The Pipeline Issue

By Bruce Carson

Volume 6, Issue 2. February 1, 2021


INTRODUCTION

There are few energy and environment issues that loom larger today in Canada than the cancellation of the cross border permit by President Biden by Executive Order on his first day in office. The question being pondered since January 20, is where do we go from here, what’s next?

Piled on top of the Keystone XL cancellation is the threat or plans by the Governor of Michigan to cancel the easement necessary for Enbridge’s Line 5 to operate. The concern on this side of the border is with the anti-fossil fuel lobby gaining strength daily in Washington, could Line 5 be next on the cancellation agenda.

That leads to a discussion of the Trans Mountain Expansion pipeline, which is well underway but could always be the subject of more protests and legal actions.


KEYSTONE XL (KXL)

Canada’s former Ambassador to the United States, Derek Burney wrote, a few days ago in the National Post, that Canada needs a “wholly Canadian pipeline system.”

It is his view that the abrupt decision on Day 1 shows how “irrelevant Canada and Prime Minister Trudeau are to the Biden administration.”

He began his article by writing that Biden’s decision was “deeply disrespectful, if not insulting to Canada.” He termed the decision “arbitrary, discriminatory and hypocritical.” His view is that Trudeau because of his weak response, “disappointed,” wants to turn the page “or at least the other cheek.”

Alex Pourbaix, who heads up Cenovus called the cancellation of KXL as a “tragedy for the Canadian oil industry.” He hit on the fact that thousands of workers on both sides of the border will be without jobs and the move by Biden was “unnecessary, unwarranted and damaging for both countries.”

Biden’s decision on KXL was “a symbolic sacrifice of a climate straw dog.” Burney goes on to list the matters that Biden should have taken into consideration such as the pipeline being emission free, and Canada’s climate change initiatives such as a price on carbon, which are more stringent than those in the U.S. Also Indigenous groups are not only involved but are equity partners.

60,000 direct and indirect jobs will be lost on both sides of the border.

The result of the cancellation is that Gulf Coast refineries will get shipments by rail and truck from Canada and from countries with less than stellar environmental records such as Russia, Saudi Arabia, Venezuela and possibly Iran.

Premier Kenny referred to this action by the new Biden administration as receiving a “gut punch,” certainly a reaction opposite to that expressed by Prime Minister Trudeau.

As far as policy solutions are concerned Burney stated that “we need an energy strategy that better serves Canadians.” Natural Resources Minister O”Regan in interviews on this subject has mused about a North American energy strategy, or at least one that deals with Canada and the U.S. energy interdependence. It is hard to see the Biden and Trudeau governments agreeing on a joint energy strategy but they might be able to come to some consensus on a climate change or environment strategy.

Given the U.S. and particularly the State of Michigan’s attack on Enbridge’s Line 5, Burney and later David Staples writing for the Edmonton Journal suggest that a pipeline be built north of Lake Superior across the Canadian Shield to Sarnia. Burney would also like to see the Energy East proposal dusted off as we seek a Canadian pipeline solution.

Conservative Party MP Shannon Stubbs is quoted in the article by Staples reminding Canadians that while the U.S. is our biggest customer but its actions towards Canada may be spurred on by the fact that Canada is its biggest competitor.

The obvious problem with the recommendation to build a pipeline north of Lake Superior or even dusting off Energy East is that the present federal government has no interest in building new oil pipelines, other than the Trans Mountain expansion. In fact it was this federal government which cancelled Northern Gateway which had Indigenous participation and made it impossible for Energy East to move ahead as environmental conditions were increased.

Former Canadian Ambassador to the United States during the latter part of the Harper years, Gary Doer stated in an interview that what might revive KXL is the need for jobs in the U.S. and the fact that KXL will produce thousands of them; well paying, good, union jobs. But he added that such a reversal is “really going to be tough” to get.

Canada’s current Ambassador to the U.S. Kristen Hillman said in an interview with CBC’s Chris Hall, after the cancellation that it was time to let Keystone go. We need to move forward with the new administration as there are so many ways we are aligned. She added that Canada is the “best partner” to meet American energy needs.

She stated that Canadians have to realize that the Biden administration has put fighting climate change at the center of the agenda.

It is obvious that KXL is not “a hill to die on” for the Trudeau government.

Lawrence Herman writing in the Globe states that NAFTA guarantees Canadian investors fair and equal treatment –cancellation of Keystone could be seen as unfair and arbitrary. Both TC Energy and Alberta would file claims as investors against the U.S. government seeking adjudication by a NAFTA panel.

Such a panel will not order KXL to be built but may award damages. Herman notes that the U.S. will defend these claims and the matter could drag on for years.


ENBRIDGE LINE 5

One of the matters Premier Kenney raised when he was criticizing President Biden’s cancellation of the KXL permit is that this could happen to Enbridge’s Line 5 where there is a continuing dispute as Michigan Governor Whitmer has ordered that the pipeline be shut down in May, 2021.

Michigan is attempting to cancel a decades old easement through the Straits of MacKinac which is crucial to the operation of the pipeline.

Cancellation of the pipeline will result in job losses in the neighbourhood of 5000 and fuel shortages in Ontario and Quebec as well as the States of Wisconsin, Indiana, Ohio and Pennsylvania. Line 5 also supplies fuel to Pearson Airport.  Jobs will be lost in Michigan and Ohio. Six refineries in Ontario and the U.S. rely on Line 5 as well as petrochemical plants making plastics.

