Debunking another compilation of Trans Mountain pipeline myths

Posted on June 20, 2018 by

I have spent countless hours debunking misinformation about the Trans Mountain pipeline expansion (TMX) project. I have done so as a pragmatic environmentalist who has spent the time necessary to become informed about the relative risks associated with the project. In doing so I have come to the conclusion that it is the best of a number of poor choices for a province that relies heavily on fossil fuels and will need to do so for the foreseeable future. While I have been doing my homework, a hard-core cadre of environmental activists have been working to spread misinformation and half-truths about the project. All their hard work has come together in what can only be described as their magnum opus. A piece in the Guardian by a Councillor for the Squamish Nation that weaves all the best misinformation into one glorious tapestry of bunk. In this blog post I will try to deconstruct the mess that is this Guardian article.

You can tell this Guardian article is not grounded in reality when it starts with obvious and inexcusable errors. In only the second paragraph the author claims that Vancouver will export “up to a million barrels of crude oil per day”. Quite the feat for a pipeline expansion that involves expanding a pipeline from 300,000 barrels a day to 890,000 barrels a day with much of that volume dedicated to local and/or regional use. The estimated export volume is approximately half the number presented in the article.

The hyperbole doesn’t end there. A few paragraphs later the author claims that diluted bitumen is “the world’s most toxic oil”. This is a ridiculous falsehood pushed by activists who apparently don’t understand what “toxic” means. Diluted bitumen, due to its chemical nature, is less toxic to humans than most refined fuels we use every day. To explain, the most toxic components in petroleum hydrocarbon mixtures are their aromatic constituents (like benzene, toluene, ethylbenzene and xylenes or BTEX). Relatively speaking bitumen has some of  the lowest BTEX concentrations of all crude oils. As for the condensate (the diluent in diluted bitumen) it is also extremely low in BTEX as it is made up mostly of less toxic aliphatic hydrocarbons. Certainly both bitumen and condensate have some benzene (the five year average for benzene concentration in Cold Lake Blend is 0.23% +/- 0.03 %) but West Texas Intermediate crude has twice the benzene while low-benzene gasoline has almost 4 times as much. Sure diluted bitumen is toxic but so is gasoline, aviation fuel and West Texas Intermediate crude all of which are more toxic to humans than diluted bitumen.

As for the suggestion that spilled diluted bitumen will “kill everything that now lives there, forever”. Diluted bitumen is not an existential threat to humanity. Rather, diluted bitumen behaves pretty much like other heavy crude oils when spilled. As for clean-up, according to Transport Canada it is somewhat easier to clean than heavy crude and in the one example of a marine spill, in the Burrard Inlet, they were able to recover 95% of the spilled material. The 10% -15% number the author cites is open ocean spills not spills in a well-managed port.

Talking ports, the article spends a lot of time implying that the Port of Vancouver is overly dangerous for tankers. The reality is the Port of Vancouver was placed where it was because it is such a safe, protected place for ships to dock. The Burrard Inlet is well sheltered and the Salish Sea, bounded on all sides by land, is a relatively calm body of water. There is a reason that Tofino advertises itself as the place to go for storm watching but Parksville does not. Compared to the seas these ocean-going tankers are used to (like the North Pacific), the Burrard Inlet is as dangerous as a bathroom sink and the Salish Sea may as well be a bathtub. As for the currents, the First and Second Narrows can’t hold a candle to a North Pacific storm. Moreover, in those tighter passages the tankers will be accompanied by two tugs and local pilots. Ultimately, the author is trying to create a tempest in a teapot.

Admittedly the article gets even more bizarre in the section where the author imagines a dystopian future where our governments somehow decide to give up enforcing marine regulations. The author posits a future when Vancouver Harbour becomes some sort of Mad Max mayhem zone where unregulated ships fight for supremacy and no one is there to ensure the safety of our communities…and what is a “mega-tanker” anyways? This section represents more a case of speculative fiction than opinion.

I am going to be careful with this next part. As anyone who has read my work knows, I have studiously avoided the First Nations’ file. The reason for this is simple, I am not an expert on issues surrounding First Nations sovereignty (or consultation) and have been careful to “stay in my lane”. That being said assessing relative risks is my lane and that is what needs to be considered in this discussion.

Let’s start with a simple truth. The majority of British Columbia consists of unceded land and any development on unceded land needs the involvement and consultation of any affected First Nations. That being said under Canadian law First Nations do not hold a veto power over projects in their historic territories. Specifically, the Supreme Court of Canada (SCC) has confirmed that:

  • Consultation is not intended to address historic grievances, but rather the incremental impact of specific Crown decisions on aboriginal and treaty rights. Nevertheless, cumulative effects are relevant (according to the SCC in Chippewas).
  • The duty to consult does not provide a “veto” for Indigenous people over Crown decisions. Balance and compromise are inherent in the consultation process and are key elements of reconciliation (according to the SCC in Chippewas).

This raises a very important topic that opponents of the pipeline have ignored. The Crown owes the same fiduciary obligations to all First Nations and has to consider cumulative risks to each First Nation associated with a project. I have been repeatedly informed on Twitter that each First Nation is sovereign and has the right to make decisions for itself. While that is true the Crown is left with the challenging task of finding a compromise when a project’s risks affect two or more First Nations differently. There is an old quote often attributed to Oliver Wendell Holmes “the right to swing my fist ends where the other man’s nose begins.” This quote has never been truer than in the pipeline debate. As I have tried to explain, the pipeline debate is all about relative risk. Closing a door somewhere means that another door must be opened somewhere else, or put another way the Squamish Nation’s ability to swing their arms ends where the Cheam or Semiahmoo First Nations’ noses begin.

To understand what I mean let’s look at how Washington State gets its crude oil. In 2003, 91% of the crude used in the Puget Sound came by tanker (from Alaska) while the remaining 9% came via the Trans Mountain pipeline. So far in 2018, 46.2% of the crude oil used in the Puget Sound was moved by tankers while 28.4% was moved by pipeline and 25.4% was moved by train. What does that mean in real numbers? Between April 1, 2017 and March 31, 2018 almost 55 million barrels of oil were transported by rail in Washington State. The monthly numbers have been pretty steady since 2016 with quarterly numbers ranging from 13.1 million barrels to 14.6 million barrels. From January through March 2018 almost 20,000 rail cars of crude oil traveled for hundreds of kilometers along the banks of the Columbia River to feed Washington’s thirst for crude oil. This represents a weekly  average of 1,525 rail cars carrying 1,038,382 barrels of crude oil with 91% of that oil being the highly explosive light oil coming from the Bakken oil fields of North Dakota.

As for pipelines, Between April 1, 2017 and March 31, 2018 almost 61.2 million barrels of oil were imported to Washington via pipeline and almost 100 million barrels of oil were imported via tanker. Speaking of tankers, as described in the National Post

 In 2012 there were 1,197 tanker “movements” through the Strait of Juan de Fuca, according to the National Energy Board. When operating at full capacity, the Trans Mountain pipeline will only tack on an additional 720 tanker movements. Some years, in fact, the total number of extra vessels brought to the Salish Sea by Trans Mountain will be comparable to the traffic at a single Washington oil refinery. Cherry Point, a BP refinery within sight of Metro Vancouver, counted an average of 321 calls from oil tankers between 1998 and 2010. The Trans Mountain expansion is expected to add only 300 tankers per year into the region.

