On the proposed Canadian plastics bans – Part 1: How the Government created useful “facts” for its scary headlines

This fall the Canadian government hopes to get a single-use plastics ban enacted with a plan to get to zero-plastic waste by 2030. To enact this ban, on October 10, 2020 the Canadian government recommended to the Governor in Council that “plastic manufactured items” be added to Schedule 1 (i.e. the List of Toxic Substances) of the Canadian Environmental Protection Act, 1999 (CEPA).

In order to make the argument for their ban, the Canadian government has been presenting information favourable to the ban to the public. As a blog dedicated to evidence-based environmental decision-making, I thought it would be interesting to look at the case being made to support the plastics ban.

Much to my surprise [author’s note: not really] I discovered that the scientific support for such a ban is lacking. The government appears to be relying on activist talking points and decision-based evidence-making for this policy decision. In fact, there is so much bad science on this topic that I have decided to address the issues in numerous bite-sized bits. The first involves a couple oft-repeated “facts” that appears in any number of news reports and documents about the ban.

Looking through the documentation (and news coverage) for the ban, I keep seeing the same, oddly-specific numbers. Here it is from the government of Canada web site:

Every year, Canadians throw away 3 million tonnes of plastic waste, only 9% of which is recycled, meaning the vast majority of plastics end up in landfills and about 29,000 tonnes finds its way into our natural environment.

On March 20th a Google search for the exact phrase “about 29,000 tonnes finds its way into our natural environment” got 327 hits from major news outlets to MP web sites. It begs the question, how was this 29,000 tonnes value derived?

Well, the number appears in the Environment and Climate Change Canada (ECCC) and Health Canada Science Assessment of Plastic Pollution which presents this text:

Of the 4 667 kt of plastics that entered the Canadian market in 2016, an estimated 3 268 kt were discarded as waste (ECCC 2019a). Of that plastic waste, an estimated 29 kt (or 1%) were discarded outside of the normal waste stream (i.e., not landfilled, recycled or incinerated) in 2016, through direct release to the environment or through dumps or leaks. An estimated 9% of the remaining plastic waste was recycled, 86% was landfilled, and 4% was incinerated for energy recovery (ECCC 2019a).

Well there you have it, a source for the number. All we have to do is look for up the reference “ECCC 2019a” in the bibliography. ECCC 2019a turns out to be a report commissioned by Environment and Climate Change Canada called Economic Study of the Canadian Plastic Industry, Market and Waste: Summary Report to Environment and Climate Change Canada which includes this text:

In the model, this fraction is included in the plastics in waste sent to disposal (D1). The second fraction of plastics littered is never collected and considered to be permanently lost into the environment. This second fraction, also called plastics leaked into the environment (LEAK) is estimated in the model. Global estimates of plastic leakage into the environment were prepared by Jambeck et al. in 2015. In this study, the authors estimated that approximately 10,000 tonnes of plastic waste were mismanaged in coastal areas and nearly 29,000 tonnes across Canada.

So ECCC 2019a wasn’t a primary source, rather, the 29,000 tonnes number comes from an earlier work. Moreover, it is combined with another claim I keep seeing in the press: “that approximately 10,000 tonnes of plastic waste were mismanaged in coastal areas“. Oddly that stat gets thrown around a lot as the amount that ends up in the oceans, but from this source it is clear that the number simply means materials lost in coastal communities. Reading the report we are informed that the primary source for the numbers is:

Deloitte. (2019a). Economic study of the Canadian plastic industry, markets and waste-Task 1.Government of Canada, Environment and Climate Change Canada Internal Report.

Well that is unfortunate, the original source is an internal document. Doing a series of searches it is clear that the original report is not readily available to the public. This is quite problematic. We are talking about a policy document that is serving as the basis for a multi-billion dollar policy decision yet the public is not given the opportunity to scrutinize the work and see if it appears reliable.

Not willing to give up here, I decided to try to derive how they got the 29,000 tonnes number. The table block includes a reference to a peer-reviewed study from a reputable journal. But we immediately discover a problem. Going to the cited article (Jambeck et al, 2015 Plastic waste inputs from land into the ocean), we discover that Canada is never mentioned in this study. That is odd since ECCC 2019a specifically says they based their value on that study. How do they estimate Canadian values if the reference they use never mentions Canada?

Looking more closely, the authors in Jambeck et al do prepare an estimate of the percentage of total mismanaged plastic waste in the US (0.9%). If we take the value from the ECCC Summary report of discarded plastics (3,268,000 metric tonnes) and multiply it by 0.9% you get 29,412 which rounds nicely to 29,000. So we appear to have it.

To summarize, the “fact” that has been broadcast high and low by our government is nothing of the sort. It does not appear to be based on a careful examination of Canadian waste and product chains, rather it appears to be based on an estimate of how the Americans handle their waste. The US estimate was just carried over to Canada with no apparent attempt to consider whether Canada is a comparable jurisdiction with respect to waste management. I suppose that is a fair assumption seeing that with respect to all sorts of public service decisions (like medical care, military spending, environmental spending etc..) Canadian and American policies are virtually indistinguishable.

But believe it or not, it gets even worse. That other “fact” I keep encountering is the other half of that earlier quote that “approximately 10,000 tonnes of plastic waste were mismanaged in coastal areas“. This doesn’t even have a pedigree as solid as the 29,000 tonnes value. This 10,000 tonnes number is used all over the place as a “fact” but is reported in the original source as an “estimate”. Moreover, as I will demonstrate, it appears to be a rather poor estimate.

Going back to Jambeck et al. we discover that the US marine plastic estimate is based on an estimate of what percentage of the US population lives within 50 kms of the coast (in the US 40% of Americans live within 50 miles from the coast). This explains why such a high percentage of their waste is estimated to end up as marine debris.

Unfortunately for our fact creators, simply carrying over this US estimate doesn’t work in Canada because fewer Canadians live near the coast. According to government of Canada statistics only about 25% of Canadians live in coastal zones. But according to the authors, these coastal Canadians are especially bad at handling plastic since by the report’s estimates 25% of Canadians are responsible for 34% (10,000/29,000 x 100%) of all the mismanaged plastics. Clearly the authors do not think highly of British Columbians or Maritimers.

Thinking back to that fact it really should have struck me much earlier. Somehow over a third of the waste is reported in coastal areas….in Canada? We all know that Alberta, Saskatchewan, most of Ontario and most of Quebec is nowhere near a coast. There is zero chance that a mismanaged straw in Saskatoon or Calgary is going to end up in the nasal cavity of a Pacific sea turtle.

The reality of oceans plastic is that it is mostly an issue caused by developing nations. A recent study identified that 93% of the trash from 57 Rivers studied comes from only 10 rivers, with the biggest of those being the Yangtze. So if you really want to clean up ocean pollution, a reasonable way to do so would be to invest money in improving waste management programs in these identified jurisdictions. 

Let’s be absolutely clear here. Canadians can still do better. On World Cleanup Day clean-up crews found thousands of coffee cups and water bottles on Canadian beaches. That demonstrates that Canadians have to work harder to keep our own backyard clean. However, concerns about turtles should not be argued as a reason to ban plastic straws in Alberta.

To conclude, the Canadian government’s proposed plan to ban plastics will change all our lives. The ban will upend the food and beverage industries and cost every Canadian in their pocketbook. Given the magnitude of this decision it behooves the government to actually do an analysis of Canadian waste streams and then make that data available to Canadians to decide if their policy decision is justified. Relying on recycled US data that has not even been corrected to address our relative population densities is just not good enough.

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Debunking common anti-nuclear talking points Part 1 – Nuclear takes too long to build

In BC approximately 18% of our total energy is provided by clean electricity and 61% of our total energy is provided by fossil fuels (most of the rest is industrial energy supplied by burning biomass). The Pacific Institute for Climate Solutions has calculated that if we are to wean ourselves off fossil fuels BC will need to expand its generating capacity from 15.6 gigawatts (GW) now to 37 GW of capacity by 2055 (or by approximately 20 Site C equivalents).

I am a strong believer in the “all-of-the-above” school for non-carbon energy alternatives. In BC we have a lot of available hydro that can be supplemented by geothermal and wind to help address our long-term electricity needs. As for solar, thanks to our low solar insolation, utility-grade solar simply isn’t the right approach for BC except for the extreme southeast, and limited parts of the Okanagan. The term you should think about is “regionally-appropriate renewables“.

Once you leave BC finding regionally-appropriate renewables gets even harder. I have detailed Alberta’s renewable energy conundrum and the same challenges apply in Saskatchewan and throughout much of the US. There is simply not enough geothermal and/or hydro to supplement wind and solar. In those places nuclear is an important option to solidify their future energy systems.

Nuclear, however, has had a public relations problem in much of the world. A combination of bad planning, over-regulation and anti-nuclear activism has poisoned the well. This has made it extremely hard to hold sensible discussions about nuclear energy.

I can’t do a lot to deal with the challenging history of mismanagement and over-regulation associated with nuclear in the US, but I can help continue the effort to debunk what I feel is the egregious misinformation advanced by anti-nuclear activists in Canada and the US (an example of what I consider problematic, taken from Twitter and anonymized for my protection, is presented below):

The list above provides a target-rich environment that I simply cannot address in one post. So I will do it over several posts.

