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Jeffrey Rubin


Why Not Everyone's Happy to See the Bitumen Bubble Burst

Posted: 07/25/2013 5:27 pm

The bitumen bubble -- that much discussed and oft-lamented hindrance to Canada's public finances -- seems to have finally popped. North American oil prices, at least for the time being, are once again fetching around the same amount as world prices, after trading for nearly $25-a-barrel less earlier this year.

A return to strength for Canadian oil prices is certainly music to the ears of Alberta's oil sands players, as well as those in the Bakken region of southeast Saskatchewan. But not everyone is hearing the same sweet sounds. The disappearance of the huge price disadvantage that has so burdened North American oil producers should ring a discordant note for environmentalists.

By some measures, the environmental movement's opposition to the Keystone XL pipeline project has produced a win for a green agenda. Environmentalists, at minimum, have delayed Keystone from being built. Ultimately, they may still manage to scuttle the project entirely. As the oil industry knows all too well, a lack of adequate pipeline infrastructure means oil from Alberta and the Bakken has piled up in the storage tanks in Cushing, Oklahoma, where West Texas Intermediate crude is priced. The more oil sloshing around in the Midwest the larger WTI's price discount to Brent crude.

A hopeful environmental movement might envision any number of victories that could stem from stymieing the North American oil industry's access to full world prices. Do it for long enough, for instance, and the economics of the oil business turn into a less appealing destination for future investment dollars. Extracting bitumen from the oil sands or fracking shale rock for tight oil is already expensive, let alone with the promise of a steep price discount for one's troubles. In the long game, stopping major new projects such as Keystone could mean production gains are eventually capped by pipelines that are already at full capacity. Instead of North America realizing a spectacular increase to supply, as is being forecast, pipelines would become a bottleneck that would force more oil to stay in the ground for longer.

What environmentalists didn't count on was industry's response. Railways, long off the radar of Canada's oilpatch, rushed in to fill the gaping need for transportation. Rail cars are no stranger to the task of shipping oil. In other parts of the world they still shoulder a heavy load, but in North America they seem like more of a relic of the industry's early days. Not any more. In the space of less than two years the amount of oil being shipped by rail in Canada nearly tripled to almost 300,000 barrels a day. Without new pipeline capacity, the amount would surely go even higher.

There's probably not much that Prime Minister Harper and I would agree on when it comes to energy policy or the future of carbon emissions. That said, it's hard to argue with him when he says shipping oil by rail is far more environmentally challenging than moving it through a pipeline.

The disaster at Lac Megantic casts the rail-versus-pipeline debate in entirely new terms. The daily headlines tell us there's no shortage of blame to be handed out, whether it's a negligent engineer or cost-cutting railway executives. In the bigger picture, though, when millions of barrels of oil start getting hauled across the continent practically overnight, it seems a near certainty that a tragedy on the scale of Lac Megantic will occur. That's not a statement about corporate malfeasance, but merely the laws of probability at work.

The environmental movement definitely didn't want oil to be diverted from pipelines to rail, of this I'm sure. But the Keystone saga is riddled with unintended consequences. In one moment an environmental victory in Nebraska is protecting a critical underground aquifer from an incursion by a massive pipeline project. In the next instant, as I explain in my latest book, that apparent success is unloading that same risk on British Columbia's pristine Great Bear Rainforest. In the meantime, thousands of new rail cars are shipping oil around the continent while regulators try to play catch up on safety standards.

The grim news is that we've gone from bad to worse when it comes to how we move oil around North America. With oil prices now back in triple-digit territory, there is, at least, a glimmer of hope. Oil is becoming too expensive for our economy to afford. The same high prices that are spurring producers to load crude on to train cars are about to, once again, curb our appetite for the fuel.

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  • 10. Oil And Gas Accounts For 4.8 Per Cent Of GDP

    The oil and gas industries accounted for around $65 billion of economic activity in Canada annually in recent years, or slightly less than 5 per cent of GDP. Source: <a href="http://www.ceri.ca/docs/2010-10-05CERIOilandGasReport.pdf" target="_hplink">Canada Energy Research Institute</a>

  • 9. Oil Exports Have Grown Tenfold Since 1980

    Canada exported some 12,000 cubic metres of oil per day in 1980. By 2010, that number had grown to 112,000 cubic metres daily. Source: <a href="http://membernet.capp.ca/SHB/Sheet.asp?SectionID=9&SheetID=224" target="_hplink">Canadian Association of Petroleum Producers</a>

  • 8. Refining Didn't Grow At All As Exports Boomed

    Canada refined 300,000 cubic metres daily in 1980; in 2010, that number was slightly down, to 291,000, even though exports of oil had grown tenfold in that time. Source: <a href="http://membernet.capp.ca/SHB/Sheet.asp?SectionID=7&SheetID=104" target="_hplink">Canadian Association of Petroleum Producers</a>

  • 7. 97 Per Cent Of Oil Exports Go To The U.S.

    Despite talk by the federal government that it wants to open Asian markets to Canadian oil, the vast majority of exports still go to the United States -- 97 per cent as of 2009. Source: <a href="http://www.nrcan.gc.ca/statistics-facts/energy/895" target="_hplink">Natural Resources Canada</a>

  • 6. Canada Has World's 2nd-Largest Proven Oil Reserves

    Canada's proven reserves of 175 billion barrels of oil -- the vast majority of it trapped in the oil sands -- is the second-largest oil stash in the world, after Saudi Arabia's 267 billion. Source: <a href="http://www.ogj.com/index.html" target="_hplink">Oil & Gas Journal</a>

  • 5. Two-Thirds Of Oil Sands Bitumen Goes To U.S.

    One-third of Canada's oil sands bitumen stays in the country, and is refined into gasoline, heating oil and diesel. Source: <a href="http://www.nrcan.gc.ca/statistics-facts/energy/895" target="_hplink">Natural Resources Canada</a>

  • 4. Alberta Is Two-Thirds Of The Industry

    Despite its reputation as the undisputed centre of Canada's oil industry, Alberta accounts for only two-thirds of energy production. British Columbia and Saskatchewan are the second and third-largest producers. Source: <a href="http://www.nrcan.gc.ca/statistics-facts/energy/895" target="_hplink">Natural Resources Canada</a>

  • 3. Alberta Will Reap $1.2 Trillion From Oil Sands

    Alberta' government <a href="http://www.huffingtonpost.ca/2012/03/27/alberta-oil-sands-royalties-ceri_n_1382640.html" target="_hplink">will reap $1.2 trillion in royalties from the oil sands over the next 35 years</a>, according to the Canadian Energy Research Institute.

  • 2. Canadian Oil Consumption Has Stayed Flat

    Thanks to improvements in energy efficiency, and a weakening of the country's manufacturing base, oil consumption in Canada has had virtually no net change in 30 years. Consumption went from 287,000 cubic metres daily in 1980 to 260,000 cubic metres daily in 2010. Source: Source: <a href="http://membernet.capp.ca/SHB/Sheet.asp?SectionID=6&SheetID=99" target="_hplink">Canadian Association of Petroleum Producers</a>

  • 1. 250,000 Jobs.. Plus Many More?

    The National Energy Board says oil and gas employs 257,000 people in Canada, not including gas station employees. And the Canadian Association of Petroleum Producers says the oil sands alone <a href="http://www.capp.ca/aboutUs/mediaCentre/NewsReleases/Pages/OilsandsaCanadianjobcreator.aspx" target="_hplink">will grow from 75,000 jobs to 905,000 jobs by 2035</a> -- assuming, of course, the price of oil holds up.


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