Now I understand that I have lost a lot of you with all these numbers but here is my point. If we decide to eliminate the TMX project, the crude oil necessary for our continued existence on the West Coast will still need to flow. It will simply flow via less safe means. In previous posts I presented the details of the risk assessments that show that the project will not significantly increase the relative marine risks but without the TMX our inland risks go up precipitously.

Now this is where the Crown comes in. Certainly the Squamish Nation can argue that the increase in tanker traffic will increase the likelihood of a major spill from one in every 3093 years to one in every 2366 years, but the Crown has to look at those 20,000 rail cars a year running along the Columbia River, each of which puts a number of interior First Nations at risk. Absent the TMX more oil trains will run down the Thompson and Fraser River valleys putting peoples like the Cheam and Sto:lo at increased risk. If BP needs to keep shipping oil from overseas it puts the Semiahmoo at increased risk. The Crown has to balance these risks. It can’t simply say that it will protect the Squamish and completely ignore the Cheam, the Sto:lo or the Semiahmoo. I can’t say it enough, the Crown owes a fiduciary duty to all First Nations and has to balance the risks so that no individual First Nation is singled out for extreme risk. That will mean that the Crown may have to impose higher risks on some Nations than those Nations would prefer but the Crown does so in order to protect other Nations.

What makes the Crown’s job even harder is that the activists have spent a decade muddying the waters so that well-meaning people (presumably like the author of this Guardian article) actually believe the hogwash the activists have been selling them. They have been convinced to believe falsehoods like:

  • diluted bitumen is the “world’s most toxic oil”;
  • contrary to experience we will not be capable of cleaning an oil spill in the Burrard Inlet;
  • ocean-going tankers designed to survive in the North Pacific and attached to escort tugs will be overwhelmed by the current around First Narrows;
  • if they say no to the pipeline, the oil trains will simply stop running to the Puget Sound;
  • the resident orcas will be overwhelmed by the addition of 600 tankers but not by the addition of thousands of ships in the Ports of Vancouver and Seattle;
  • the Liberian tankers moving Saudi crude that will be left feeding the Puget Sound refineries will be as well regulated as the Canadian tankers that are regulated by the NEB; and
  • we will come  up with a magical technological advances that will allow us to wean ourselves off fossil fuels in such a short time-frame that we won’t need the pipeline.

What is most frustrating, from my perspective, is that the activists have even managed to convince some of the First Nations on the Fraser River that the pipeline is a greater risk to their communities than oil-by-rail. This means these First Nations are now fighting a project that has the potential to significantly decrease the risks to their communities. As someone who cares about human and ecological health, this is the saddest part of the entire story.

Posted in Canadian Politics, Environmentalism and Ecomodernism, Pipelines, Trans Mountain, Uncategorized | 7 Comments

Yet another carbon bubble paper that misses the mark

Posted on June 5, 2018 by

One of the interesting features of the climate change debate is that many of the highest profile academics in the field are European and many of the papers have what, to outsiders such as myself, might appear to be unconscious European biases. I previously noted this in a blog post discussing the famous Nature article titled “The geographical distribution of fossil fuels unused when limiting global warming to 2°C” authored by McGlade and Ekins. Well today another paper (in this journal short articles are called “letters”) came out titled: Macroeconomic impact of stranded fossil fuel assets by Mercure et al. Now let’s point out that Dr. Mercure is actually a Canadian, but the paper itself, as I will discuss, really misses out the importance that geography plays in the North American energy markets and in doing so I think it misses the mark. This letter is already being used by opponents of the Trans Mountain Expansion (TMX) project as a justification to not complete the project.  This blog post will examine some of the strange issues I have with this letter that demonstrate why I believe it shouldn’t be considered a useful resource in discussing whether the TMX project is built or not.

Now one of the complaints about my posts is they are too long (TL:DR) so this time I am going to try something new. I am going to go with an Executive Summary approach using bullets that summarize the points I will address in detail in this blog. Here are the main reasons I have serious reservations about this letter:

  • The letter assumes that the US and Canada will simply roll over and abandon their fossil fuel industries without imposing any import controls or trade protection measures.
  • The letter deliberately excludes the logistical challenges associated with getting crude oil into continental North America and “minimises” crude oil transportation costs.
  • The letter ignores the difference between heavy and light oils and assumes that all the oil produced in the world will be OPEC lights, irrespective of the refining capacity and the needs of the chemical industries for heavy oils.
  • The model used to calculate stranded fossil fuel asset (SFFA) impacts comes to some strange conclusions about ho that stranding will affect other seemingly unrelated parts of the Canadian economy including:
    • The models somehow concludes SFFA will result in a substantial decrease Canadian agricultural production.
    • The models somehow concludes SFFA will result in a substantial reduction in the Canadian metals extraction industry even though those metals will be absolutely necessary in the production of the renewable energy technologies (including the co-production of critical elements as a by-product of the fossil fuel extraction) .

Looking at this list it is hard to believe that this letter would be used for any serious policy discussion about whether the TMX project is built or not.. Now let’s look at some details.

To begin I will note that I was a child during the 1979 Energy Crisis which I remember vividly. One of the big outcomes of that crisis was a political decision that the United States would never again allow itself to become dependent on Middle Eastern oil for its economic survival. The US even went so far as to ban the export of crude oil to ensure that its domestic supply was reserved and available for domestic use. It was only with the most recent shale boom that the US government reversed these policies. Yet in this study Mercure et al. assume that the United States and Canada would not impose any import controls or trade protection measures in response to the decrease in demand for fossil fuels. Mercure et al. assume the United States would allow themselves to become utterly dependent on the mullahs in Riyadh and Tehran for the fuels that run their economy and their military. I’m sorry but no political leader in the United States would return the US to dependence on Saudi Arabia and Iran for their economic lifelines.

Another assumption I take issue with is the cost factor. In the letter the authors are incredibly careful to consider the costs of production of fossil fuels but appear to completely ignore the costs to transport those materials. One of the stated reasons for building pipelines in Canada is the decrease in price we currently obtain for our crude because of the costs involved in transporting the crude to markets. Yet in the letter the authors specifically ignore how these costs would affect the decisions to shutter our energy projects. As the authors state in the supplemental material it is instead assumed that the available supplies are matched to demands in an efficient manner with transportation costs minimised. I personally believe this is an example of that unconscious European bias I mentioned above. Europe is so completely interconnected that from there it is easy for forget how hard it is to get fuel to a place like Yellowknife or Price George. Perhaps the authors of the paper forgot that North America is a huge continent with serious geographical challenges. Getting crude oil from Saudi Arabia to the Midwest refineries is not a cost-free measure, but that is how the authors treat it. As for Canada, in order for that Saudi crude to make it to the refineries around Edmonton we would need to re-configure several thousand kilometers of pipelines including the addition of a massive number of pump stations. You can’t just reverse the Trans Mountain pipeline. The pump stations were designed to take advantage of the elevation drops, they aren’t located to push material up the coastal mountains and over the Rockies in an eastward direction. Ultimately, the costs presented by the authors don’t incorporate the billions necessary to get that crude to the interior of North America where all those refineries are found. Once those costs are incorporated North American crude becomes very cost-competitive to the Saudi crude. A factor the authors don’t really consider.