The first of the tropes I want to address is one I have heard a lot these recent weeks. The suggestion that replacing fossil fuel energy with nuclear shouldn’t happen because building nuclear takes too long. This argument is both factually wrong and makes no logical sense.

First with the facts. Anyone vaguely familiar with this topic can discuss how the French and Swedes and transformed their energy systems in a single generation using nuclear. The activists will take the French and Swedish examples and instead point to the US experience. Admittedly, recent US reactors have been slow to build, but that is because the Americans have failed to take advantage of standardization instead building a series of one-of-a-kind facilities, which obviously cost more.

In direct contrast to the American experience, the Chinese, Japanese and South Koreans have shown that once you find a reactor-type that meets your needs you can start developing the trained workforce and specialized production lines necessary to allow subsequent reactors to be built relatively quickly.

In the last 20 years, Korea has built a total of 13 nuclear power plants. The average construction period for each plant was only 56 months. Japan built a total of eight nuclear power plants since 1996 taking on average only 46 months to build. The Chinese, meanwhile, have taken it to another level. If you want to see how standardization really pays off, look at this table I pilfered off twitter (h/t to John Randall) that uses data from the International Atomic Energy Agency.

It shows that the median time to build a reactor in China is now down to 2080 days (less than 6 years) with recent plants taking just over 4 years. In much of the US you couldn’t complete the approval process for a wind farm in that timeline. So the claim that nuclear cannot be built quickly is demonstrably wrong.

Now I wouldn’t be a good Canadian if I didn’t throw in a “notwithstanding” in my blog once in a while…so here we go.

Notwithstanding that the claim “nuclear takes too long to build” is categorically false, it is also an illogical and wrongheaded argument in the first place.

Let’s use a worst-case scenario: that the approval process took a decade and the construction another decade. Would that be “too slow” to help address our energy needs? Of course not, our energy systems are going to need constant updating and replacement.

Even in my worst-case scenario if nuclear takes 20 years to build, it will still then be available for 50-70 years thereafter and can cover retiring renewables. I say 50-70 years, but frankly, it is hard to say how long a nuclear plant can operate because so many of them just keep chugging along. In the US 20 reactors, representing more than a fifth of the nation’s fleet, are planning or intending to operate up to 80 years. More are expected to apply in the future as they get closer to the end of their operating licenses.

Building energy capacity is not one-and-done it is an ongoing process. Imagine I built 3000 MW of wind turbines in 2021 and started on my ultra-slow 1000 MW reactor. When those 3000 MW of turbines were approaching their end-of-life that 1000 MW nuclear reactor would be there to replace them and could then operate through 2-4 turbine life cycles providing capacity factors 2-3 times higher than the wind projects they replaced.

Here is a simply analogy for those who still don’t get it. Every year our society spends huge sums of money to train new surgeons. Training a surgeon takes, on average, 14 years from the start of university to the end of their residency. Yet I don’t hear anyone arguing that since we currently have surgeons in our hospitals we shouldn’t go through the time and effort of training any new surgeons. No one makes that argument because we all know there will be an ongoing need for new surgeons and there will be a regular turn-over of old surgeons. Every year a number will retire and a number of new surgeons will replace them. The same is true of our energy systems.

To conclude, when I hear an activist make the argument “building nuclear takes too long” I attribute that response to either confusion or ignorance (my better angels preclude me from considering darker motivations). The simple truth is that building enough renewables to replace fossil fuels will take decades and each turbine/solar panel needs to be replaced every 20-25 yrs. Given our ongoing needs there is simply no logic to the claim that we shouldn’t build nuclear plants because they “take too long to build”.

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Why an environmental scientist is so often critical of environmental activists

As an environmental scientist, I am regularly asked why I seem so critical of environmental activists and environmental NGOs. My answer is simple: because the people who should be speaking out when environmental activists and environmental NGOs make ridiculous claims are failing at the task. As an example, this weekend the news was highlighted by an environmental protest that snarled traffic in Vancouver. The protestors were members of Extinction Rebellion Vancouver. One of the Extinction Rebellion’s “demands” is:

Act Now: Government must act now to halt biodiversity loss and reduce greenhouse gas emissions to net zero by 2025.

Read that demand again because it should be the first thing anyone talks about when discussing Extinction Rebellion. They are demanding that we GET TO NET ZERO EMISSIONS BY 2025. “Net Zero” means we have to replace every ambulance, fire truck, bus, train and/or transport truck with a non-fossil fuel version. It means we eliminate the essential tools necessary to feed our community, protect the elderly and aid the ill. Moreover, they aren’t asking for this in 10 or 20 years; they are DEMANDING it be done in 4 years.

As I have written previously, Extinction Rebellion’s demands represent nothing less than magical thinking. There is only one means to accomplish their goals in that time frame and that would be to eliminate the vast majority of the human population. Absent genocide, their demands are impossible.

Reading the commentary about the protest, I could not find a single member of the activist community calling out Extinction Rebellion Vancouver for making such ridiculous demands. Where are the serious thinkers in the NGO community arguing that neither magic, nor genocide are acceptable means to achieve our climate goals? The answer is they are either missing or don’t exist.

That is why you see me asking these questions on social media. I am a pragmatic environmentalist with the education and expertise to recognize when activists are making impossible demands. Absent high-profile activists doing this, someone must bring the discussion back from “let’s use magic” to “let’s find what we can do to achieve our goals”.

So where are the environmental leaders who should be doing this task? My suggestion is that they don’t exist. To my mind, today’s environmental movement leaders are the students I helped teach in the 1990’s. These students were brought up in an academic environment I remember well. It was one where universities were building new schools and departments of Environmental Studies and those schools, like my own, were dominated by social scientists and historians with little-to-no interest in the natural sciences and few-to-no required natural science classes in their course loads.

The result is a generation of students who were not taught environmental science. Most lack the ability to crunch the numbers and understand why policies may or may not work in the real world. They use words like “toxic” without understanding what those words mean. When I talk about specific gravity and how it affects the behaviour of an oil spill in freshwater environments and why that differs from a similar spill in saltwater their eyes glaze over. It may as well be Greek to them. Absent a grounding in environmental science they are left to trust their guts on these topics and their guts often get it wrong because this topic is complex and sometimes the informed response is counter intuitive.

That is how relatively intelligent and well-educated activists can “demand” the impossible. They lack the wider experience (and scientific education) necessary to even recognize that their demands are impossible. They let their hearts make their decisions. They seek to “Move the Overton Window” while making a splash in the media; getting “likes” on their social media feeds; and generating donations to pay for their continued activism.

Consider this tweet from Naomi Klein:

When people engage in the fiercest forms of land, water, and planet protection, they do so from a place of love. If they’re trying to stop a pipeline, it’s not because they hate cylindrical metal things. It’s because they love their water. And they’re willing to fight for it.

This is about the fight against the Trans Mountain Pipeline Expansion (TMX). A project that will reduce the risk to our aquatic environments. By fighting the pipeline, they increase the risk to our shared waters. Their love may be real, but their actions will not help achieve their goal. This reminds me of that old expression about good intentions and where they lead us.

Let’s consider some more examples where NGOs should have known better.

Most of you are too young to remember that in the early 1990’s Greenpeace was engaged in an all-out campaign to get the element chlorine banned from use in industrial products. As a Chemistry graduate student at the time this made no sense to me. Chlorine is responsible for preventing hundreds of millions of waterborne infections a year and Greenpeace was trying to get it banned.

What was even more ridiculous to me was that an international organization decided it was possible to ban an element from environmental chemistry. Seriously, it reminded me of the famous Steve Martin “Hostages” sketch where he suggested that a hostage taker demand that the letter “m” be stricken from the English language. His argument, in the sketch, was you had to make one crazy demand when you were in a hostage situation so if you got caught you could plead insanity. Except Greenpeace wasn’t trying to plead insanity, they actually wanted governments to ban the use of chlorine. I suppose no one walked them through the chemistry of table/road salt.

But enough with the 1990’s, let’s look at the present. In 2021, Greenpeace is fighting to prevent the poor in Southeast Asia from getting access to a cheap and effective means to prevent blindness in children. According to UNICEF, approximately 1.15 million children die ever year from conditions associated with vitamin A deficiency (VAD). Golden Rice was designed to address this problem. It is a strain of rice that has been genetically modified to be rich in Vitamin A. Golden Rice will provide a cheap and effective dietary mean to address VAD. Yet Greenpeace has been actively fighting Golden Rice because it goes against their general fight against genetically engineered foods.

Greenpeace has no data to suggest that Golden Rice itself causes specific harm; they fight it because it is genetically engineered, and they don’t like genetic engineering of foodstuffs. Their fight has delayed the distribution of Golden Rice and is directly responsible for untold suffering in the developing world.

Want more examples? Most of my readers know my stance on the TMX. As I have repeatedly shown, the TMX will move existing oil production from Alberta more safely and with a lower greenhouse gas footprint. But fossil fuels are considered bad by the environmental community, so any project to move fossil fuels safely must be inherently bad and so they oppose the project. The result will inevitably mean more oil-by-rail, more emissions, more incidents and worse environmental outcomes.

