Keystone Rejection: A Blessing in Disguise

President Obama announced the rejection of the application of TransCanada Corporation to build a pipeline to carry bitumen from Alberta to Texas. This was expected by many observers and the reasons, whether political or environmental considerations, are immaterial. The rejection has upset our political leaders and has caused a big brouhaha in our media. The push is on to find alternate markets for the oil, regardless of legal or environmental considerations.

In spite of such kneejerk reaction some cool thinking might show that this decision may actually be a blessing in disguise. By exporting the bitumen to the U.S. in its crudest form we are also exporting the jobs and profits in the processes of refining it into more usable products. The only reason for exporting the crude is that it suits the infrastructure of oil companies who extract the bitumen from oil sands. It is understandable that major international companies want to use the excess capacity on the Gulf coast for refining the crude rather than build new facilities in Canada for this purpose. But why should our governments be so willing to go along with them is an issue that needs to be explained to Canadians, particularly those looking for employment in well-paying jobs.

Refineries in Central and Eastern Canada import approximately 800,000 barrels of oil from overseas while we export around 2.000,000 barrels from the West to our southern neighbour. Whether it is history or the economics of several decades ago, the governments of the day were complicit in the implementation of short-sighted policies that caused us to import so much oil rather than use some of our own production. The rejection of the pipeline with coincidentally the same capacity as the volume of imports offers an opportunity to remedy the situation. While we need to explore ways to broaden the scope of market for excess production, our governments in Edmonton and Ottawa should implement policies which encourage the use of Canadian production for our refined petroleum needs and the phasing out of imports. If this were accomplished, not only would our security of supply be enhanced, we would be beholden to a lesser extent to the politics in Washington now or in Beijing or Delhi at sometime in the future. If this point is driven home and we adjust the trading pattern of crude oil accordingly, all Canadians will be better off in the not so long run.

Yet another issue to consider is the possibility of at least some of crude oil consumption being replaced by natural gas. Vast resources of natural gas have been discovered over the last decade in North America and elsewhere and prices have dropped to astounding three dollars or even less per thousand cubic feet while crude oil has stayed in the range of $100 per barrel. In addition, the clean coal technology is making rapid advances and emission free coal powered electricity generation in near future is a distinct possibility. It is only a matter of time when electricity will be more affordable because most of it would be generated by cheap coal and natural gas. This will promote the use of cars and trucks powered by electricity or natural gas and the demand for oil will decline. Add to this the reserves of recoverable shale oil being discovered in the U.S., South America and the Middle East, the future price of crude oil starts to look less rosy. It can be argued that the falling demand in the West will be offset by increasing consumption in Asia. However, Asian countries have simmering political and social problems and projections of recent growths into the future are likely to prove dangerous.

In this scenario of declining demand and falling prices, do we want to continue building new oil sand plants at huge environmental and economic costs? Should we not be planning for the changes we see on the horizon? It is time we took off our rosy glasses and looked at all possibilities rather than wait till it is too late.