Enbridge is fighting this closure in the U.S. District Court seeking to dismiss Michigan’s action and will continue to use the pipeline. Cancellation of this pipeline would result in oil be moved by either 2000 trucks or 800 rail cars, every day.

Enbridge has also applied for approval to build a tunnel to encase the pipeline, ensuring against any leaks or breaks. On Friday, Michigan approved one permit for the Enbridge Line 5 tunnel. However it was emphasized by state officials that the tunnel project was separate from the Line 5 easement dispute. Enbridge still needs a Clean Water Act Permit to be issued by the Army Corps of Engineers.

Natural Resources Minister O’Regan has said that he will raise the issues dealing with Line 5 with Biden’s new Energy Secretary Jennifer Granholm as soon as she is confirmed.

Conservative Party leader Erin O’Toole raised this issue in Question Period in the House of Commons on Thursday and received the usual talking points answer from Deputy Prime Minster Chrystia Freeland. She stated “our government understands very clearly the importance of the energy sector to the Canadian economy, and the importance of the energy sector as a provider of  valuable high paying, very often union jobs. … Our government has and will continue to stand up for the energy sector and for energy workers.” There a great number of unemployed energy workers in Alberta, Saskatchewan and Newfoundland and Labrador who would take issue with that statement.

A problem that Minister O’Regan may encounter is that Biden has populated his cabinet with a number of people who are anti-fossil fuels, led by John Kerry who is now the President’s Climate Envoy.


TRANS MOUNTAIN PIPELINE EXPANSION

With the cancellation of Northern Gateway and the demise of Energy East and now the cancellation of the KXL permit, the sole pipeline remaining under construction is the expansion of Trans Mountain which has seen construction halted by COVID-19 but 22% of it has been completed, with total completion scheduled for December, 2022.

It is still the intention of the federal government to sell it when it has been de-risked. The government has been engaging with 120 Indigenous groups in order to discuss some form of ownership or economic partnership. Dale Swampy, president of the National Coalition of Chiefs believes that First Nation and Metis leaders will decide this year on some form of economic partnership.

While the pipeline seems to be progressing, there is always a chance that it could be derailed by either court actions or blockades or both. Grand Chief Stewart Philip is President of the Union of B.C. Indian Chiefs and has vowed that the pipeline will never be completed.

The progress of this pipeline needs to be monitored with all due diligence as the closer it gets to the finish line, the more opposition will ramp up.


OBSERVATIONS

Terry Etam writing in the BOE Report notes that while Canada and the United States and the EU move away from fossil fuels China, Japan, India, Pakistan and Bangladesh are seeking oil and gas, particularly LNG. These countries have a combined population of 3.3 billion people.

He makes the point that “our governments have lost sight of the fact that cheap energy equates directly with increased standards of living.” This is especially true as we seek to rebuild economies from the devastation of COVID-19.

The view seems to be at least in Canada and the United States that the pandemic presents a unique opportunity to transform the economy to one powered by green energy, even while those producing and using fossil fuels are moving to net zero emissions by 2050. The mantra of Build Back Better with taxpayers’ money is the mantra the Canadian and U.S. governments are living by.

However, governments and energy companies are moving to net zero emissions and the development of clean energy such as hydrogen and small modular reactors as well as geothermal.

Under TC Energy, KXL was a pipeline that would have been dedicated to achieving net zero emissions.

The issue for TC Energy and the governments of Alberta and Canada is that the cancellation of KXL was a political decision by the new Biden administration to satisfy the progressive wing of the Democratic Party populated by Elizabeth Warren, Bernie Sanders and Alexandra Ocasio-Cortez.

Jon Johnson of the C.D. Howe Institute wrote a few days ago that “TC Energy through no fault of its own has been the victim of massive shifts in policy of successive governments. The Biden administration should take into account the difficulties that its Keystone decision is causing for Canada and its petroleum producing provinces in its other policies, such as by supporting Canada on issues important to Canada, or at least, refrain from decisions that adversely affect Canadian interests.”

Hal Kvisle, who used to head up Trans Canada, is quoted as saying that KXL “makes perfect sense to come back at some point.” However he also recommended that “Canada really ought to think about diversifying our markets.”

The Trudeau government’s cavalier attitude towards the energy industry over the last five years may have come home to roost if the conclusions in the most recent report from the Fraser Institute written by Fred McMahon are correct. The report

looks at the decline of the energy industry and what it will cost the rest of Canada. He writes “the economic crisis in the energy sector, particularly in Alberta and Saskatchewan may shake the foundation of transfers from Ottawa to other provinces.”

The report goes on to say that for more than a decade Alberta’s taxpayers have funded the lion’s share of federal fiscal transfers flowing predominantly to Atlantic Canada and Quebec. “The decline of the energy industry will dramatically reduce this source of funding.”

“To return to a federal balance, Ottawa will have to cut something significantly, or reform fiscal federalism or increase tax revenues.” The report concludes that for the foreseeable future the burden will shift to Ontario.

The Trudeau government has treated the energy industry as that Golden Goose that will continue to produce gold regardless of how it is treated.

With the cancellation of the KXL permit, time may have just run out.

TO COME


February 5

  • International trade numbers for December to be released

February 5

  • Job numbers for January to be released

February 12

  • Wholesale trade numbers for December to be released

February 15

  • Monthly survey of manufacturing for December to be released

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