How about BC LNG? The climate math makes it clear that BC LNG can help reduce global emissions. But once again we are talking about fossil fuels and if you take a parochial view you can claim that exporting LNG will increase our domestic emissions. The problem is that global warming doesn’t care about domestic emissions, it cares about total global emissions and BC LNG will decrease total global emissions. 

It is not just the big-ticket items. Environmentalists have been getting it wrong for years on topics where life cycle analyses say one thing and their intuition says another. On topics from soccer fields, to ocean plastics, to BPA their intuitive approaches fail them. Heck they even got wrapped bananas wrong.

It wouldn’t be a big deal if all their uninformed opinions and direct actions were harmless, but they are not harmless. As I noted above, fighting Golden Rice results in hundreds of thousands suffering needlessly every year. Fighting the TMX will cost the economy while simultaneously putting our communities and watersheds at greater risk, while increasing overall GHG emissions to boot. Each action by Extinction Rebellion increases antipathy towards their cause and decreases the likelihood they will convince the greater public of the importance of their cause.

As a subject matter expert and pragmatic environmentalist, I simply cannot sit idly by while activists and activist NGOs demand policy alternatives that will increase the risk to human and ecological health because it makes them feel good and gets them “likes” on social media. If we are going to make the changes necessary to fight climate change and preserve the ecosphere it will take individuals with expertise and training to speak out when activists and NGOs demand the impossible while fighting against the good.

Posted in Canadian Politics, Environmentalism and Ecomodernism, Uncategorized | 8 Comments

A pragmatic environmentalist’s view on climate change, BC LNG and the Trans Mountain Pipeline project – not either or but all of the above

In the last months, I have taken a lot of flak about my stances on topics like BC LNG and the Trans Mountain Pipeline Expansion Project (TMX). In the last week alone I have been called a “denier” and an “Alberta oil apologist”. But the truth is that as a pragmatic environment scientist I support the fight against climate change. I also acknowledge the need to upgrade necessary infrastructure to move hydrocarbons and for projects to export LNG overseas where BC LNG can be used to reduce global greenhouse gas emissions.

To begin let’s be clear, I believe anthropogenic climate change is real and represents a fundamental threat to our planet. This is not surprising since I am a practicing Environmental Scientist. Unlike most of my critics, I have a PhD in Chemistry and Environmental Studies and have worked as a Environmental Scientist for over 25 years.

In 2008, when Gordon Campbell proposed our BC carbon tax I supported him. For those with short memories, in the 2008 provincial election the NDP fought on the promise to scrap the carbon tax; I worked to protect the tax.

A decade ago I considered myself a Lukewarmer. As I wrote at the time, I was a proponent of the North American school who accept that climate change is real but disagreed with the climate alarmists on estimates of climate sensitivity. In the last decade, the scientific consensus has solidified and these days my views represent the middle of the mainstream on the topic.

In 2015, world leaders passed the Paris Agreement, which I supported strongly at the time. In the Paris Agreement Canada did not commit to trashing our economy nor did we agree to achieving a fossil fuel-free status in less than two decades (unlike the claims of many activists). As I have demonstrated, the claim that we could eliminate our reliance on fossil fuels in the next 10 years does not even rise to the level of laughable. It is simply magical thinking. If we undertake herculean efforts and dedicate a historically unprecedented per cent of our national gross domestic product to the task we have a reasonable chance of weaning ourselves off fossil fuels in 30-50 years. Even then it is likely closer to the 50-year than the 30-year timeline. What this means is that Canada has, and will have, an ongoing need for fossil fuels for the foreseeable future.

I acknowledge that we have to get our energy system off fossil fuels and have written several tens of thousands of words on the topic of renewable energy. As a pragmatist, I have concentrated on the topic of regionally-appropriate renewable energy. That means finding the right technologies for the right regions. I am critical of activists who imagine that a one-size-fits-all approach will work for all areas. Our resources are limited and demanding that BC rely on solar is simply ridiculous. Look at a simplified solar insolation chart of BC. Except for the extreme southeast, and limited parts of the Okanagan (and maybe parts of the Peace), solar simply isn’t the right technology for BC.

I see a need to move towards wind, geothermal and hydro in my home province of British Columbia and have written on these topics at my blog. That is why I worked to advance the Site C dam project. While it is clear the geology of the project may make it unworkable, there is no doubt we will need massive new supplies of hydro electricity if we are to decarbonize our economy. From a national perspective we absolutely need to invest in more nuclear, wind and solar energy.

Like many, I believe there are some low-hanging fruit to fight climate change that should be addressed as soon as practical (sometimes referred to as “Fast Mitigation”). I see the need to concentrate on topics like black carbon and methane emissions. I also believe that getting our kin in lesser developed countries out of energy poverty is a morally necessary goal and by doing so we can help protect a highly stressed ecosphere.

A point seldom discussed by activists is the costs. As I noted, the effort to wean ourselves off fossil fuels is going to be incredibly expensive. That money has to come from somewhere. That somewhere is the Canadian tax base and the way to build that tax base is to take advantage of Canadian natural resources, not to undercut them.

As I noted above, we live in a society that, like it or not, is dependent on oil (petroleum hydrocarbons) and petroleum hydrocarbon-based products. Our food is produced on farms that need heavy equipment to operate. That food is shipped around the world by air, water and rail, all of which rely on petroleum hydrocarbons to operate. Petroleum hydrocarbons also serve as the feedstock of the petrochemical industry, which forms the basis of all the things that make our modern world work. They are the building blocks of our plastics, our computers, the tools we need to keep us healthy and the drugs we take when we are sick.

Given the foregoing, a pragmatist asks a simple question: given we cannot do without a product, what can we do to make the transport of this product safer? In North America the majority of our raw petroleum supplies are located in the interior of the continent and thus cannot be shipped around by double-hulled tanker. Instead, the choices are in order of environmental concern: tanker truck, rail or pipeline; that is it, period. There are no other options. Given the choices at hand, the obvious answer therefore is: invest in the safest, most environmentally benign of the transportation methodologies currently available. Thus, as a pragmatic environmentalist I push towards improving our pipeline technologies and capacity.

My acquaintances on the deep green end of the environmental spectrum, meanwhile, fight these pipelines tooth and nail, and in doing so they appear oblivious to the fact that the fuel has to move somehow. They talk of trying to “strangle” the oil sands not recognizing the economic folly of such an attempt. What is more, they do not even recognize the irony when at the same time they weep and wail about the dangers of transporting fuel by rail. They are the ones who have made oil-by-rail an economic reality, no one else but them.

As for BC LNG, the most recent research on this topic is the peer-reviewed article: Country-Level Life Cycle Assessment of Greenhouse Gas Emissions from Liquefied Natural Gas Trade for Electricity Generation by Kasumu et al. This article demonstrates conclusively that when replacing coal in Chinese energy facilities, BC LNG produces lower total, life-cycle emissions. Moreover, if we can electrify the process then our LNG becomes among the cleanest and lowest carbon LNG on the planet. We have to keep reminding ourselves GHGs are global and it is more important to address global emissions than local ones. If a minor increase in Canada emissions can result in a major decrease globally then the climate math says that is well worth our efforts.

The fight against climate change is going to be long, slow, hard and expensive. It is going to take honest discussion and not trite statements of hope from high-flying celebrities who demand we do one thing while they do another. It is going to take political will and politicians willing to spend political capital to make it happen. The only way to convince those politicians to spend that political capital is to look at all the data and then to make a case that demonstrates that the benefits outweigh the costs and the projected future benefits far outweigh the real human and ecological costs. Trying to argue that it will be cheap and easy with no downside is both intellectually wrong and self-defeating. Activists who stand on the sideline demanding the world while simultaneously ignoring what it takes to fight climate change will never succeed.

Being a pragmatist and realist seeking real, implementable solutions puts me in opposition to groups like the Extinction Rebellion. I view them as an unserious organization more in it for the publicity and personal aggrandizement than actually achieving any significant accomplishments. Virtually all my vocal opponents are activists of this sort; the kinds with zero training in environmental science and no understanding of the complexity of our energy system. These folk confidentially claim that we can achieve the impossible and when I push back they attack me. As a pragmatic environmental scientist I know it is possible to both support our fight against climate change and support our domestic oil and natural gas industries. Or to put it differently, if we want to fight climate change we need the resources to carry out that fight and we have to do our best to protect our ecosphere while we carry out the fight. .

Posted in Climate Change, LNG, Pipelines, Uncategorized | 13 Comments

Why the cancellation of Keystone XL is bad for the climate, the environment and Canada

By now we all know that President Biden has cancelled the Presidential Permit for the Keystone XL (KXL) pipeline. Needless to say climate activists have gleefully celebrated the decision. But as I pointed out on Twitter, cancelling KXL will not reduce Alberta oil production and will not decrease global greenhouse gas (GHG) emissions. The cancellation of the project is a massive windfall for US refiners and rail interests; a loss to provincial and federal coffers; will increase the GHG intensity of the oil; and will increase the risk to rail communities. Needless to say, I was challenged on my claim so in this blog post I will justify those claims.

