Blogs & Comment

The great oil dam will burst, eventually

New fronts open in the campaign to get surging prairie oil production to tidewater.

No sooner had Enbridge Inc. applied to reverse the flow of Line 9, an oil pipeline between Montreal and Sarnia, Ont., than green groups like Environmental Defence opposed the application. Unlike Keystone XL or the Northern Gateway pipeline proposals, this pipe is already in the ground. Enbridge simply has to install some new equipment to push the oil from west to east instead of the other way around. So it’s hard to describe as a threat to the environment that did not exist already. it requires no new right of way from landowners. For these reasons, it will almost certainly be approved.

Think of this as a potential new hole in the huge beaver dam currently backing up oil in the North American heartland. Production is growing not just in Canada’s oilsands but in the huge Bakken oilfield shared by Saskatchewan and North Dakota, and in the oil shales of the Rocky Mountain states. This should be a good thing, because the U.S. is still the world’s biggest oil consumer, using 19 million barrels a day and importing about half of it. But there’s only so much refining capacity in the heartland: 3.5 million barrels a day in the U.S. Midwest, and about a million split between Alberta and Ontario. So the continental price of oil, West Texas Intermediate, is a full $25 a barrel cheaper than the ocean-going Brent price. Supply and demand.

Think of Kinder Morgan’s Trans-Mountain Pipeline from Edmonton to refineries and terminals in B.C. and Washington and branch lines carrying heartland oil to the Gulf Coast operated by Enbridge and ExxonMobil as small leaks in the great oil dam. Think of the large NGOs focused on climate change as the beavers who want to keep new holes from forming. They want to maintain the price discount on WTI so as to make the oilsands less profitable and discourage their development.

Keystone XL and Gateway would be big, gaping holes capable of draining the continental oil glut, but things like Enbridge’s Line 9 pose a threat to the beavers too. In the past it was used to ship imported oil west into Ontario; in the future, it will likely ship prairie oil east into Quebec refineries hobbled at having to pay the higher Brent price for oil. Even if the big new pipelines get shot down or delayed, there are plenty more pipes like Line 9 in the ground to eventually draw down this great reservoir of oil.