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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TransCanada’s proposed Energy East pipeline is more likely to be an export pipeline than supplier of western Canadian oil to eastern Canadian refineries. A new report released this week revealed as much as 90 per cent of Energy East’s oil and bitumen from the Alberta oilsands will be shipped out of Canada.

“Publicly available information from TransCanada, as well as sources from industry, government reports and legal documents show that most of the pipeline’s oil would be exported unrefined, with little benefit to Canadians,” reads the report, released by Environmental Defence, the Council of Canadians, Ecology Action Centre, and Equiterre.

The report finds eastern Canadian refineries – two in Quebec and one in New Brunswick – will be nearly fully supplied with oil from Atlantic Canada, rail and tanker shipments from the United States and the recently approved Line 9 pipeline by the time Energy East begins pumping in 2018. Eastern Canada can refine 672,000 barrels of oil per day (bpd). TransCanada wants to ship 1.1 million barrels via Energy East every day.

“250,000 bpd of eastern Canada’s capacity will be served by Line 9. Take away another 100,000 bpd of Canadian offshore crude from Newfoundland, and 200,000 bpd of US crude and you're left with a pretty small gap to fill, of 122,000 bpd,” says Shelley Kath, energy consultant and lead researcher of the report.

“That means the rest, some 978,000 bpd is likely export bound,” Kath told DeSmog Canada.

The report punches a major hole in claims by TransCanada and the federal government that Energy East will be a “nation building” project strengthening regional energy security with western Canadian oil. The 4,600-kilometer proposed pipeline will begin in Alberta and end in Saint John, New Brunswick, crossing through every province in between.

Valero, operator of the refinery in Quebec City, announced this week it has “no firm interest” in the Energy East project because the oil company already has made commitments to receive oil from other sources.

Energy East Will Have A Larger Carbon Footprint than an Atlantic Province

“Energy East will be the largest pipeline in North America. It will increase production in the tar sands by 40 per cent at a time when First Nations living downstream are asking industry to slow down,” says Andrea Harden-Donahue, climate and energy campaigner with the Council of Canadians.

Energy East will carry more oil than TransCanada’s controversial and stalled proposed Keystone XL pipeline (830,000 bpd) and more than the Northern Gateway and Line 9 pipelines combined (525,000 and 300,000 bpd respectively). 

“The greenhouse gas emissions associated with this project alone will be more than the emissions of any Atlantic Canadian province,” Harden-Donahue told DeSmog Canada.

Last month the Pembina Institute released a report indicating Energy East would produce thirty-two million megatons of greenhouse gas emissions, similar to the output of Ontario's recently retired fleet of coal-fired power plants.

Marine Oil Tanker Export Terminals To Play a Big Role in Energy East Project

TransCanada recently submitted its project description for Energy East with the National Energy Board noting the project could serve 3.3 million barrels of oil tanker traffic.   

TransCanada has not denied that some of Energy East’s oil and bitumen would be exported. The pipeline company publicly stated part of the $12 billion pipeline project is to construct two marine oil tanker terminals – one in Quebec and one in Saint John – for the purpose of shipping oil by sea. A proposal for a third terminal has been floated for Nova Scotia as well.

Pipeline Companies Have Little Say On What Happens to Oil at End Destination

“TransCanada has not been forthcoming on how much of Energy East’s oil will be shipped overseas. The report confirms what we have suspected for a long time – Energy East is an export pipeline,” Harden-Donahue told DeSmog from Ottawa.

“It may sound strange to say, but pipeline companies like TransCanada aren't actually in business to supply refineries – they're in business to move crude from point A to point B. Once that delivery is done, their role is over,” says Kath.

Kath says pipeline companies make 'Transportation Service Agreements' with refineries or oil producers to deliver oil to a certain destination. The contracts are about selling space on the pipeline not about what happens to the crude when it reaches its destination via the pipeline. The product could be exported, stored or refined by the shipper.

Refining Oilsands Bitumen

It is unlikely crude shipments from Energy East will displace current and soon-to-be oil suppliers to eastern Canadian refineries, especially if Energy East is shipping oilsands bitumen. As DeSmog Canada reported last October only a specialized refinery can refine bitumen. Eastern Canadian refineries lack the necessary equipment – usually a coker unit – to process large volumes of bitumen.

“Ample supplies of light crude from growing U.S. and offshore production may also dissuade refiners from making costly investments aimed at converting refineries in order to process heavy crude,” concludes the report. Retrofitting a refinery to process bitumen can cost as much as $2 billion.

Jeff Rubin, former CIBC economist, argues the price for bitumen will only increase when oilsands producers can get their product to global markets. At the moment, bitumen is sold at a discount because there is a glut in production and oilsands producers can only sell in North America. Constructing Energy East means bitumen can finally fetch higher global prices, which may be another financial disincentive for refineries in eastern Canada to start refining bitumen.

The report concludes the vast majority of Energy East’s product will be shipped to the U.S. and overseas destinations such as Europe and India.

TransCanada is expected to submit its application for the Energy East project with the National Energy Board sometime this year. The project involves converting a 3,000-kilometre natural gas pipeline in Saskatchewan, Manitoba and Ontario and building an additional 1,600 kilometers of pipeline in Quebec, along the St. Lawrence River, to the pipeline’s proposed end destination in Saint John, New Brunswick.

Image Credit: TransCanada's Energy East: Export Pipeline, Not For Domestic Gain Report

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The misconception with 'west-to-east' pipeline proposals like Enbridge’s Line 9 or TransCanada’s Energy East is shipping western Canadian oil to eastern Canada means ‘Canadian oil for Canadian refineries.’ This assumption overlooks the fact eastern Canadian refineries cannot refine a certain type of Canadian oil – tar sands bitumen.