The Effect of Keystone XL on Oil Sands Production

One of the big claims by opponents of KXL is that somehow the cancellation of the pipeline will reduce oil sands production. I have no clue where this claim comes from because every objective analysis of this topic has come to the same conclusion as the US government did in their 2014 Final Supplemental Environmental Impact Statement (2014 SEIS) [which was completed under the Obama Administration] or their more recent 2019 Final Supplemental Environmental Impact Statement for the Keystone XL Project (2019 SEIS). This was summarized in the Department of State, Record of decision and National Interest Determination: TransCanada Keystone Pipeline, L.P. Application for Presidential Permit, Keystone XL Pipeline:

The actual increase in GHG lifecycle emissions attributable to the proposed Project depends on whether or how much approval and use of the pipeline would cause an increase in oil sands production. Conclusions drawn from the Department’s market review, detailed further below, indicate that the proposed Project would be unlikely to significantly impact the rate of extraction in the oil sands and is therefore not likely to lead to a significant net increase in GHG emissions. [my emphasis]

As they describe in excruciating detail in these massive assessments, oil sands projects are huge and very expensive and are deemed profitable based on the world price of oil, not the presence, or absence, of a single oil pipeline. The cancellation of KXL will not affect Alberta oil sands production in any meaningful sense.

The Effect of Keystone XL on climate change

The reality of the world oil market is that the US Gulf Coast has a number of highly efficient refineries that will continue to operate as long as a market for their product exists. As such, the two SEIS reports had a primary assumption that much of the oil to be shipped via KXL would be shipped to this market. The 2019 SEIS provided a number of different scenarios and for this discussion I will use the one presented by Keystone when they submitted their permit request:

The primary purpose of the proposed Keystone XL pipeline is to provide the infrastructure to transport up to 830,000 barrels per day (bpd) of crude oil from the WCSB [Western Canadian Sedimentary Basin] in Canada and the Bakken Shale Formation in the U.S. to existing pipeline facilities near Steele City, Nebraska for onward delivery to Cushing, Oklahoma and the U.S. Gulf Coast area.

Later they detail:

This SEIS estimates potential lifecycle emissions under the Proposed Action assuming that the Keystone XL Project would operate at its design capacity of 830,000 bpd [barrels per day].
• This SEIS estimates potential lifecycle emissions for two scenarios under the Proposed Action. Under the first scenario, the Department assumes that the Proposed Action would transport only WCSB heavy crude oil, consisting of 80 percent dilbit and 20 percent synthetic crude oil.
• The second scenario assumes that the Keystone XL Project would transport 100,000 bpd of Bakken light crude oil and 730,000 bpd of WCSB heavy crude oil.

Now let’s get this clear, in the SEIS the authors do indicate that under Scenario 1 and 2

Scenario 1: If other crude oils are fully displaced, emissions could increase by 2.1 – 33.9 million metric tons CO2-eq per year;

Scenario 2: If other crude oils are fully displaced, emissions could potentially increase by 1.7 – 30.3 million metric tons CO2-eq per year

So you might ask how I can claim that the loss of the pipeline will not have an effect on climate. My answer is that these estimates have errors baked into them based on their age and a change in global conditions. When the changes are incorporated into the calculus, the minor increase in emissions identified in the two SEIS reports disappear. First and foremost is the dataset relied on to generate the emissions estimates. Here are the options used in the comparison:

The Canadian estimate is further detailed in the table below:

Now look at the source of those ranges. Readers familiar with my blog will recognize the most recent reference (Masnadi et al,. 2018) from my last blog post where we determined that the results were badly biased by a lack of critical data.

The challenges with the 2019 SEIS is exemplified by it showing Venezuela as having lower emission oil than Canada even though Masnadi has them much higher with a lot more uncertainty. A lot of it has to do with the earlier estimates pre-dating changes in the political/economic conditions in Venezuela (our major competitor for heavy sour oil). That estimate also ignores their significant issues with fugitive emissions of methane.

As for the list of sources for the Canadian estimates. Here are the values they use:

Note the sources, few are recent and none include the improvements in recent years that have had the effect of lowering our GHG intensities. As reported recently:

A new report concludes that when Alberta specific data is used, upstream GHG intensity numbers of oil sands production pathways are 14 to 35 per cent lower than previously published in Masnadi et al.

If the Canadian crude production value dropped by 35% it would be comparable with the best of the other countries. But that is not all. The assessment assumes a significant GHG footprint for operating the pipeline since the early assessments relied on a lot of coal-generated electricity. This runs counter to TC Energy’s commitment for net zero emissions for Keystone XL and Alberta’s movement off coal for electricity. Once you add up all those improvements, the minimal increase in GHG identified in the 2019 SEIS simply vanish.

Finally, the 2019 SEIS ignores what happens on the Canadian side of the border. As we noted earlier, the presence/absence of the pipeline will not affect Canadian production. That means the oil would still have to move, and instead of moving on a clean, electricity-powered pipeline to the US, it would be moving to a different market (likely China or India) and mostly by diesel-powered rail, with all the GHG emissions associated with that means of transportation.

Rail Transport

This post is already getting long so I will be quick with the rail side since this is an easy one. As we have discussed numerous times at this blog, the alternative to pipelines these days is oil-by-rail. As the 2019 SEIS puts it:

Thus, even in the absence of the proposed Project, crude oil that would have been transported on Keystone XL is still being and will be produced and transported to market by rail.

Oil-by-rail is less safe and has higher GHG emissions than a pipeline. These facts are incontrovertible and dealt with in the SEIS reports. With reference to what cancelling the Presidential Permit means to the movement of Alberta crude, consider that a “rail bridge” was already being planned in 2013 under the concern that KXL would be canceled. Remember, the Presidential Permit only blocks the transportation of oil in a pipeline across the border. Nothing is in place to stop oil producers from moving their product from one pipeline location to another via a rail bridge. Admittedly, doing so will increase the cost and GHG intensity of the oil but given the potential profit this project isn’t really a hard one to envision. To be specific, the 2014 SEIS calculated that the total GHG emissions attributed to using either rail or a combination of rail/pipeline would range from 28% to 42% greater (in the transportation step), than moving that same volume of oil by KXL.

Loss of Government Revenues

As I discussed in my previous post, the cancellation of KXL will impact real Canadian GDP and employment and more importantly will decrease optionality:

Optionality refers to the availability of more pipeline export capacity to more downstream markets for Western Canadian oil producers. Optionality allows shippers more opportunities to maximize returns and reduce the netback disadvantage, reflected in the price differential between West Texas Intermediate (WTI) and Western Canadian Select (WCS)

As noted in my previous post:

a reduction in the WTI-WCS price differential of US $5 per barrel would, on average, increase nominal GDP by $6.0 billion annually over 2019 to 2023.

The cancellation of KXL will reduce optionality and will instead leave Canadian producers reliant on the aging Enbridge system and at the whims of US politicians. It will reduce Canadian GDP and move those profits to US rail firms and US Midwest refineries.

Conclusion

As I pointed out on Twitter: by cancelling Keystone XL President Biden will not reduce GHG emissions since the pipeline was intended to move existing production. Rather, the alternatives to KXL will generate higher emissions, at higher risk, while pulling billions from Canada’s economy. Reducing pipeline capacity will make the railways the big winners with the US Midwest refiners coming a close second as they will continue to get Canadian oil on the cheap. The loss of optionality, meanwhile, will cost Canada and Alberta heavily in loss of tax and royalty payments. Cancelling KXL is a massive windfall for US refiners and rail interests; a loss to provincial and federal coffers; will increase the GHG intensity of the oil; and will increase the risk to rail communities. Irrespective of activist claims, it will not reduce Alberta’s oil sands production and it will not decrease global GHG emissions.

As for whether the pipeline was in the US interest lets look at the final paragraph of the Department of State, Record of Decision and National Interest Determination:

Having weighed multiple policy considerations, the Under Secretary of State for Political Affairs finds that, at this time, the proposed Project’s potential to bolster U.S. energy security by providing additional infrastructure for the dependable supply of crude oil, its role in supporting, directly and indirectly, a significant number of U.S. jobs and provide increased revenues to local communities that will bolster the U.S. economy, its ability to reinforce our bilateral relationship with Canada, and its limited impact on other factors considered by the Department, all contribute to a determination that issuance of a Presidential permit for this proposed Project serves the national interest.

Posted in Canadian Politics, Pipelines, Uncategorized | 6 Comments

The GHG intensity of the Canadian oil industry – what the scientific research actually says

Uncertainty is a fact of life in science. Understanding and communicating uncertainty is an essential element of the scientific pursuit. Uncertainty in research comes from the fact that, in most situations, we don’t have perfect information and can’t be absolutely sure of the accuracy and precision of all values used as inputs in our models. Uncertainty can also be the result of research subjects being unwilling, or unable, to share critical details or information. This can leave researchers with the need to estimate missing input values.

The scientific community has developed tools to communicate uncertainty. Every serious scientific study, where uncertainty is a consideration, will include an evaluation of the uncertainty and how that uncertainty affects the certainty of any consequent conclusions. The problem is that outside of the scientific community this information is often lost. Users unfamiliar with how uncertainty is reported will often look at the results only, and in doing so, come to incorrect conclusions. One such example has to do with the relative greenhouse gas (GHG) intensity of various crude oil blends.

