Oil sands bitumen exports undermine Canada's economic future

Canada is headed down the wrong economic path by exporting raw oil sands bitumen, former ICBC CEO Robyn Allan said in a stirring presentation a week ago at the West Coast Oil Pipeline Summit. Allan highlighted the economic danger posed by oil sands pipelines including Keystone XL, Northern Gateway and Kinder Morgan that the federal government has been promoting in the name of jobs and growth. Below are excerpts from her presentation, "Oil Sands Development and the Economic Consequences".

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In the US investments in upgrading and refining were made—including investments made by Canadian oil producers such as Cenvous, Husky, and French multinational Total. These investments were made to accept Canada’s bitumen. 

So instead of a Canadian upgrader, we get Keystone XL—a bitumen export pipeline to the United States.

And we all know China’s refineries—owned by the Chinese government through their National Oil Companies—want our bitumen. 

These National Oil Companies, which began buying the rights to our oil in 2005, are all oil producers in Canada and want to take the bitumen value added back home to Asia.

Creating a dependency on condensate imports

Big oil’s decisions to enhance refineries in the US to accept our bitumen, and plan to do the same in Asia, has already started to hollow out Alberta’s resource sector.  The percentage of bitumen upgraded in the province has begun to decline.

By 2017, Alberta will only upgrade 48% of the bitumen it produces and by 2025 it will be less than 40%.  That’s a long way away from where we would have been when Alberta promised 72% of the bitumen would be upgraded in Alberta by 2016. 

Because bitumen is so dense, like tar or wet cement, in order for it to flow down a pipeline it requires diluent, like condensate.

Up until 2005 Canada was self-sufficient in condensate production. When we produced a barrel of bitumen and mixed it with domestically produced condensate to make diluted bitumen, we exported a barrel of diluted bitumen—or what the industry refers to as dilbit.

Not true any more.

 

By 2006, condensate demand began exceeding domestic supply and oil sands producers started importing it from the US. The rapid extraction and export of bitumen requires a growing import dependency on condensate.

And, to import condensate you need pipelines. That’s why Enbridge reversed its Southern Lights oil export pipeline in 2010—to import condensate.

That’s why Kinder Morgan is reversing Cochin pipeline to flow from Illinois in the US to Alberta.

The need for more condensate import pipelines is why Enbridge’s Northern Gateway project includes a twin pipeline—one dedicated to import condensate from the Middle East.

But the untold real clincher with big oil’s strategy—as if a growing reliance on imports from the Middle East is not enough—in order to export dilbit instead of upgrading bitumen in Alberta, more than twice the pipeline capacity is required.

You need the pipeline to bring condensate in, and when you mix it with bitumen at a ratio of 30% condensate to 70% bitumen, you need the same amount of pipeline capacity to export the condensate back out.

Because dilbit is denser than upgraded or conventional oil, it moves slower. So before we know it, twice the pipeline capacity is required to transport a barrel of dilbit than when bitumen is upgraded in Alberta to SCO.

This is why for example, Kinder Morgan’s 300,000 barrel a day existing Trans Mountain pipeline—which ships about 60,000 barrels a day of diluted bitumen—can become a 400,000 barrels a day pipeline if they dedicate it to carry only light oil.

Lighter oil like SCO, is less costly and quicker to move than diluted bitumen.

Northern Gateway is intended to transport 525,000 barrels a day of crude oil and 193,000 barrels a day of condensate.

Big tankers, big risk

This triggers an average of 220 Aframax, Suezmax and Very Large Crude Carriers—220 a year in the Douglas Channel and Hecate Straight.

.

These are very large vessels—even the Aframax that now docks at Trans Mountain’s Burnaby facility is taller than the Shangri La—Vancouver’s tallest building.

The capacity of Northern Gateway’s throughput, and the tanker traffic it triggers is pretty common knowledge. This capacity and tanker traffic is the scope of the environmental risk being reviewed by the National Energy Board.

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