Another thing I really noticed in reading the paper is how completely the authors appear to misunderstand the global crude market. A scan of the paper shows no evidence that they distinguish between heavy and light crude oils. I have already written a post discussing why heavy crude oils are a different product than light crude oils and cannot be readily replaced by light crude oils in existing refineries. Apparently the authors believe that all we need is the light crude oil produced by the low-cost OPEC partners but we now know that there are different markets for heavy and light crude oils. Any analysis that ignores the difference between heavy and light crude, and the amount of existing infrastructure tuned to refine heavy crude, is simply incomplete. As I pointed out in my previous post, a heavy crude refinery produces more gasoline and diesel and less waste using heavy crude than it does using light crude and has significantly higher margins running the heavy crude. This means that they can afford to buy slightly more expensive domestic heavy crude and still turn a profit. Once again this upends the narrative presented by the authors that the heavy oils in Alberta will be the first to disappear from the market.

Now the highlight of the paper has to be that terrifying Figure 3 which shows a massive drop in Canadian GDP associated with the SFFA. This caused me to go to the supplementary information to try and figure out where all that GDP went. This info is summarized in Supplementary Table 8 which shows some unexpected conclusions. I downloaded the spreadsheet associated with the report but it was not much help and since I am only doing a quick post I am not going to go through the effort of trying to get the original spreadsheets from the authors. Even absent the spreadsheets it is pretty clear that the underlying model makes some unexpected assumptions. Look at the loss in Canadian agricultural output associated with SFFA. Apparently the decrease in our oil industry will result in over 8% loss in agricultural production by 2035. In the model description they appear to indicate that the drop in fossil fuel assets will have cascading effects on consumer confidence and that might be the case if our agricultural industry was primarily for internal use. The problem is that a significant percentage of Canada’s agricultural production is for export which should not be affected by a drop in domestic demand. Moreover, let’s remember, that the global climate models suggest that Canadian agricultural production will increase with the initial phases of climate change. Thus under any reasonable future scenario we would expect the increase in both the amount of agricultural land in Canada and in demand for that output from other parts of the world (particularly near the equator where they will be seeing decreases in production) this should result in substantial increases in Canadian agricultural output not the drops suggested by the model used in this letter.

More puzzling is the precipitous drop in our extraction sectors. Canada has a lot of primary extraction. According to the Government of Canada website, Canada produced $96.9 billion of exports in “Mining, Quarrying, and Oil and Gas Extraction” in 2016 (last year available) with oil and gas making up $61.2 billion of that (63% of total) and mining and quarrying the remaining $35.7 (37%). Metals make up the lion’s share of that second number. Returning to the letter we see that authors predicting an 81.9% decrease in extraction sectors. That means the authors see the collapse of the oil and gas sector taking with it almost half of our metals mining as well. As a primary producer of base metals and minerals it is not clear why we would expect such a dramatic drop in demand for these raw materials in a scenario where massive growth of the alternative energy technologies is expected. Perhaps the authors expect these metals will simply materialize when required? Alternatively it might be that the model is overly simplistic and doesn’t effectively acknowledge what will happen to the Canadian economy in the situation presented.

Looking at the issues with this letter it is clear that a future drop in demand will not result in a massive abandonment of fossil fuel extraction infrastructure in North America. North American fossil fuel assets will not be stranded in the manner suggested by the authors because North American is huge and has a complex geography that affects the cost to move primary resources. North America also has legacy refining infrastructure that will not be abandoned simply because the Saudis can pump cheap light crude oil into the Arabian Gulf. That OPEC oil is not always the right choice for the refineries and it will cost a lot of money to get it to the interior of North America. Moreover, do you really expect the United States to rely on Iranian and Saudi oil? Finally, it is clear that something is amiss with the model the authors use to establish what the reduction in crude demand will have on the North American economy. The integrated North American economy is a complex one and the model the authors have used simply doesn’t effectively reflect that economy. Under climate change Canadian agricultural production is predicted to surge, not decrease, and demand for critical metals and elements will increase not collapse. Any letter that suggests the alternative is true needs to be read with a healthy dose of skepticism.

 

Author’s note:

Dr. Mercure has kindly commented on this post below and I have replied. In particular Dr. Mercure noted some imprecise language which, in the light of the day, needed to be cleaned up. The downside of late-night blogging is you don’t always get the wording right the first time around and as such I have substantially edited this post since it was first put online. I have not changed the content but have definitely changed the tone. Dr. Mercure’s work represents a solid step advancement on our knowledge-base but like any limited paper was not able to be a be-all-end-all document. I feel I have raised some legitimate concerns why this letter should not serve as the basis for a major critique of the TMX pipeline project.

Posted in Canadian Politics, Pipelines, Renewable Energy, Trans Mountain, Uncategorized | 9 Comments

Some Basic Science about “Toxic Molds”

Posted on May 14, 2018 by

As many of my readers know not only am I a Professional Chemist but my original field of training included Biology and I am also a Registered Professional Biologist. If you read deeply into my resume you will discover a handful of certifications in mold investigation, assessment and remediation. At one point in my career almost half my time was spent in occupational health and safety testing. A couple years ago I wrote a post for the Huffington Post on Toxic Molds. Well on the weekend another “toxic mould” story came up in the news and I thought it was time to dust off that old story as it is once again relevant. The following is an update of that older mold post with some new references thrown in to address new learnings since the original post went out.

Let’s start with some mold basics. Mold (or mould if you prefer) is a non-scientific term for a varied group of fungi. Molds are literally everywhere. Molds existed on the planet long before humans and will likely exist long after the last humans are gone. Humans evolved in a world heavily populated by molds. What does this mean? Well that that we, as a species, have mostly evolved to live side-by-side with molds and to filter out their spores. That is lucky because virtually every breath we take, indoors or out, brings us in contact with mold spores.

In order to grow, mold only needs warmth, moisture and food (often called “the mold triangle“…the mold version of “the fire triangle“). Molds will thrive at temperatures over 5 degrees C (and under about 45 degrees C) and humidity over about 50 per cent. Molds have evolved to live on pretty much anything organic in nature so can grow almost anywhere. To make it worse some molds, like Penicillium or Cladosporium, can tolerate colder temperatures. This is why you tend to find these two molds growing on rotting veggies in your fridge or on the cold grout in your windows in winter time.

Molds absolutely love places that are wet and dusty. Most mold spores travel with the wind and deposit (stick) to places that are wet. That means that a well-designed air-conditioning system will filter out mold spores but that means the drop trays in your air conditioning system should be regularly cleaned because that is where the spores went. This will also mean that indoor air concentrations of mold spores should be lower than outdoor concentrations. If the opposite is true that means you likely have mold growing in your house that needs to be cleaned up. A big warning for people with flooded homes is that molds also grow pretty quickly. Within 24-48 hours of water intrusion mold will start growing, but on the bright side if you eliminate the water the molds will stop growing and dry up.