I can’t count the number of times I have heard policy experts and activists decrying the relative GHG emissions of Canadian crude oils. Most recently, I encountered a letter/blog post by a Professor of Law at the University of Calgary. He wrote the following in a submission to the Public Inquiry into Anti-Alberta Energy Campaigns:

What appears to be conveniently missing from the Nemeth Report is the fact that, objectively and in absolute terms, Alberta’s oil sands reserves have been – and continue to be – amongst the most GHG intensive in the world….See M. Masnadi et al., “Global carbon intensity of crude oil production” Science (31 Aug 2018), Vol. 361, Issue 6405, pp. 851-853

Martin Olszynski, “Textbook Climate Denialism”: A Submission to the Public Inquiry into Anti-Alberta Energy Campaigns” (January 14, 2021),

The paper he cites as justification for his claim is Global carbon intensity of crude oil production by Masnadi et al., and the figure from that paper he presents in his submission is reproduced below. In the blog post he doesn’t include the title block which I reproduce above the figure.

A non-scientist, looking at this graph, would indeed come to the same conclusion as Professor Olszynski. Looking at the dark blue columns, Canada does indeed appear fourth from the left. Surely that puts our average crude oil upstream GHG intensity “amongst the most GHG intensive in the world“? But that is not what the graph actually shows. Why you ask? Because the graph also includes error [uncertainty] bars.

The error bars are the sticks at the top of the blue columns [that form the letter I]. They provide an indication of the variability (or uncertainty) in the graphed results. As described in the figure title block, the uncertainty bars in this paper represent the 5th to 95th percentiles of the modelling used “to explore the uncertainty associated with missing input data“.

What do this mean? In this paper, the authors did not have access to really important inputs for many of the producer countries and so had to estimate input values in their models. The authors explain this in the Supplemental Materials for the paper which includes the graphic below. It includes the figure above but with colour-coding to distinguish countries where less information is available to derive accurate estimates of oil field GHG intensities.

Canada is one of only 9 countries presented in green, indicating that the data available for Canada is of sufficient quality to come up with relatively accurate estimates. Most of the countries are various shades of orange, indicating that little is known about critical input values necessary to develop an accurate estimate of the GHG intensity of their oil fields. Because less is understood about these countries they have a wider uncertainty band (a larger error bar).

The thing readers need to understand is that when error bars overlap it indicates that the range of statistically possible results also overlap. In most cases this means that in a practical sense the research cannot say, with confidence, that the absolute values are different. Looking carefully, the error bars from 31 of the countries overlap the Canadian error bars in some manner. To make this clear, I have drawn a line from bottom of the Canadian error bar across the graph (see below). What this means is that even though Canada is fourth from the left in the figure, thanks to the error bars Canada’s value could reasonably fit anywhere in the top two-thirds of the countries.   

Given that the Canadian error bar overlaps with 31 of the 50 countries studied, what it means is that the research does not find that “objectively and in absolute terms, Alberta’s oil sands reserves have been – and continue to be – amongst the most GHG intensive in the world“. Rather, the research used to justify that statement finds that Canadian crude oil GHG intensities cannot be distinguished, with any statistical certainty, from the crudes produced in 31 of the top 50 oil producing countries. The researchers simply don’t have the data to make sufficiently reliable estimates for most major producers and according to this research Canadian crude GHG intensities could be right in the middle of the pack.

Now to be clear, I do not, for a minute, believe that heavy Canadian oil sands crude is among the least GHG intensive in the world, but the data available does not rule this hypothesis out…and it gets worse. The Masnadi report did not evaluate the effect of venting of methane in their analyses and only incorporated estimates of flaring in the development of their emission estimates due to the lack of hard data on flaring. Given methane venting and flaring significantly impacts the GHG intensity of oil fields, this means that the GHG intensity estimates for many of these countries could be significantly worse.

Canada, strictly regulates their venting and flaring and the Canadian estimates for these components are considered very accurate. As for other producers? Well consider this story (Satellites reveal major new gas industry methane leaks) which describes what happened when satellite studies were used to estimate venting and incomplete flaring in Russian oil fields:

Look at all that venting in their conventional oil. Were this venting included in the calculus the GHG intensity for Russia would be far higher. Be assured, Russia is not the only country to vent as the figures in that report showed. Massive methane spikes were observed all over Africa, the Middle East, and Asia showing that the GHG intensities generated for many oil producing countries could be much higher than the values reported by Masnadi et al. More problematically, as researchers discovered in the unintended consequences of antiflaring policies—and measures for mitigation, it appears that some nations are simply venting methane from their oil fields to avoid satellite detection of their flaring. As the authors put it:

viewed through the lens of the multitask problem, these facts suggest that state-owned Türkmengaz, the field’s operator, had been systematically venting natural gas rather than flaring it to evade detection.

Recognize that major Canadian crude competitors like Venezuela and Iran are under international sanctions that limit their oil industries. Venting to avoid detection by international monitoring mechanisms would be a realistic concern with these countries. In other locations, like Libya, Iraq and North Africa, political instability has left many oil fields in the control of non-state actors who may choose to vent to avoid detection (or simply because they do not care about the consequences).

So while it is clear that Canada has a ways to go to reduce the GHG intensity of our crude, the truth of the matter is that Canada may really be in the middle of the pack when it comes to the GHG intensity of our crude. Not only that but we now know that improvements in recent years have had the effect of lowering our GHG intensities. As reported recently:

A new report concludes that when Alberta specific data is used, upstream GHG intensity numbers of oil sands production pathways are 14 to 35 per cent lower than previously published in Masnadi et al.

If the Canadian column dropped by 35% then the lower error bar would overlap pretty much every other country on the graph (except perhaps Ghana, Saudi Arabia and Denmark). Canada would be not be statistically worse than 94% of world producers.

To conclude, I am not making excuses for the Canadian oil industry and do not deny that Canada needs to continue to work to reduce the GHG intensity of the Canadian oil industry if we want to retain a market share as we wean the planet off fossil fuels. But I do believe that if activists are going to attack the Canadian oil industry they should understand what the science really says about the relative GHG intensity of Canadian crudes.

The data is not out there to support the claim that Canadian oil is uniquely bad and deserving of particular opprobrium as has been suggested by activists. Rather, the most recent peer-reviewed research that attempts to quantify global GHG intensities of crude oil producers indicates that our GHG intensities are comparable to our peers and likely a lot lower than some of our most important competitors (once methane emissions are considered in the analysis). Put simply, if you are going to make an argument against Canadian oil, don’t misrepresent what the scientific research says about this topic.

Author’s Note:

I have reworded the paragraph on venting and flaring to correct an earlier version which did not correctly note that venting estimates are incorporated in the development of the confidence intervals. I thank Dr. Yeh (who contacted me on Twitter) who pointed out my earlier incorrect wording.

Posted in Climate Change, Oil Sands, Uncategorized | 9 Comments

Understanding what the PBO report says about the Trans Mountain Pipeline Expansion Project

Another day has passed and another report has been released about the viability of the Trans Mountain Pipeline Expansion Project (TMX). This new report titled “Trans Mountain Pipeline – Financial and Economic Considerations – Update” was produced by the Parliamentary Budget Officer (PBO) to provide an “updated analysis of the Trans Mountain assets“.  It takes little imagination to guess that this report was immediately seized on and misconstrued by activists who claimed:

Today, the Parliamentary Budget Officer, published a report clearly stating that Canada has to choose between climate action and building the #TransMountain pipeline

and

Wasting another $12.6 billion on #TMX makes no sense. PBO confirmed building expansion is incompatible with Net Zero by 2050

Needless to say the PBO report says nothing of the sort. Rather, the report presents a number of conservative scenarios, some well-founded, some ill-founded, to assess the net present value (NPV) of the TMX. Here is the critical graph from the report:

As I will describe in the blog post, this graph, with all its red ink, is not actually representative of the expected profitability and wealth-generating capacity of the TMX. Rather a careful read of the PBO report shows that the TMX remain a project that will increase our national wealth while turning a profit for its owners.

The PBO report presents five major assumptions used in developing their NPV estimate for the project:

  • In-service date,
  • Construction costs,
  • Pipeline utilization
  • Long-term Discount rate, and
  • Service and tolling framework

I have no issue with their assumptions for “In-service date” and “Construction costs”. These variables are consistent with generally accepted ranges. As I will detail below, I have a serious disagreement with the report’s choice of discount rates; pipeline utilization; and service and tolling framework.

In my mind, the PBO report uses an overly conservative long-term discount rate. The discount rates chosen would be appropriate for a private sector project, where the private sector entity had to borrow on the private equity market, but that is no longer the case for the TMX. The TMX is a government project now and the analysis should assume a discount rate consistent with what the government uses for other infrastructure projects. Those values tend to be below 8.0% not 8.5% or 9.0%. Thus, in my mind, we can eliminate the 9.0% columns in the table above.

