After months of fossil industry warnings that Canada lacks the pipeline capacity it will need to get its product to market, a resource planning specialist from British Columbia is asking whether the country now faces a pipeline surplus.
“If you look closely at the numbers, the answer is yes and the implications could be costly,” Thomas Gunton, director of Simon Fraser University’s resource and environmental planning program, writes in the Globe and Mail.
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With new two pipelines approved and Donald Trump expected to reopen approval of Keystone XL, Canada has space to export 7.1 million barrels of oil per day—excluding nearly 800,000 bpd in rail capacity. But “the demand side remains uncertain,” Gunton notes. “The latest forecast by the Canadian Association of Petroleum Producers (CAPP) for Western Canadian oil supply is 4.9 million bpd for 2025 and 5.5 million for 2030.” Even if all four projects behind that increase are built, even after adjusting for other uses of Canadian pipelines, the surplus capacity would stand at 2.4 million barrels per day.
(And it isn’t a foregone conclusion that projects now in the planning stages will come to fruition, after two new tar sands/oil sands developments were cancelled in December by Koch Oil Sands Operating ULC and Statoil.)
Gunton warns that CAPP’s demand predictions have since been superseded by more measured estimates from the National Energy Board (NEB) and the International Energy Agency. “Using a lower supply forecast similar to the IEA of just completing under-construction projects, Western Canadian oil supply would peak at about 4.6 million bpd. Under this scenario, surplus pipeline capacity in 2025 would be about 2.7 million bpd.”
It isn’t implausible that pipeliners would build up so much redundant capacity, he explains. “Three of the proposed projects are underpinned by shippers’ contracts signed several years ago when oil markets were much stronger. With these contracts, the new projects could be economically viable even though the capacity is not required,” as producers moved their output off existing pipelines with no similar contractual commitments.
But that doesn’t mean there isn’t a better way to plan and assess pipeline projects. “By evaluating each project separately without assessing the overall supply and demand for oil transportation, the NEB and the Canadian government may have created the conditions for a costly mistake of unprecedented proportions,” Gunton writes. “To avoid this, the government needs to evaluate all proposed projects from a social, economic, and environmental perspective to determine which mix of projects are required and best meet Canada’s public interest”—and as a first step, calculating the level of production that would be consistent with the country’s climate objectives.