Using Canadian oil would lower global greenhouse gas emissions compared to a business as usual option
At a time when Canadian pipelines are chock full and not enough rail capacity is available to get all of Alberta’s crude oil to market, a new study from the Canadian Energy Research Institute suggests that 47 per cent of Eastern Canada’s oil imports could economically displace foreign sources – without adding a single foot of pipeline. Well, why isn’t this happening?
I posed this question to Dr. Allan Fogwill, head CERI and lead author of, An Economic and Environmental Assessment of Eastern Canadian Crude Oil Imports.”
He says his team’s analysis examined the issue from a strictly economic point of view and wasn’t able to assess the behaviour of refinery buyers and crude oil sellers.
“If someone was looking from a purely economic perspective, the choice would be clear and the Canadian crude would win. But a decision on the part of a company to purchase crude or purchase anything is not just about economic, it is all about relationships, it’s about security, it’s about trust,” he said.
“These are things we can’t really model and test in our analysis.”
Any salesperson will tell you that breaking a long-standing business relationship between a competitor and a prospective customer can be difficult. Is it commercial inertia preventing Western producers from tapping an easy 285,000 b/d market?
The CERI study notes that in 2016 the United States provided 260,000 b/d of Eastern Canada’s imported oil, 52 per cent of the total. Algeria and Saudi Arabia each provided about 14 per cent, followed by Nigeria, Norway, Kazahkstan, and smaller producing countries.
There are currently eight refineries in EasternCanada to process oil into gasoline, diesel, heating oil, propane,
asphalt, and petrochemical feedstock: four in Ontario, two in Quebec, and single refineries in New
Brunswick and Newfoundland.
The biggest importers are Quebec and New Brunswick, followed by Ontario and Newfoundland and Labrador.
Fogwill says Western Canadian oil is not likely to displace American supplies.
“The US market, where Canada gets a lot of its oil from, is the Bakken basin in North Dakota and it’s light oil, so easy and cheap to produce compared to Canadian crude. In most of our scenarios, that crude coming from the United States going into Ontario didn’t change,” he said.
But there is an opportunity to replace non-US imported crude oil with Western Canadian product, particularly in Quebec, New Brunswick, and Newfoundland if it’s shipped by rail.
“The Irving Oil refinery in New Brunswick has its own offloading rail facility and it’s not being used to a large extent. So if [bitumen] bitumen was being transported by rail, there’s definitely capacity in that refinery to handle that input,” said Fogwill.
Should the federal government step in to encourage Eastern refineries to switch to Western crude oil?
“There’s always the option for governments to evaluate their current policies and see if there’s anything that has to change, but I would always say that the markets need to do their work first,” said Fogwill.
“Only when they get into a situation where policies and regulations may be problematic should they start engaging with the government and say, ‘We’d like to do this. This is an economic benefit that we see for the country, but it’s also environmental benefit we see for the country that follows along with your public policy objectives.'”
The CERI study also demonstrated that in all scenarios, using Canadian oil actually lowered global greenhouse gas emissions compared to a business as usual option, from 2 MTCO2eq (megatonne carbon dioxide equivalent) to 2.8 MTCO2eq per year.
“If we find situations where we can do something in the country that reduces global emissions but may increase our [national] emissions to a certain extent, it has an overall benefit to fighting climate change but not necessarily from a Canadian perspective, would we still entertain that sort of activity?” he asks.
” That’s a question for policymakers and business leaders to answer.”
That’s actually two questions for policymakers and business leaders to answer.
One, what actions can be taken to displace foreign crude oil with Western Canadian crude in Eastern Canada’s eight refineries?
At a time when the Canadian pipeline system is severely constrained and the heavy crude price differential is far higher than normal, adding almost 300,000 b/d of shipping capacity is like finding a new Trans Mountain pipeline under the Christmas tree.
Alberta Energy Minister Marg McCuaig-Boyd may want to raise this issue with industry executives at her earliest convenience.
The second question is primarily a federal one and imported oil displacement is not the only instance where domestic downstream activities could potentially increase national emissions but lower them outside Canada’s borders.
A study by the School of Public Policy last year found that partial upgrading of bitumen into medium or heavy crude oil lowered emissions by 17 per cent, but the benefit would be enjoyed in the jurisdiction where the fuel was consumed, which presently is the United States.
Canadian Environment Minister Catherine McKenna should consider whether the greater good supersedes hitting Canada’s Paris climate targets.
With both issues there may be benefits to actions that were not obvious, but do show up with smart analysis.
Someone needs to follow up the analysis with action.