Pipe dreams of the fossil promoters are just that

References to Prime Minister Justin Trudeau’s legal marijuana pledge aside, there is another “pipe dream” afflicting many Canadians: the idea of Canada as a burgeoning energy superpower, needing only a few big, shiny new pipelines to link our oil sands to tidewater. This dream is truly a fantasy, not just for environmental and political reasons but simple economics.

Of course, the environmental case is clear and, in a rational world, would remain king. Profits and economic growth mean nothing if they come at the cost of poisoning our world, natural assets, and human population. This understanding fuels widespread opposition to expanding extraction of oil or gas, either through dwindling conventional sources or newer hydraulic fracking and other expensive unconventional means. Not only does burning fossil fuels threaten runaway climate change, unconventional extraction multiplies the pollution emitted before the product reaches the ultimate consumer.

Unconventional extraction also brings new catastrophic risks to add to the traditional ones of leaks, spills and fires. Accidents like the Deepwater Horizon, spewing oil from a well 4 km beneath the ocean’s surface, can poison seas, kill fish, and wreck regional tourism for years or decades. Fracking can poison water supplies with leaks of unknown toxins, but even when functioning smoothly, causes earthquakes in relatively stable areas like Alberta and north-eastern BC.

Back when pipelines at least created jobs.

But even if one foolishly ignores immediate and local environmental risks, or long-term global harms of injecting more fossil carbon into the atmosphere, solid social and economic reasons say pipelines will never be built.

Of course, fossil supporters (like the astroturf Facebook group “Canada’s Energy Citizens”, who seem to have sworn allegiance to the oil patch) loudly bemoaned US President Obama kyboshing the Keystone XL proposal, and will soon be whinging about BC’s declaration that the Kinder Morgan twinning proposal fails to meet any of the 5 conditions the province set for it. They heap critical scorn on First Nations, environmentalists, or other stakeholders who use hearings and courts to demonstrate that fossil extraction infrastructure does not have social license.

Yet the real economic truth is these pipelines still could not be built, even if every objection were removed. New pipelines cost billions and take years to construct, and Canada’s oil companies can’t pay for it themselves, as their revenues have already been promised to (largely foreign) owners and shareholders. Instead, they borrow from banks, promising to repay the loan and interest out of the profit from shipping the oil. Yet with our dollar sinking and oil at $30, the lowest since 2003 and still dropping, supply still exceeding demand with the world’s largest consumers either exporting their own oil (US) or facing prolonged economic doldrums (China), there is no money to be made from pumping out expensive bitumen for years or decades to come. Even if demand picks up, global purchasers will choose cheap conventional crude over expensive heavy bitumen, leaving our products literally at the bottom of the barrel.

So any new pipelines actually built will be a recipe for bankruptcy not only for oil companies that build them, but for banks foolish enough to finance them. And since Canadian banks have a well-deserved reputation for prudent lending, the real obstacle to pipelines isn’t environmental cost, political climate, or public resistance; it’s harsh economics.

Published as my Root Issues column in the Barrie Examiner as "Economics the real obstacle for new pipelines"

Erich Jacoby-Hawkins is the vice president of the Robert Schalkenbach Foundation.