Given its ubiquity, you might wonder why one would spend so much time testing for mold? Well in the last 20 years an industry has built up around the idea of “toxic molds.” This industry preys on our fears and ignorance with mold being described as “black gold” in some circles. The reality is there is no such thing as “toxic mold.” There are some mold species that are “toxigenic,” that is they produce “mycotoxins.” Mycotoxins are metabolites produced by molds that are capable of harming other living organisms. Molds evolved these metabolites as part of their strategy to battle bacteria (and each other). Molds have spent the last billion years in an ongoing arms race against bacteria; their primary competition for living space and food. One of the most famous of these mycotoxins is a compound we call penicillin. Penicillin is produced by the mold Penicillium (one of the supposedly “toxic molds”) and is essentially harmless to non-allergic humans in the concentrations encountered in our day-to-day lives.

Certainly, there are people who can be deathly allergic to penicillin but even these people are exposed to the mold Penicillium on a daily basis with no ill-effect. As for allergies, approximately five per cent of individuals have some allergic airway response to elevated mold spore concentrations. That is, these people will get runny noses, itchy eyes and some wheezing when encountering high concentrations of mold spores. But let’s put that number into perspective, about 10 per cent of people are allergic to household pets.

Now I am not saying that mold is good for you as that is clearly not the case. Molds can and do produce spores that can act as human allergens. I can personally attest that at high enough concentrations mold spores can even induce headaches in people who are not directly allergic to mold. In addition I have to include this important proviso, individuals with illnesses that decrease their immune response (immunosuppressed individuals) should be especially careful to reduce their exposure to molds as molds can cause them serious harm. From a physical perspective, molds can also damage and weaken structures. But on a day-to-day basis, molds and mold spores are not a significant risk to a healthy individual.

As for ingesting mold. Issues with mold have been known since biblical times and everyone knows that you should not eat moldy food as it can make you sick. Moreover, it is not unheard of for horses to actually die from eating moldy hay. But for people to die from eating mold is incredibly rare.

The question you are probably asking is: if mold is so harmless why has this industry grown so big? It has been argued that our current generation of mold panic can be directly linked to U.S. Centers for Disease Control (CDC) studies in 1994 and 1997. At that time, the CDC incorrectly linked lung damage in children to the presence of Stachybotrys chartarum mold. In 2000, this linkage was retracted by the CDC. Unfortunately, by then the damage was done and a few very lucrative lawsuits later, the “toxic mold” industry was born.

So what is the truth about “toxic mold”? The fact that is understood now, that was not fully recognized in the 1990s, is that it is not the mold in your house that is making you sick. Rather it is living in conditions where mold can thrive that actually causes illnesses. As explained by the World Health Organization in 2009

Sufficient epidemiological evidence is available…to show that the occupants of damp or mouldy buildings, both houses and public buildings, are at increased risk of respiratory symptoms, respiratory infections and exacerbation of asthma. Some evidence suggests increased risks of allergic rhinitis and asthma. Although few intervention studies were available, their results show that remediation of dampness can reduce adverse health outcomes.

As for the mycotoxins, the research is also clear:

Current scientific evidence does not support the proposition that human health has been adversely affected by inhaled mycotoxins in home, school, or office environments (Hardin Kelman and Saxon, 2003)

and

Currently, there is no supportive evidence to imply that inhaling mold or mycotoxins in indoor environments is responsible for any serious health effects other than transient irritation and allergies in immunocompetent individuals (Fung and Clark, 2004).

So what are the take-home messages about “toxic molds”? It is not “toxic mold” that is making people sick, it is living in conditions conducive to mold growth that is bad for human health. If you are living in a house with high humidity and low temperatures then you are going to get sick irrespective of the presence or absence of “toxic molds”. As such mold can serve as a useful indicator. If you see mold growing in your house it is time to deal with the conditions that are likely to make you sick sometime in the future.

Posted in Risk, Uncategorized | 4 Comments

On politicians shading the truth about diluted bitumen

Posted on May 1, 2018 by

One of the most frustrating parts of the Trans Mountain Expansion (TMX) pipeline debate is dealing with all the misinformation out there. I can’t count the number of people who have assured me that the TMX is only about exporting bitumen to Asia and other such nonsense. What I find particularly frustrating is when legitimate political leaders make statements that they know, or reasonably should know, aren’t entirely correct. Shading the truth is fine for anonymous commentators on Twitter but is absolutely infuriating when done by the people we elect to represent us. In this blog post I want to look at three recent cases when important political leaders made statements they knew, or should reasonably have known, were not entirely correct.

My first case involves the B.C. Minister of Environment & Climate Change Strategy, Mr. George Heyman. As anyone who was watching the news will remember, Mr. Heyman was all over the news last week talking about the lack of science available on the behaviour of diluted bitumen during spills. Here he is on Global News saying things like:

“There are gaps in our knowledge,”  and

“These were identified in the 2015 report by the Royal Society of Canada. We need to fill those gaps in knowledge.”

The problem is that any reasonably informed observer knows that there has been a huge amount of work done since the Royal Society of Canada (RSC) report was produced in 2015. I have written two blog posts describing advances in this field and was going to produce a long section describing all the advances since 2015. But then, lo and behold, Transport Canada went and did my work for me. Take a look at this incredible document they produced highlighting the millions of dollars of research the federal government has produced to fill in those “gaps” Mr. Heyman discusses.

Now recognize Mr. Heyman oversees a major Ministry with dozens of senior civil servants paid to keep up to date on spills and spill response. Can you really believe that these senior civil servants failed to notice the over 60 research articles directly related to their field of responsibility published in the last few years? How did all his senior bureaucrats somehow not relay to him information about the thousands of hours and millions of dollars of research conducted by some of the best researchers in Canada and the US? Yet there he was appearing all over the media acting as if our information-base hadn’t progressed since 2015. Am I supposed to believe they completely missed all the advances in the science for the last half-decade?

My second case involves Dr. Andrew Weaver, Leader of the Green Party of BC. As we know, Dr. Weaver is a former scientist. As a former scientist, Dr. Weaver knows that evidence-based decision-making requires one to balance all the information in a field and not simply to cherry-pick information that helps advance his preferred narrative. Yet that is precisely what Dr. Weaver has been doing on the diluted bitumen file. Here is Dr. Weaver from Power Play discussing the behaviour of dilbit in a marine spill. Scroll forward to 2 minutes :

We need to recognize too we are not talking about oil shipment, we are talking about the shipment through pipelines of diluted bitumen, a substance that when spilled with particulate matter, in water with suspended particles in it, it sinks, we cannot clean up a spill…[my transcription]

Now I won’t go deeply into his “diluted bitumen is not oil” shtick. My interest is in the second half of the sentence. Notice how he was being incredibly precise in his word choice. That was not by accident, but rather appears to represent him very carefully picking the biggest cherry off the tree. Technically, everything he said in the second half of the sentence is true, but in telling that truth he omits a lot. To explain, consider what I wrote in my previous post: A layman’s guide to the behaviour of diluted bitumen in a marine spill

The Achilles heel of the dilbit, however, appears to be sediments in the water. Oils exposed to silty water will form oil-particle aggregates (OPAs) which under certain conditions will sink to the bottom….In the Environment Canada research when they mixed the spilled dilbit with high concentrations of a very fine type of clay called “kaolin” virtually all the bitumen either dispersed or formed OPAs and sunk to the bottom of the wave tank. Similarly, when the bitumen was exposed to very high concentrations of diatomaceous earth the same thing happened. When the dilbit was exposed to sands, however, the OPAs were not formed and the material instead formed droplets that were highly resistant to sinking and floated strongly on the surface.