My biggest complaint with the report is with the arguments used to justify the choices in the “Service and Tolling Framework after 20-year contracts expire” columns. I will start by noting that others are also confused. One economist I follow on Twitter noted:

The evidence submitted during the tolling methodology hearing indicated a target ROR [rate of return] in the normal range for an ROR regulated pipe… so… not sure how a cost of service regime (with roughly the same target ROR) would lower the NPV of the project

My argument is with the PBO report’s suggestion that after 20-years the existing shippers will not want to sign contracts in scenarios where Canada takes action on climate change. To the best of my knowledge their argument is based on a misunderstanding/ misinterpretation of the Canada Energy Regulator (CER) “Canada’s Energy Future 2020” report. I describe the general misunderstanding in my earlier blog post but will summarize here. In the CER report they include this graph:

The CER, in the production of their graph, made the editorial decision to insert pipelines into the graphic based on completion dates with the older pipelines on the bottom and the newer ones on the top. This graphical choice is not intended to indicate the rate at which various pipelines will be chosen to move product. It was simply an editorial choice in making the graph.

Many activists (and the PBO) appear to believe that if Canada acts on its climate commitments then based on this graph the TMX and Keystone XL will be the first to lose product. Alternatively, they may believe that if there is excess capacity in the overall transportation network then the excess capacity will be spread evenly across all means of oil transportation.

These assumptions are not correct. Should Canada achieve excess transportation capacity the reductions will come based on costs to transport the oil, the risks of oil transportation and markets served by the transportation medium rather than simply being spread evenly across all mechanisms. By looking at which markets are served by which pipelines we can establish who will lose their market share first if we end up with excess carry-out capacity. This is where the PBO report gets it particularly wrong about the TMX.

The TMX is the only route that terminates on the Pacific West Coast. As such. the TMX is the only pipeline that can effectively serve markets in California, Washington State, British Columbia and, of course, Asia.

Thus, the suggestion that shippers will suddenly decide, in 20 years, to not lock in supply on the only pipeline that services the Parkland Refinery in Burnaby or the BP refinery on the Puget Sound makes zero sense. Similarly, the heavy oil refineries in California will be looking for certainty in supplies. The suggestion that shippers will go 100% with the cost-of-service model, with all its uncertainties, simply makes no sense. Some shippers will continue to lock in their commitments because the Trans Mountain is the only way they can affordably get their product to these markets.

Thus, looking at Table 3.2 above we can eliminate the 100% cost-of-service columns and the 9.0% discount rate columns. By doing so we get rid of a lot of red columns and what we get is a NPV range from +2,300 to -1,800. The general trend seems to be about plus or minus $1 billion in NPV over the lifetime of the project.

But Blair, I hear some asking, doesn’t that mean we shouldn’t build the pipeline, it may have a net negative NPV?

My response is that even if the TMX ends up with a net negative NPV it would still be worth building because of the value it will generate for the economy. After all we don’t expect our other infrastructure projects to have a positive NPV, instead we look at whether they can increase productivity and grow the economy. We invest in infrastructure because it generates wealth.

This is the part of the PBO report the activists have carefully avoided. Section 4 of the PBO report describes both how the construction of the pipeline will impact real GDP and employment and more importantly will increase optionality. As the report notes:

Optionality refers to the availability of more pipeline export capacity to more downstream markets for Western Canadian oil producers. Optionality allows shippers more opportunities to maximize returns and reduce the netback disadvantage, reflected in the price differential between West Texas Intermediate (WTI) and Western Canadian Select (WCS)

The PBO later notes:

That analysis determined that a reduction in the WTI-WCS price differential of US$5 per barrel would, on average, increase nominal GDP by $6.0 billion annually over 2019 to 2023″.

and presents the following graph:

Look at that graph. In 2018 the WTI-WCS price differential was as high as $30/barrel.

If we assumed the Trans Mountain, Keystone and Line 3 reduced the differential by only $5 barrel that would be an increase in GDP of $6 billion. That $6 billion a year for every $5 reduction in differential is $120 billion in GDP over the first 20 years of operation of the pipeline. Recognize, this economic growth does not come at any additional GHG or environmental costs. We aren’t selling more product or being more efficient getting it out of the ground. This value simply derives from getting a better price for the same product. It is clean growth with no environmental downsides.

Even if the pipeline lost a billion in NPV it would more than pay for itself in the improvement in GDP and increases in government revenue. Put simply, that is why governments invest in infrastructure. By investing in critical infrastructure the government can generate wealth for the nation and the Trans Mountain looks likely to generate massive wealth to help pay for all the other services we rely on from Medicare to clean drinking water. So when West Coast Environmental Law argues that it is:

Shameful. The Canadian gov’t would rather sink $$Billions into #pipeline expansion than invest in basic infrastructure to deliver #drinkingwater to #Indigenous communities.

I would counter that by investing in wealth-generating infrastructure, like the TMX, the government will be able to generate the tax revenues to help it deliver safe drinking water to all its communities.

To conclude: as I have written repeatedly, the Trans Mountain will be a shipper of choice for decades to come because, unlike Keystone XL, it does not compete with the Enbridge system shipping to the US mid-west and Gulf Coast. As long as this is true then the PBO analysis makes it clear that the project will have a positive NPV. Moreover, not only will the Trans Mountain be profitable, but it will generate wealth by decreasing the WTI-WCS price differential which will grow the economy and generate more government income. While we cannot be sure by how much the TMX will reduce that differential, we can be certain that it will. In doing so, the TMX will almost certainly be profitable while simultaneously serving a critical role in generating GDP and government revenue. It is a win-win project.

Posted in Pipelines, Trans Mountain, Uncategorized | 3 Comments

Evaluating what the new Canada Energy Regulator report actually says about the viability of the Trans Mountain Pipeline

This week the Canada Energy Regulator (CER) presented its Canada’s Energy Future 2020 report and almost immediately the contents were misrepresented in the media by activists and pundits alike. In the Globe and Mail Gary Mason stated thatthe regulator made one thing abundantly clear: The pipeline era is over.” While Leadnow claimed that the CER says “there is no need for more tar sands pipelines”. Neither of these claims are true, nor are many of the similar claims made by organizations like West Coast Environmental Law, Stand.Earth or Dogwood.

The truth of the matter is that few of these activists have likely read in detail what the CER actually wrote in their report and even fewer will be sharing what the report actually says to their followers. This leaves it to people like me to relate what the analysis in the report means for the viability of the Trans Mountain Pipeline Expansion Project (TMX). As I will detail below, the analysis makes it clear that the TMX remains on solid economic ground.

In the report, the CER presents two basic scenarios:

The Evolving Energy System Scenario (Evolving Scenario) considers the impact of continuing the historical trend of increasing global action on climate change throughout the projection period.

The Reference Energy System Scenario (Reference Scenario) provides an update to what has traditionally been the baseline projection in the Energy Futures series, the Reference Scenario  

What the report says is that under the Reference Scenario all the new pipelines in the development queue will be needed. This is shown by the blue line in the graph below. Planned transportation capacity will just be enough to cover planned production capacity, but that includes some pretty big provisos. The biggest is it assumes President-Elect Biden will not follow through on his promise to cancel the permits for Keystone XL. Admittedly election promises aren’t written in stone, but assuming that the new President will ignore an important election promise is not usually a safe bet. It also assumes that a significant amount of production will be carried on rails, something anyone seriously concerned about the environment agrees we want to avoid. But we really aren’t interested in the Reference Scenario at this point, rather what has got the headlines is the Evolving Scenario (the pink line).

As discussed above, it has been widely claimed by the activist community that under the Evolving Scenario the TMX will become a “white elephant” and is no longer economically viable. This is simply not consistent with what the report says nor what is understood about the global market for Alberta heavy oil.

As shown in the graph, under the Evolving Scenario (and in the absence of any new pipeline completions) all the existing transportation capacity will be maxed out by early 2025 with even oil-by-rail being unable to meet the anticipated demand. Put simply, absent some increase in pipeline capacity there will be serious shortfalls in transportation capacity with the ensuing need for some form of curtailment. As we all know a lack of carrying capacity costs the economy and drives down the price Alberta can get for its oil. The graph makes it absolutely clear, even under the Evolving Scenario either Line 3 or the TMX capacity will be needed just to reduce our dependence on oil-by-rail.

Let’s continue with the thought experiment of the Evolving Scenario and no new pipelines. Since transportation capacity will be maxed out, any stoppage on any existing pipeline or any issue with oil-by-rail will result in severe curtailment in a market where Alberta’s production will be needed (see my previous posts about shortages in the world market for heavy oil).

We also have to consider geopolitical considerations. Currently, Canada has no redundancy; almost no control over the pipeline system; and no contingency to deal with breakdowns. In all honesty, right now the Canadian market is dangerously dependent on the Enbridge pipeline system. As we recently discovered, a single state Governor has the potential to hamstring that pipeline system and unravel the Canadian oil transportation network. Moreover, since these decisions are being made outside of our jurisdictions, we don’t even have the power to force action through the courts. Better to have some options should an American politician decide to use Canadian oil as a political hobbyhorse.

Now let’s consider the most likely scenario: both Line 3 and the TMX are completed but KXL is blocked by the US President. What does that mean? Will there be chaos and anarchy? No, it means that the country will have a small amount of surplus capacity; will not need to rely so heavily on oil-by-rail; and won’t need all its infrastructure operating at 100% capacity 100% of the time. As anyone who has made plans knows, it is always better to have a bit of contingency than to be utterly dependent on everything working perfectly all the time. Having both Line 3 and the TMX online provides the ability to deal with ebbs and flows in production and reduces the need for oil-by-rail. That is a good thing.