Bitumen is the heavy unconventional oil found in the Alberta tar sands (also called oil sands). Only a specialized refinery can process bitumen and turn it into refined products such as fuels. Few refineries in Canada can do it. None of the refineries in eastern Canada can refine large quantities of bitumen.

TransCanada and Enbridge claim their west-to-east pipelines will transport mainly conventional oil and only small amounts of bitumen. This is unlikely to be true in the long term as conventional sources of oil dry up in Canada and bitumen production continues to increase.

If no eastern Canadian refinery makes the massive investment to outfit their operation to refine bitumen, Line 9 and Energy East are destined to ensure more bitumen will flow to markets overseas, not Canadian refineries.

“Building more tar sands pipelines will lock Canada into a highly polluting carbon-based economy for decades,” says Adam Scott, a climate and energy program coordinator for Environmental Defence Canada based in Toronto.

“We cannot support any pipeline that furthers the ongoing reckless and unchecked expansion of the tar sands,” Scott told DeSmog Canada.

TransCanada's proposed Energy East pipeline route

Refineries Require an Expensive Coker Unit to Refine Bitumen

Bitumen is not the black liquid that many people think of when they think of oil. It is low-grade oil with the consistency of peanut butter and riddled with impurities.

Bitumen is high in carbon and low in hydrogen. High quality oils such as light sweet conventional crude oil are just the opposite. Much of the carbon in bitumen needs to be stripped in order to convert bitumen into refined products that can be sold.

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Refineries usually require a coker unit to remove the carbon from bitumen. To remove the carbon, bitumen is heated in large steel coke drums at higher temperatures (480 degree Celsius) and for longer periods of time than typical conventional oil refinery is capable of. Hydrogen is added afterwards to make bitumen more like a liquid-fuel.

Suncor’s Montreal Refinery May Refine Bitumen if Line 9 is Approved

A few refineries in Alberta and one in Ontario have coker units. A massive investment $2 billion is required to install a coker. None of the three eastern Canadian refineries – Suncor, Valero, and Irving – have publicly announced their intentions to make this investment.

“Suncor is the most likely to install a coker because the company has tar sands projects in Alberta. Irving and Valero do not,” says Lorne Stockman, research director at Oil Change International (OCI) in the US.

“There is plenty of lighter, easier to refine oil coming out of new sources such as Bakken oil shale in the US. Irving and Valero will probably to stick to processing lighter oils for the time being,” Stockman told DeSmog Canada.

Neither Valero nor Irving appears interested in buying a coker at the moment. Irving, which has equipment to process small amounts bitumen, is investing in a $300 million marine terminal in Saint John, New Brunswick to export oil from the proposed Energy East pipeline. Valero announced earlier this year oil from Texas will be sent to its Quebec City refinery.

“Suncor may make more of a profit supplying its Montreal refinery with bitumen than by selling bitumen to its competitors,” says Stockman. 

There is speculation Suncor will announce its plans to construct a coker unit at its Montreal refinery after the National Energy Board (NEB) – Canada’s independent energy regulator – makes its decision on Line 9. The NEB decision on Line 9 could come as early as January 2014.

The US Has the Most Capacity to Refine Bitumen in the World

The probable destination of Energy East's or Line 9's bitumen is a refinery somewhere in the US, although some bitumen refining capacity does exist in Europe as well as China.

In the US, 59 of the 134 refineries are equipped with coker units. Approximately 30% of the US's bitumen refining capacity is in the nine Gulf of Mexico refineries TransCanada seeks to supply through its controversial Keystone XL pipeline. Sea-faring oil tankers traveling from Saint John, Quebec City or Montreal could also access these refineries.

Pet coke: the Coal Hidden in the Tar Sands

A major problem with refining bitumen is it has a rather nasty byproduct called petroleum coke or ‘pet coke’. Pet coke contains most of the heavy metals, sulphur and other impurities removed from bitumen during the coking process. Approximately 15% of a barrel of bitumen will become pet coke.

The research and clean energy advocacy group Oil Change International describes pet coke as “the coal hiding in the tar sands” because it has emerged as an inexpensive alternative to coal since the bitumen boom in Alberta began ten years ago.

“Pet coke is providing coal-fired power plants with a cheaper and dirtier source of fuel. It is breathing new life into the industry, which is cause for concern as the world desperately tries to reduce its carbon emissions output,” says Stockman of OCI.

The majority of pet coke produced in North America is sold to Asia and Latin America where regulations on sulphur releases from coal-fire power plants are lax. Pet coke produces 5-10% more greenhouse gas (GHG) emissions than coal per unit of energy.

In Canada, pet coke is largely being stockpiled in Alberta. There are some exports of Canadian pet coke to Asia via ports near Prince Rupert, British Columbia.

Last August, the mayor of Detroit ordered the removal of pet coke piles sitting uncovered along the Detroit River. The piles were three-storeys tall. Dust particles containing the toxic heavy metals in pet coke were blowing off the piles and into the air and river.

The pet coke piles were from Marathon's refinery in Detroit. The refinery began refining bitumen in November 2012.

Oxbow Corporation is one of the largest sellers of pet coke in the world. The company is owned by William Koch, brother of the infamous pro-fossil fuels billionaires Charles and David Koch.

Image Credit: Northern Rockies Rising Tide, TransCanada, Enbridge, Oil Change International.

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