So yes, as Dr. Weaver suggests, diluted bitumen will sink when they form OPAs. But to do so they need to be exposed to high concentrations of fine silts and/or clays. This is something you don’t see over virtually the entire Salish Sea. To understand let’s take a quick look from the air at the Salish Sea, here is a great photo from NASA (caution big file)

vancouver_tm5_2011250_small

Look at how incredibly blue all the water is. Only that tiny area in the immediate outflow of the Fraser River has the types of sediments where OPAs  would be an issue and they disappear almost right away into those essentially sediment-free waters. Now consider the Burrard Inlet which is also a beautiful blue in the photo, indicating virtually no sediment. That would be the area where the Burrard Inlet spill of 2007 occurred. That would be the spill where virtually no OPAs were formed and almost 95% of the spilled dibit was recovered. So much for “it sinks” and “we cannot clean up a spill“.

Looking at Roberts Bank and south, sediment is not an issue there either, nor is it through the entire rest of the Salish Sea. Thus, what Dr. Weaver said on Power Play was technically correct: if a tanker spilled right in the middle of the Fraser River plume some of that spill may indeed sink. But that is not how he framed the discussion was it? He made this one very small and very specific area sound like it was the norm for the entire route. That is simply not true. As I have pointed out previously, Fisheries and Oceans Canada modeled an oil spill in the Salish Sea and concluded that the majority of the oil would stay on the surface rather than dispersing into the water column. That would mean that the floating oil would be recoverable using current spill response technologies. Listening to Dr. Weaver’s interviews over the last week he has repeatedly stressed the sinking scenario even though we now know that scenario only applies in a tiny bit of the Salish Sea, in what is the widest sea lanes in the entire route.

My final case involves Ms. Elizabeth May, leader of the Green Party of Canada. She has been a constant treat on the internet with one of her big talking points being about the transportation of bitumen by rail. Look at her timeline and it is full of comments about the safety of diluted bitumen. She thinks it can’t spill in a rail spill. Here is one example: 

When bitumen moves by rail, it is solid. It can’t spill and it can’t catch fire. @AlbertaGrl @Proud_Canadian1 @GregTaylor100 @dgeorge7007

In the last year, I have corrected Ms. May at least three times on Twitter and each time I have directed her to documentation she could read to get the information right. Each time she has ignored the information provided and continues to make unsupportable arguments. Now don’t get me wrong here, there is the tinniest nugget of truth in Ms. May’s barrage of confusion but you have to look really deep to discover it.

Clearly what Ms. May has been talking about is a product called “neatbit”. For those not familiar with neatbit here is a great primer on the subject. To summarize, neatbit is raw bitumen transported in a heated rail car. As long as the rail car stays warm, the neatbit will flow, but once the rail car cools down it returns to its almost inert solid form. Neatbit thus addresses the biggest concerns about the overland transport of diluted bitumen (derailments and spills). A derailment into a river would pose little danger to the river as the material would solidify almost instantly upon contact with water and could be cleaned up with shovels and excavators while posing very little long-term risk to the environment. Now for the problem.

While neatbit is a great solution to a serious problem it has some serious issues. Neatbit can only be shipped from a facility designed to heat and move neatbit. It then can only be shipped in specially-designed rail cars built specifically to carry neatbit and keep it hot the entire voyage. Finally it has to go directly to a refinery designed to accept neatbit. If you put neatbit on a ship, by the time that ship reaches its destination its hold will be as solid as the asphalt I drive my minivan on and just as easy to handle. To ship neatbit overseas would mean designing and building a whole new class of marine vessel. So when Ms. May claims that bitumen can be shipped by rail what she means is that a tiny pilot project with a small number of specially designed rail cars has been moving neatbit to one refinery on the Gulf Coast. The reality of the transportation industry is that virtually all the bitumen transported by rail goes either as “railbit” which is about 15% diluent and is transported by insulated rail cars and can’t go on ships or as “dilbit” which contains about 30% diluent and can be moved to ships. If rail cars with either of these products have an accident the result would be a spill that would be like any other oil spill.

To be clear, there have been a lot of alternative ideas about how to make the shipping of raw bitumen by rail (including balls of bitumen and bitumen pucks) but none are out of the research stage. So when Ms. May makes her interesting claims about shipping bitumen by rail, it is time to tune her out because it is clear she appears to have no clue what she is talking about. Now isn’t that a bizarre recognition. The leader of a national political party (admittedly a fringe party) should not be making claims that are so easily demonstrated to be bunk.

Reading what I have written I am saddened that our political leaders are so willing to shade the truth on such an important national topic. From omitting critical facts; to cherry picking preferred narratives; to outright confusion about how the product can be moved, the political scorecard on diluted bitumen is a sad one. I can only hope that as organizations like Transport Canada and Fisheries and Oceans Canada start broadcasting the truth about the material that more scientists and others will call out politicians when they try to push half-truths and misleading scenarios about the material. Only then can we come up with reasonable evidence-based policy options.

Posted in Canadian Politics, Oil Sands, Pipelines, Trans Mountain, Uncategorized | 15 Comments

No, the Trudeau government did not ignore the science when approving the Trans Mountain Pipeline

Posted on April 18, 2018 by

As my readers know, I care deeply about the quality of science used in environmental decision-making so the latest anti-pipeline activist meme crossing my desk caught my attention. The meme suggests that the Trudeau government ignored the peer-reviewed science in approving the Trans Mountain Pipeline expansion (TMX). This meme was given life in a Vancouver Sun article: Science is a casualty of the Trans Mountain pipeline debate by Dr. Thomas D. Sisk a visiting scholar at Simon Fraser University (SFU). It has subsequently been picked up in a follow-up article: Trans Mountain’s only certainty — death and carbon taxes by Jason MacLean an outspoken professor at the University of Saskatchewan, College of Law. The newspaper articles refer back to a peer-reviewed paper: Oil sands and the marine environment: current knowledge and future challenges  published in Frontiers in Ecology and the Environment (Frontiers hereafter). As described by Dr. Sisk in the Vancouver Sun, the Trudeau government

 received it [the Frontiers paper], discussed it internally, then dismissed key, peer-reviewed scientific findings without contacting us or providing any rationale for concluding that the Trans Mountain project was “safe for B.C.”

When the Frontiers paper came out, I read it and like the Trudeau government I dismissed it as an example of general interest science that had little to add to the TMX debate. Since the Trudeau government is not sharing their discussion publicly, I will explain why I dismissed the work so my readers can decide whether they agree that the Trudeau government was right to ignore the recommendations in this paper.

