Writing in the Globe and Mail, Macdonald-Laurier Institute Managing Director Brian Lee Crowley argues that Canada needs the Energy East pipeline to transport oil from the western provinces – just not for the reasons you’ve been told.
Don’t believe the claims from the federal NDP and others that the pipeline will improve energy self-sufficiency or keep processing jobs in Canada at home, he says.
Rather, he says, the chief benefit of the new pipeline will be that it gives Canadians access to new international markets.
By Brian Lee Crowley, Nov. 28, 2014
There is something about pipelines and oil that causes some switch to flip in people’s brains. Otherwise normal rational people somehow feel called upon to spout arrant nonsense as soon as the topic is raised.
Take the Energy East pipeline proposal to convert an underused natural gas pipeline to carry western Canadian oil instead and to extend the pipe to Montreal and Saint John, New Brunswick. This is a fine idea and the proposal has many benefits for all parts of Canada. But those benefits are not the ones so often trotted out by its “friends”.
The official opposition in Ottawa, the NDP, likes Energy East because it improves energy self-sufficiency and keeps processing jobs at home. Except it does no such thing.
Take energy self-sufficiency. Self-sufficiency is not particularly desirable. We are not self-sufficient in lots of things (coffee, citrus, steel, electronics, to pick a few). So what? We produce well beyond what we need in lots of other things (wheat, oil, natural gas, hockey players) and because of international trade we can sell the excess to others and use the money to buy things we don’t produce enough of. Works brilliantly and raises everybody’s standard of living.
There is no virtue whatsoever in a globalizing world in producing here every barrel of oil consumed here. On the contrary. If it is cheaper for us to get some of Canada’s oil production to consumers in the US than it is to get it to consumers in other parts of Canada, we are made better off overall by selling to the Americans. We can use the money to pay for our oil imports and have some left over.
How about the oft-repeated idea that sending the oil east “keeps jobs in Canada”? Well, no. Even if Canadian oil displaced all foreign oil in eastern refineries it would result in few new refining jobs. Those refineries are already refining and processing Canadian oil isn’t particularly more labour intensive. That’s pretty much a wash, other than the temporary pipeline construction jobs.
Nor will access to Canadian oil mean those refineries will suddenly find it worthwhile to refine more. The market for refined petroleum products is flat and even declining slightly in North America, thanks to improved car design, fuel efficiency standards and so forth. Refineries have closed all across North America in recent decades, and world trade gives us access to low cost refiners in places like India. Unlike our oil, our refined products are not cost competitive in export markets outside North America.
Then there’s my favourite rationale: lower Canadian oil prices will mean cheaper gas prices at the pump for eastern Canadians. Sorry. Not happening. The reason that Canadian oil sells at a discount to the world price is because we are bumping up against infrastructure capacity constraints. That creates localized gluts that can’t reach world markets and therefore can’t fetch world prices.
Guess what? If you build a pipeline to Montreal and even more importantly the fine deep water port at Saint John, that oil will no longer sell at a discount because you can now ship it worldwide. Market access equals world price. Oil companies will be happy to sell it to Canadians, but we would be buying an internationally-traded commodity and must pay the going international price. That was the decision we made when the old National Energy Program was dismantled and it was the right one.
The real benefits of Energy East are in fact quite different but no less desirable. For the reasons I’ve just laid out, the pipeline will help to lower or even eliminate the price discount on oil that reaches the east coast. That gets us the world price for our oil, worth many billions to Canada, representing wages, tax revenues and new investments.
Just as importantly, it gives us access to markets our oil could not reach before, including in a Europe desperate to lessen its energy dependence on Russia. That reduces our reliance on US consumers, and that diversification is devoutly to be wished. Washington has been dangling us on a string knowing that the entirety of our energy exports goes south. We need choices.
A further major benefit is that Energy East takes an underutilized asset—a mostly empty natural gas pipeline— and uses it to transport a much higher value commodity while relieving gas consumers of the need to pay for a pipeline they’re hardly using.
Energy East will solve a lot of problems. Just not the ones many people seem to think.
Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.