 19th.

The NEB hearings on Line 9 were scheduled to wrap up in Toronto on October 19th, but the NEB postponed the final hearing to an unknown date and location. The NEB could make its final decision on Line 9 as early as January 2014.

Enbridge has applied with the NEB to increase the capacity of Line 9 from 240,000 to 300,000 barrels per day (bpd), reverse the pipeline to flow west-to-east and ship ‘heavy crudes’ such as dilbit through the line.

Critics of the Line 9 project say the pipeline should not be approved to ship dilbit because of the likelihood of a rupture and the adverse impacts that further expansion of the tar sands will have on climate change and the people and environment of northern Alberta. 

Image Credit: NWF, Mike Chong, Katheleen Quinn, Mike Eh-En

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