The Frontiers paper is in the form of a literature review. It looks at the state of existing academic literature at the time of preparation and attempts to establish what we know and don’t know about a topic. This type of literature review is very common and can be incredible useful, but alternatively, in cases like the Frontiers paper, it can be very misleading. How so? Well a literature review is deeply dependent on the sources from which it derives its information. In this case they:

conducted a systematic review (via keyword search) to quantify the number of peer-reviewed scientific studies indexed within the international database Web of Science and non-refereed literature indexed within the Canadian government library database WAVES, which catalogues all content within Department of Fisheries and Oceans (DFO) libraries and DFO reports.

To provide a more detailed study the report concentrated on two particular types of habitats (eelgrass and kelp forest ecosystems).

Now this type of review can be very useful if the paper were dealing with an abstract topic of generic science but it is of little use when dealing with a specific project like this one because each project has to be viewed in its own context. Why do I say this? Well, because the export of bitumen via the TMX is not a generic project, it is a specific project involving exports from a single port (The Port of Vancouver). Moreover, the export was strictly limited to a set of berths at a particular location (Westridge Marine Terminal). These critical facts were not incorporated into the review and as a consequence much of the content of the review becomes utterly irrelevant.

To explain, consider the “Coastal Development” portion of the paper. The review presents a number of general concerns about the construction of infrastructure for the export of bitumen, but does so while completely ignoring the fact that the exact plans for that infrastructure were already in place as part of the NEB process. The plans for the expansion of the Westridge Marine Terminal had been fully vetted and habitat offset plans created (the final plan is here). So when the authors insist that further research on “shading” associated with the construction of a hypothetical terminal is a “high” priority they ignore that all that research had already been accomplished for this particular project. Sure generic research could be proposed if a new marine export terminal was going to be built somewhere else in BC, but for the TMX this type of generic research isn’t needed. It had already been completed. Is there any wonder the Trudeau government dismissed this “high” priority, but entirely generic, research concern?

In a similar vein consider the “Shipping” section of the paper. The Shipping section indicates that:

Increasing transport of oil sands products via ocean tankers is certain to amplify at least three sources of stress to marine ecosystems: wake generation, sediment re-suspension, and acoustic pollution. It will also increase the likelihood of two probabilistic effects: animal–ship collisions, and the introduction of exotic species between ports

Once again, these would be significant considerations if they were building a new port somewhere far away from existing infrastructure but that is not what is happening in this case. The TMX will be expanding operations at an existing port. As I have written previously, the TMX tankers would represent an increase of 720 more ship movements in a Strait that sees 23,000 ship movements a year. This at a port that is engaged in a build-out that will expand ship traffic significantly. Thus, the authors’ insistence that research on “wake generation” caused by the project is a high priority issue, it is really a non-issue. In the Port of Vancouver wake generation is a highly studied issue and this fact is completely missed in this academic review. As for the other topics in the “Shipping” section (sediment re-suspension, noise pollution, Animal-ship collisions, non-indigenous species  introductions) these are all topics that have been heavily studied in the Port of Vancouver and for which no further study would be warranted based on the minimal increase in traffic associated with TMX. Any reasonably aware observer reading this paper would understand that none of these generic arguments would be a justification to delay the approval of this specific project. It is for that reason that the Trudeau government dismissed these “peer-reviewed scientific findings”.

The most entertaining section in this article is the one on “Bitumen in the Environment”. As many readers know the behaviour and effect of hydrocarbons on ecosystems is my specialty and I have written thousands of words in this blog on the topic. I can tell from reading this paper that it is not the specialty of any of the authors. While I could write 2000+ words on this topic I don’t have to because I already did in a previous post. Essentially the authors imagine that bitumen is a mixture so unique that none of our previous research on the topic of hydrocarbon spills applies. That is, of course, not the case. We know more than enough about the fate and effect of a dilbit spill to know that we want to prevent it happening. We really don’t need to know whether dilbit is fatal to salmonid fry at 75 ppm rather than 100 ppm because should a spill occur the numbers will be in the hundreds of thousands of ppm. As I wrote previously:

 The reality of the situation is that any oil spill, be it crude oil or diluted bitumen, represents a tragedy and catastrophe. It will harm the natural environment, will kill some marine organisms, and will be very hard to clean up. The point of this blog post is that a diluted bitumen spill would not be a uniquely catastrophic situation. It would be comparable to a spill of any other heavy crude…you know the products that have been safely shipped in and through the Salish Sea for the last 50+ years. Banning the transport of dilbit until we have done more research has no basis in science. It is a political game. Any “independent scientific advisory panel” will end up concluding that we have the information to design a world-class spill regime. Anyone who says otherwise is either not aware of the state of research in the field of spill response or has a political axe to grind.

So once again we are left to wonder why the authors of the Frontiers paper think we should delay the work while we do much more research on bitumen exposure from operational spillage. Do the authors believe that the conclusions of any new study will make us more willing to allow spills into the environment? Because right now the aim is not to have any spillage and to clean up any potential spillage as soon as possible. Knowing a bit more about bitumen toxicity to marine organisms will not change that approach.

Re-reading this post I still cannot understand how the activists can believe that the Trudeau government, on receiving the Frontiers paper, would pay it any significant heed. The paper, while peer-reviewed and published in a reputable journal, is entirely generic and completely ignores the significant research conducted as part of the NEB submission. As such it does not advance the information base on the topic of the TMX. Due to its format, it didn’t consider any particular conditions unique to the TMX project. Rather the paper appears to have posited a new facility far away from existing influences and then asked what information would be needed before building such a facility. This does not provide added insight since the TMX is not building a new facility far away from human influences. The TMX project involves extending an existing facility located at the core of one of the busiest ports in western North America. A port that has been heavily studied for its environmental impacts for over 30 years.

To conclude, Dr. Sisk’s complaint was that the Trudeau Cabinet received his peer-reviewed journal article, discussed it internally, then dismissed “key, peer-reviewed scientific findings without contacting us or providing any rationale for concluding that the Trans Mountain project was “safe for B.C.””. Well had I been in Prime Minister Trudeau’s shoes I would have done the same thing. This paper raises a number of generic concerns that have little or nothing to do with the TMX project. Most of the areas they argue need more study are either irrelevant (the entire Coastal Development section) or insignificant when placed in the context of the day-to-day activities at the Port of Vancouver (the entire Shipping section). To my eye, the reason the Trudeau government ignored his group’s concerns is that the NEB submission addressed every one of them sufficiently to allow for an effective evidence-based decision-making process. I am quite certain that had Dr. Sisk read the entire NEB submission he would have discovered that the government had answers to virtually every issue his group raised in their paper. Their generic concerns were addressed by the detailed assessments that had already been carried out by the NEB.

 

Posted in Canadian Politics, Oil Sands, Pipelines, Trans Mountain, Uncategorized | 12 Comments

On the bizarre narrative about bitumen being an “inferior” form of crude oil that can’t be sold

Posted on April 17, 2018 by

In the last month a new narrative has arisen in the anti-Trans Mountain pipeline community: that the market for bitumen is non-existent because it is “far inferior to the higher-quality oil” sold in the United States and that due to the new Louisiana Offshore Oil Port (LOOP) there will be no market for Alberta’s bitumen. Needless to say this narrative is both uninformed and completely wrong. But given the number of places I’ve read this codswallop, it is clear that someone has to debunk the claims. I will spend the rest of this post demonstrating how and why this narrative is completely misguided and unfounded.