Another misconception about the CER report comes from the way the graph was designed. As pointed out by Economist Kent Fellows the graph gives a wrong impression, by putting the new pipelines on the top (above the pink line), that Line 3 and the TMX will be the last to get oil if there is more carrying capacity than production. That is simply not what will actually happen. Transportation pipelines will be chosen based on contractual arrangements and which markets they serve. By looking at which markets are served by which pipelines we can establish who will lose their market share first if we end up with excess carry-out capacity. This is where the activists get it particularly wrong about the TMX.

As I describe in my earlier post, the world market is suffering from issues in the supply of heavy oil and the West Coast is severely short on transportation capacity for both heavy and light oil. Let’s look at the current pipeline network.

Where do all the existing pipelines go? Well except for Line 9 (east) and the TMX (west) all the rest go south to the US. So, given a lack of supply which direction would be most likely to be curtailed? Why south of course.

The Trans Mountain is the only player in the game going west. British Columbia, California, Washington, India, China…all can be served by the TMX and can’t be served effectively by any of the other options (except oil-by-rail over the Rockies). Sure you can get to Asia from the Texas Coast, it only takes a trip all the way down North America to the Gulf Coast and then a 10,000 nautical mile trip the long way around the world. This probably explains why 700,000 barrels/day of the 890,000 barrels/day of capacity on the TMX has already been committed. More of that capacity would have been reserved except the CER required that a portion of the capacity be left available for other shippers.

So will the TMX become a “white elephant” that sits empty if the total carrying capacity out of Alberta slightly exceeds Alberta’s production? Absolutely not. Rather, based on legally binding commitments, this pipeline will be at, or close to, capacity from the moment it becomes active. It will be one of the first pipelines filled and one of the last to lose oil.

Contrary to claims by activists, the CER Energy Futures Report does not cast doubt on the economic viability of the TMX nor do CER projections show the TMX is not needed if Canada Acts on climate. As I show above, even when Canada acts on climate the Trans Mountain system will continue to be a shipper of choice and will likely be one of the last pipelines to lose capacity as we migrate off fossil fuels for transportation. It is a strong project with strong financial prospects which probably explains why Indigenous groups are already offering to buy the pipeline even before the construction is complete. I don’t expect they would be doing that if it really was a “white elephant”.

Posted in Pipelines, Trans Mountain, Uncategorized | 7 Comments

Another day, another flawed CCPA report, this time about the Trans Mountain Expansion Project

Yesterday, I was directed to a new report by the Canadian Centre for Policy Alternatives (CCPA) about the Trans Mountain Expansion (TMX) project. As I have written previously, every time I get a notification about one of their reports, I hope that it will present an evidence-based analysis consistent with the quality of the individuals I know work there. Sadly, they always manage to disappoint. I could fill an entire section of my blog with examples of their disappointing reports.

This new report was written by David Hughes, one of their policy analysts I have come across before and is titled: Reassessment of Need for the Trans Mountain Pipeline Expansion Project Production forecasts, economics and environmental considerations. The report purports to “assess the latest data on the need for the TMX” but as I will show in this blog post, it does nothing of the sort. Much of the data used in the report is either woefully out-of-date or lacks the context necessary to be of any use in any evidence-based, decision-making process. Most importantly, the report obfuscates the entire point of the TMX which is to provide producers in Alberta with access to new markets for their production.

I started reading the report with open, but skeptical, eyes but it didn’t take long to recognize that I was going to need to scrutinize the document very carefully. An obvious misstatement set my fact-checker’s radar off. On page 15 the author writes:

Although rail is a more expensive option than pipelines, it has the flexibility to access markets not served by pipelines and is three times safer than pipelines in terms of the volume of oil spilled per ton-mile transported.18

This statement ran contrary to everything I knew about this topic so I consulted the footnote. It cited a Congressional Research Service report from 2014 titled: U.S. Rail Transportation of Crude Oil: Background and Issues for Congress. The footnote indicates the statistic is from Figure 3 of this report (reproduced below):

The claim was based on the last block depicting the information from 2002-2007. The author has chosen data that pre-dates the massive spike in rail transportation of crude oil in the last decade and pre-dates significant events like Gogamas, Galenas, Lac Megantic, the dozen or so other rail issues that didn’t make our local press and the Mosier derailment that came within feet of hitting the Columbia River. It also omits the years earlier where rail was not 3 times safer. How can that be described as assessing the latest data?

As my readers know, I have written extensively on the relative risks of pipelines versus oil-by-rail. We all know that a recent report indicated that the risk of incident is 4.5 times higher for transportation via rail over pipeline. While many have challenged the precision of that statistic, there is no doubt that its analysis does not rely solely on data from the US between 2002 and 2007 while omitting everything before and after that limited time frame in Canada and the US. This dubious choice caused me to question the validity of every reference and data point used in the study. Once I started looking carefully more issues with this report started to emerge.

Consider Figure 4 that purports to present the “Existing and proposed Western Canada export takeaway capacity and domestic refinery consumption”. While it is hard to see the refining volume rises significantly. This is because

The refinery capacity in Alberta has also been increased by 79,000 barrels per day in 2025 and again in 2030, to reflect the probable addition of Phases 2 and 3, respectively, of the Sturgeon refinery.

Anyone familiar with the Sturgeon Refinery knows that it has been a financial boondoggle and that the consortium that owns the project has withdrawn their proposal to expand the refinery. Treating this capacity expansion as a given (as is done in this report) does not reflect reality.

As for the report’s analysis of markets, it is equally out-of-date. When discussing the Asian market for heavy oil it relies on data that is no longer relevant. As I discuss in my previous post “Understanding future demand for heavy oil – Why the Trans Mountain Pipeline Expansion project is a good bet for Canada” Asian refinery owners have been frantically upgrading their refineries to process heavy oil. As I discuss in that post “Asian refineries can refine over 8 times what Line 2 of the TMX can supply to Westridge Marine Terminal for export”. I provide all the most recent numbers in my previous post.

Besides providing out-of-date information for Asian refining capacity, the CCPA report has a startling omission. It completely omits the American west coast as a market for Trans Mountain oil. The report appears to imply that the TMX is solely intended to serve the Asian market. Nothing could be further from the truth. The point of the pipeline is to provide ready access to a marine port where the oil can obtain world market prices, and one of the places where that is going to happen is in California.

In case you don’t follow the US crude business there are some important things to understand. The US market is broken into Petroleum Administration for Defense Districts (PADDs) and PADD 5 (the West Coast, Alaska and Hawaii) is not interconnected to the rest of the US by pipelines. California and Alaska have historically supplied the lion’s share of the demand in PADD 5. What most don’t know is that California produces some of the highest GHG intensity fuel on the planet (even higher than oil sands crude) but that heavy oil is drying up. Alaskan oil is also drying up. This leaves much of PADD 5 with a supply shortage.

As a consequence, one of the most important markets for the TMX will be California which has a lot of heavy oil refining capacity and is losing its domestic supply of heavy oil. Currently, very little Alberta crude can get to California, but after the TMX it will more accessible. Now this is not some secret unknown to the activist community. Greenpeace recently did a big report on the topic. Yet somehow the CCPA report completely omits California from its analysis.

Another interesting omission occurs in the discussion about Maya crude (Mexico’s chemical twin to Alberta’s Western Canada Select). Maya is derived from the Cantarell and Ku Maloob Zaap oil fields in the Gulf of Mexico. The nautical distance between the Port of Vera Cruz in Mexico to Shanghai China is almost 10,020 nautical miles. The two ports are almost as far apart as you can put two ports. This incredible distance results in high transportation costs. On the other hand, these Mexican ports are essentially next door to the US Gulf Coast refineries. So it isn’t a big surprise that Maya sells for a higher price for use in the Gulf Coast than it does for use in Asia. That would explain why today (October 30th, 2020 from OilPrice.com) Maya is selling for $38.41/barrel in the Gulf Coast while it is selling for $35.42/barrel to Asia. Western Canada Select, meanwhile, is selling for $26.57/barrel. Given that the two are chemical twins that difference of over $10/barrel is primarily due to Maya having access to a marine port.

Going back to the West Coast, the nautical distance from the Port of Vancouver to Shanghai is 5110 nautical miles. By halving the distance the price to transport the oil goes down and the price Albertan producers can get for it goes up. Remember earlier when I talked about all that crude going to California. The trip from Vancouver to San Francisco is only 812 nautical miles and the cost to ship a barrel of oil from Vancouver to San Francisco is only $4/barrel. Given that short trip (and low transportation costs) the Californians can outbid the Chinese for Alberta oil because their shipping costs are so much lower.

Now everything above is important but the real trick in this report is misdirection. The author spends almost half his text talking about how it may eventually be possible to transport all Alberta’s production, using rail and new pipelines, to the US mid-west. Thus, arguing that the TMX is unnecessary. But that ignores the entire point of the TMX. The TMX is intended to get Canada out of the current situation where Alberta can only sell its oil to one market and thus has no ability to shop its oil around to get the best price possible.