Let’s start with some stuff we should all know. Crude oils are described based on their API gravity. API gravity is the standard specific gravity used by the oil industry. To borrow from a useful web site:

Specific gravity for API calculations is always determined at 60 degrees Fahrenheit. API gravity is found as follows:

API gravity = (141.5/Specific Gravity) – 131.5

Though API values do not have units, they are often referred to as degrees. So the API gravity of West Texas Intermediate is said to be 39.6 degrees. API gravity moves inversely to density, which means the denser an oil is, the lower its API gravity will be. An API of 10 is equivalent to water, which means any oil with an API above 10 will float on water while any with an API below 10 will sink.

The API gravity is used to classify oils as light, medium, heavy, or extra heavy. As the “weight” of an oil is the largest determinant of its market value, API gravity is exceptionally important. The API values for each “weight” are as follows:

  • Light – API > 31.1
  • Medium – API between 22.3 and 31.1
  • Heavy – API < 22.3
  • Extra Heavy – API < 10.0

Bitumen is a heavy oil. It is characterised by high viscosity, high density (low API gravity), and high concentrations of nitrogen, oxygen, sulphur, and heavy metals. This differentiates it from virtually all the new oil finds in the US which are lighter oils (like the Bakken crude which has an API gravity of 42). As analogies go bitumen is often described as a lot like peanut butter while Bakken oil is like a salad oil.

Note the comparisons that are used to describe these types of crude oil. They imply that one type of crude oil (lighter blends) are more appealing than the heavier crude oils. This is a common theme in the activist literature. Light crude oils are “good” or “higher-quality” and the heavy crude oils are “inferior“. The problem with that narrative is that it is demonstrably wrong.

Heavy crudes and light crudes are simply different products and have different characteristics and different demand curves. To explain let me make a simple analogy, consider the two major types of transportation fuels: gasoline and diesels. Both gasoline and diesel are refined petroleum hydrocarbon fuels but they aren’t interchangeable. You can’t fill a diesel train with low-octane gasoline and expect that diesel engine to run. Nor can you fill a race car with diesel and expect it to operate. You use gasoline when you want horsepower and you use diesel when you want torque. No one would say diesel fuel is inferior to gasoline. It is simply a different fuel.

The same is true in the differences between heavy and light crude oils. Like gasoline and diesel engines, there are light crude and heavy crude oil refineries. Light crude oil refineries tend to be simpler in design and cheaper to build than heavy oil refineries. This primer on the topic can really help fill in your gaps but the critical thing to understand is that any refinery is incredibly expensive to build and when built a refinery is optimized for a certain type of input and does not operate well using the wrong input.

Heavy crude oil refineries will include very expensive cracking and coking units, designed to break down the long chain hydrocarbons into the smaller hydrocarbons used in gasoline, kerosene and diesel. Unfortunately, the simpler light crude refineries 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 the 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 and the heavy refineries produce a lot less waste petroleum coke per barrel as well. In financial terms, the heavier crudes produce much higher margins per barrel of input than their lighter crude cousins and generate less waste byproduct that have to be disposed.

Reading back that last paragraph something becomes clear. If you have spent the billions to build a heavy oil refinery there is absolutely no way you are going to fill it with light crude. It would be like building a high-precision race car at the big race and filling it with a low-quality ethanol blended gasoline…it just isn’t something anyone would do. This is particularly important because:

over the past 10 years, most refineries in the Gulf Coast and US Midwest have been modified into high-conversion facilities. These refineries crack and coke the heavy crude “bottoms” into high-value products, removing all traces of sulphur to produce expensive low-sulphur fuels. These highly complex facilities are specifically designed to process heavy sour feedstock, such as Western Canadian Select. In fact, refining margins are better with heavy crude feedstock than lighter oil.

Going back to the topic of this blog post we now understand three things:

  1. A heavy oil refinery will seek heavy, not light crude oils for its inputs.
  2. The US and China have a lot of very expensive high-conversion heavy oil refineries.
  3. Virtually all the oil produced in the US is light crude that is not an appropriate input for the high-conversion refineries in the US Midwest and Gulf Coast.

Now let’s look at all these recent articles that popped up in my Twitter feed in the last month:

All these articles share two common features:

  1. they all claim that there will be no demand for Alberta bitumen because of recent developments in the US, and
  2. they all derive their analyses back to a single author: Paul McKay at The Energy Mix.

The number of times this same analysis has been sent to me is simply insane. The man is a one-man, bad-content provider who, through the power of repetition via numerous alternative publications, has almost single-handedly convinced the activist community that there is something wrong with bitumen and that there will be no demand for this “inferior” product in the future. As I have shown in this blog post, the truth is entirely different. The heavy oil refineries in the US Midwest, the Gulf Coast, in California and in China all want heavy crude and do not want light crude. They like the high margins, the lower volume of waste and the range of products that a high-conversion refinery can produce that a light oil refinery can’t produce. This would explain why the US is importing so much Canadian heavy oil while exporting so much  of their light crude oil production. It would also explain why sophisticated oil companies are looking for ways to move oil sands to market via rail and pipelines.

So when an activist links to one of these ridiculous screeds recognize it is simply a load of codswallop and that even a cursory investigation into the actual business of refining shows how this narrative is completely misguided and unfounded.

Posted in Canadian Politics, Pipelines, Trans Mountain, Uncategorized | 23 Comments

On the ridiculous claims that the Trans Mountain pipeline expansion will increase Vancouver’s gas prices

Posted on March 20, 2018 by

Last night they had another of the now regular stories on the local news about the rising gasoline prices in the Lower Mainland. On my walk to work today I passed the local Shell station and looked up to see the gas price was $1.549 per liter. That is closing in on a record and apparently prices are still on the way up. According to Dan McTeague from Gasbuddy.com, gasoline will soon hit $1.60/L. Needless to say a lot of people are complaining about this with Dan pointing out on Global News that one way to see a decrease in gas prices would be to see the completion of the Trans Mountain Expansion Project (TMX).

I agree with Dan. My opinion is based on the National Energy Board (NEB) documents that describe how the TMX could eliminate the bottleneck for the shipment of refined fuels from the refineries near Edmonton to the West Coast. It will also free up space on the new pipeline so that Alberta’s new Sturgeon refinery can ship diesel to the coast. As such, I was a bit shocked by what came next in that Global News report. Specifically, it was a series of quotes from an academic from Simon Fraser University by the name of Dr. Perl. In the story he made a claim that

B.C. is unlikely to see any bargains from increased supply because of the cost of financing infrastructure like the Kinder Morgan pipeline expansion.

“They’re going to want their money back,” Perl told Global News.

“Not in 50 years, but in 15 years, and that means higher prices because of the higher return, higher interest rates, expected returns on that investment.”

Needless to say I was a bit shocked by that claim and the intention of this blog post is to put paid to these ridiculous claims by simply explaining the facts about the pipeline and our local gas prices. Once I do, I will leave it to you, the reader, to decide who is right and who is wrong on this topic.

Our local gas price has a lot of factors built into it. Let’s start with taxes. Provincially, in the lower mainland we pay 32.17 cents/L (c/L) of provincial taxes for every liter of gas, this can be broken down to:

  • 17 c/L in TransLink Tax,
  • 6.75 c/L in British Columbia Transportation Financing Authority  Tax
  • 1.75 c/L in Provincial Motor Fuel Tax, and
  • 6.67 c/L in Carbon tax

The feds also get their pound of flesh. Federally we pay:

  • 10 c/L federal excise tax and
  • 5% GST on our total purchase price (or 7.5 c/L on our $1.549 gas)

Adding up all the taxes together we get 49.67 c/L for taxes. That leaves about $1.079 for non-tax sources. Now the problem with the gas business is that it is very opaque. The internal prices are kept private but one thing we are privy to is the rack price. The rack price is defined as:

the cost of the gas itself, as well as transportation, overhead, and profit costs. The price can vary from terminal to terminal and depends on the cost of crude oil and related refining costs. The rack price also depends upon the distance between the fuel retailer and wholesale terminal. A gas station located far from a terminal is going to pay a higher fuel rack price than one located just down the street.

That would be all the costs, exclusive of the dealer’s mark-up which pays for the retail facility and all its staff. Most oil companies publish their rack price somewhere. Here is a link to the Petro-Canada daily rack price for Canadian cities. In Edmonton today it was 69.4 c/L while in Vancouver it is 92 c/L. There is a 22.6 c/L difference in the rack rate. In Anacortes the rack price (converted to Canadian dollars) is 76.36 c/L so the difference is 15.64 c/L.

Assuming the rack price is pretty comparable between retailers (to simplify this discussion) then the dealer’s mark-up would be 12.33 c/L. So from our $1.549/L we end up with:

  • $0.92 rack price
  • $0.3217 provincial taxes
  • $0.10 federal excise tax
  • $0.075 GST
  • $0.1233 dealer’s mark-up

We can’t do anything about the taxes and the retailer has a pretty small margin so let’s look at the rack price and the effect of the Trans Mountain pipeline on this price.

As discussed above, transportation costs are part of the daily rack price. Transportation costs vary by means of transportation but luckily we already know that the Trans Mountain benchmark rate (average rate for fuels running down the pipeline) is around 1.6 c/L – 1.7 c/L. Since gasoline is a lot easier to move down the pipeline than diluted bitumen it has a lower rate (called a “toll” in National Energy Board speak). Based on the most recent toll information gasoline shipped from Edmonton to Burnaby costs about 1.3 c/L (note gasoline is called “Super Light” on that chart). That is a pretty small part of the rack price so how would toll increases affect that number?

As part of the TMX discussion economist Robyn Allan calculated that the costs associated with building the pipeline could increase the benchmark rate by 2.2 c/L. Since her calculation is based on the benchmark the gasoline component (as a Super Light) will have a lower increase but for argument’s sake lets say the price will increase by 2 c/L for shipping.

The doesn’t sound like much but a little goes a long way as the opponents of the pipeline will tell you. As Economist Allan argues:

B.C. motorists buy about 4.7 billion litres of gasoline a year. At 2.2 cents a litre on gasoline sales of 4.7 billion litres, the financial drain from the wallets of B.C. consumers to the treasuries of multinational oil producers comes in at just over $100 million each year.

But that argument has a hole the size of Vancouver Island in it because it ignores the other features built into the rack price.

As discussed above the rack price in Vancouver is 22.6 c/L higher than Edmonton and 15.6 c/L higher than Anacortes. Most of that difference is due to the supply issues. To explain let’s go back to the Petro-Canada rack rate chart and look at similar markets that are not subject to our supply bottlenecks. The price difference between Edmonton and Saskatoon (525 km apart) is only $2. The price difference between Edmonton and Winnipeg (1300 km apart) is $2.70 and the difference between Edmonton and Toronto (3500 km apart) is $7.2. Notice a trend? Those communities without transportation issues have tiny differentials. The distance between Edmonton and Vancouver (1150 km) is less than the distance to Winnipeg but our mark-up is almost ten times theirs. If we eliminated the bottleneck it might result in an increase in 2 c/L in transportation costs but will likely eliminate the 10 c/L – 20 c/L mark-up caused by our transportation bottlenecks. An increase in 2 c/L that results in a decrease of up to 20 c/L…that is a trade I am willing to make any day of the week.

Having demonstrated that Ms. Allyn’s argument is faulty let’s look at the argument made by Dr. Perl in the Global News story that introduced this blog post. In the story Dr. Perl argued that our prices could increase stupendously if Kinder Morgan decided it wanted to amortize their pipeline over 15 years instead of over 50 years. Well if unicorns existed I would want one for a pet but I’m not making any plans for that either. The reason his suggestion is unbelievable is that the toll is set by the National Energy Board and they have to consider the national interest in their decisions. So unless Kinder Morgan can convince the NEB that it is in the national interest to change their amortization schedule then it is more likely that the NEB will maintain the rates right around where they have been for the last decade and where they were when the project was proposed and approved.

So let’s step back and look at that $1.549 gasoline at my local corner. A large percentage of that cost is the result of a shortage of capacity to move refined fuels across the province. Now let’s remind ourselves about the TMX. As I have written a couple times recently, the TMX has two major components:

  • Line 1 would consist of existing pipeline segments (with pump upgrades) and could transport 350,000 b/d of refined petroleum products and light crude. It has the capability to carry bitumen but at a much reduced volume per day. Notice that absent the heavier bitumen it can carry an extra 50,000 b/d.
  • The proposed Line 2 would have a capacity of 540,000 b/d and is allocated to the transportation of heavy crude oil. This new pipeline and configuration setup would, add 590,000 b/d to the existing system for a total capacity of 890,000 b/d.

As I have explained, Line 1 is intended to help mitigate the supply bottleneck that has Vancouver drivers paying such high prices for gasoline and diesel. It will supply more capacity to carry gasoline from the refineries near Edmonton to the west coast; it will provide new capacity to transport the diesel produced by the new Sturgeon Refinery (you know one of those refineries the activists insist we start building) and it provides capacity to supply the Parkland refinery (formerly known as the Chevron Refinery). The Parkland refinery historically got about half of its raw crude by rail (due to a shortage of capacity on the current Trans Mountain) [note: this paragraph has been changed to reflect info provided after the original blog post was posted].

Recognize that nothing I have written should come as a surprise to people like Robyn Allan or Dr. Perl and yet they have omitted this information in their submissions and their television/radio interviews. I am left to wonder why.

Correction:

The best thing about a blog is when someone reads it and can provide help to make it better. In this case I received information from Parkland that updates the information that I have relied on from a previous source. In my earlier blog post I reported that that the Parkland refinery in Burnaby gets about half  of its 55,000 b/d from the Trans Mountain and half by rail due to the lack of space on the existing pipeline. That reference is now out of date. I have been contacted by a representative from Parkland who informs me that Parkland now gets all its supply from the Trans Mountain. I will be editing my blog posts accordingly.

For those looking here is the NEB final document that many have asked about

Thanks for the information.

 

Posted in Canadian Politics, Pipelines, Trans Mountain, Uncategorized | 14 Comments