The author is correct that Alberta may well have lots of transportation capacity to PADD Regions 2, 3 and 4, in the future, but in doing so it highlights that Albertan producers do not have ready access to PADD Region 5 or the rest of the world for that matter. The entire purpose of the TMX is to address that critical bottleneck blocking Albertan access to the world oil markets where Albertan producers can get market prices for their production.

It is really hard to know what to say at this point. I have only scratched the surface on this report and already I have determined that it is not a useful resource for environmental decision-making. As I detail above, the report

  • relies on out-of-date data for heavy oil refining capacity in Asia,
  • assumes that the cancelled expansion of the Sturgeon refinery will pull away capacity from the TMX,
  • ignores the emerging California market for heavy oil,
  • relies on questionable data to discuss the risks of oil-by-rail,
  • omits the transportation costs of Maya to Asia, and
  • obfuscates the entire point of the TMX which is to provide producers in Alberta with access to new markets for their production.

Posted in Canadian Politics, Pipelines, Trans Mountain, Uncategorized | 11 Comments

Understanding future demand for heavy oil – Why the Trans Mountain Pipeline Expansion project is a good bet for Canada

In the last couple weeks the campaign against the Trans Mountain Pipeline Expansion (TMX) project has been turned up to 11. My social media feed is full of claims like: “100+ economists sent a letter to @JustinTrudeau confirming that #TMX pipeline is massive boondoggle putting billions of tax $$ at risk.” Needless to say, the letter was not signed by “100+ economists” unless you define “economists” to consist primarily of individuals with no credentials or practical experience in the academic field of Economics. Rather, it was signed by a handful of economists and a lot of anti-TMX activists.

One of the major arguments by the “economists” in their letter (and other activists like Tzeporah Berman) is that there will be no demand for Alberta’s oil in a post-pandemic world. More specifically, the letter argues “decline in world oil markets and the escalating construction costs have undermined the viability of TMX and put taxpayers’ money at risk“.

As I will explain in this blog post, the Canadian oil sands industry (producing heavy oil at low cost from facilities with low depletion rates) makes the TMX a good investment in a world with plateauing and/or decreasing oil demand.

Oil Field Decline and Depletion

To understand why oil sands are a good bet you must first understand the concept of oil field decline and depletion. Put in the simplest terms: oil fields don’t last forever. Each oil field has a finite supply of accessible crude and from the day they start pumping every field has a limited lifespan. Some oil fields (particularly the big Saudi fields) have huge supplies that have lasted for decades and will be there for decades to come. But those fields are the exception, not the rule. As Terry Etam explains:

Natural decline rates on petroleum wells/fields is a minimum of about 3 percent and, for new technology like shale fields, something more than twenty percent. Let’s be fairly conservative and say that global decline rates are 7 percent.

On a 100 million b/d base, that would mean that the world would need to add 7 million b/d of production after just one year to keep production flat. Over two years, the petroleum industry needs to add 13.5 million b/d to keep production flat at 100 million b/d.

Yes, you read that right, a shale well can lose 20% of its production in one year. In order to maintain production, at existing rates, new wells have to be drilled pretty much constantly and through the Covid period that has not been happening.

Meanwhile, on the international front, the majors and super-majors have significantly cut back on their exploration and development budgets and have put major projects on hold. What does this mean to oil sands producers?

Well contrary to the activist claims, it is good news for the Alberta oil sands. Unlike their competitors, oils sands projects have very low depletion rates with very low break-even points. As IHS Markit puts it:

Even in a low price scenario that sees upstream investment fall sharply, production from Canada’s oil sands does not. Output remains stable and companies would chip away at costs over time, experiencing more production gains by upgrading existing facilities. This scenario is a reminder about the unique nature of Canada’s oil sands. “The absence of meaningful [production] declines makes a future without oil sands growth difficult to see.” [emphasis mine]

As noted in that report, much of the existing oil sands production is profitable at prices over $25/barrel while CNRL recently reported their mining and upgrading operating costs declined to a record low of $17.74 barrel. In a world where the drop in supply is expected to exceed the drop in demand, existing oil sands projects, with their low depletion rates and low break-even costs, will be ideally situated to meet the world’s future oil needs, especially since the oil sands produce heavy crude.

On the Particular Value of Heavy Crude

You might ask why I emphasize the importance of “heavy crude” since the activists like to claim that heavy crude is inferior to light crude. That is a common misconception.

Heavy oil is neither better nor worse than light crude. They are distinct products that have similar, but not the same, markets. Heavy crude needs to be refined in specially designed and built high-conversion refineries. These high-conversion refineries include expensive cracking and coking units, designed to break down the longer and heavier hydrocarbons into the smaller units used in gasoline, kerosene and diesel.

The simpler light crude refineries, meanwhile, don’t typically have these cracking and coking units. Ironically, this can mean that the light crude refineries can’t handle the heavier components in the light crude oils and so these refineries end up producing more undesirable byproducts (like petroleum coke) per barrel of input.

What this means is that the heavy oil refineries produce more gasoline/diesel/kerosene per barrel of heavy crude oil than the light refineries do per barrel of light crude oil. As a bonus the complex heavy refineries produce a lot less waste petroleum coke per barrel which also reduces their costs.

This difference is called the “coking margin“. For the last couple decades the coking margin has exceeded the “crack spread” [the difference between the input costs and output value in a typical refinery]. As described in this document for the 10-year period between 1995 to 2005 the USGC Maya coking margin averaged $3.63 per barrel above the average of crack spread of $3.46 per barrel. That number has only increased in the intervening decades. That is why so many refinery owners have invested to increase the complexity of their refineries.

To explain the jargon, the Nelson Complexity Index is a measure of the sophistication of an oil refinery, where more complex refineries are able to produce more heavily refined, and valuable, products from a barrel of oil.

Having invested heavily into building these complex refineries, the owners will pay to get the heavy oil that optimizes their returns. This is why the light-heavy price differential has mostly disappeared in the last couple years.

As for the supply side of the equation, for decades Venezuela was a major exporter of heavy oil but thanks to bad government and lack of investment Venezuela has dropped from exporting close to 3 million barrels a day in 2000 to nearly zero in 2020. That 3 million barrels a day is almost 6 times the volume that can be moved in Line 2 of the TMX. Now let’s look at what has happened on the demand side for heavy crude.

Asian Refining Capacity

One of the most bizarre recent narratives presented by the activist community is that there is no market for diluted bitumen in Asia and that Asian refineries can’t refine dilbit. This is entirely untrue.

Historically the American Gulf coast refineries have been the pinnacle of refining complexity. This is no longer the case. As presented in this document these days Asian refineries are approaching the complexity of the US fleet.

As Reuters recently reported:

Many of the region’s refineries are new and are optimized to process heavy and sour crudes.

So, contrary to what the activists have to say Asia has a lot of refineries that can refine heavy oil. Want some numbers? According to GlobalData:

The global refinery fluid catalytic cracking units (FCCU) capacity increased from 19,926 mbd [thousand barrels a day] in 2014 to 21,050 mbd in 2019 at an AAGR of 1.1 percent. It is expected to increase from 21,050 mbd in 2019 to 22,240 mbd in 2024 at an AAGR of 1.1 percent. United States, China, India, Japan and Russia are the top five countries in the world accounting for 61.2 percent of total FCCU capacity in 2019.

GlobalData’s report reveals

Asia’s FCCU capacity is expected to increase by 542 mbdfrom 8,385 mbd in 2020 to about 8,927 mbd in 2024. Out of the Asia’s total capacity additions, 151.2 mbd is likely to come from the expansion of active projects while the remaining 391 mbd is expected to come from new-build planned projects.

Finally as described in another report:

GlobalData’s report,‘Global Refinery Coking Units Outlook to 2024 – Capacity and Capital Expenditure Outlook with Details of All Operating and Planned Coking Units’, reveals that Asia’s coking capacity is expected to increase by 374 mbd, from 3,489 mbd in 2020 to about 3,863 mbd by 2024

Look at those numbers. Asian refineries can refine over 8 times what Line 2 of the TMX can supply to Westridge Marine Terminal for export.

Conclusion

Let’s summarize the case for the TMX: currently the crude oil market is expected to plateau and then drop. However that drop is not expected to be as steep as the ongoing drop in supply associated with global oil field decline and depletion. Historically, this decline and depletion of existing oil fields has been counteracted by increased investment in exploration and development in the upstream sector. Except most of the majors and super-majors have significantly decreased their investment in exploration and development of new oil fields. The result will be a global decrease in access to new oil fields and in particular to heavy oil. Meanwhile, global refinery owners have spent billions of dollars upgrading their facilities…facilities optimized to refine that increasingly hard to get heavy oil.

Into this world of demand outstripping supply for heavy oil comes the TMX. The TMX will allow Alberta to ship highly desired heavy oil from oil sands facilities that have very low depletion rates, with very low break-even points, to motivated buyers with custom-made facilities designed specifically to refine those heavy crudes. This represents an ideal scenario for Canadian producers. They will have motivated buyers seeking a steady supply of highly-prized oil located where transportation costs to Asia will be minimized, all during a period when global demand for heavy crude is expected to increase. Even in a decreasing market, the strong demand for heavy oil will keep Canadian oil at the top of the order sheet. So much for that letter by those “economists”.

Posted in Pipelines, Trans Mountain, Uncategorized | 10 Comments