British-Columbians Without Leadership on Northern Gateway

There used to be an unwritten golden rule for Provinces in Canadian politics; if you are going to do some beggar thy neighbour monetary demanding or demonizing make sure it’s against the feds. Provinces typically demand funds from flush federal government coffers, or when they need a scapegoat for this or that local problem they can always trash the federal government for their ills. They usually abide by a set of rules of solidarity to put pressure on Canadian federal governments. With Stephen Harper immovably tightening the federal purse’s strings, it would seem that hard-pressed Premiers need new scapegoats for populist speeches and monetary extortions.

 This new reality was on full display this week as British-Columbia’s Liberal Premier Christy Clark put down her conditions for the approval of Enbridge’s Northern Gateway oil pipeline joining Bruderheim, Alt and Kitimat in BC. Clark put down five conditions for her approval of the project the most important of which were world-class environmental emergency response plans, for Enbridge to go beyond the minimum legal requirements with respect to First Nations relations and for BC to get its ‘fair share’ of tax revenue from the oil to flow through Northern Gateway.

 The Premier from Alberta Alison Redford responded to Christy Clark today by saying that BC won’t get a looney’s worth of tax money it is not already entitled to from the pipeline. Stating that resource management is the purview of individual Provinces exclusively, Ms. Redford objected to Ms. Clark’s policy of nitpicking projects and subjecting them to targeted political scrutiny.

 Ms. Clark’s approach to Northern Gateway however deserves much more scrutiny than Alberta’s Premier has so far leveled against it. Let us start by examining BC’s request for world-class environmental disaster response plans. That such regulation wasn’t already the norm in BC should be news to British-Columbians. Since environmental regulation is as much a provincial responsibility as a federal one, why is BC home of Canada’s most ardent environmentalists not already the most protected and best regulated in the world? Does this mean that other energy projects aren’t going to be subject to such environmental scrutiny? Why single out Enbridge when it comes to protecting Canada’s Pacific coast?

 Moving on to the provincial Liberals’ demand that Enbridge go above and beyond legal requirements in dealing with First Nations. Enbridge states that it already has 60% of concerned Native bands signed on to Northern Gateway. If so many First Nation’s have already of their own volition accepted Enbridge’s proposals one might assume that the company has already gone beyond legal requires in enrolling Native support. Why go into the media playing the ‘white man guilt’ card against Enbridge? This looks like an almost Orwellian display of government interference in private affairs. Governments should not ever, be in the business of telling private citizens or corporations how they should think and behave. Ms Clark shames the name of her party with such private affairs meddling.

 That Ms Clark should go after private enterprises in trying to boost her pre-electoral profile seems to fit with the times but for her to go after another Province for revenue is a relatively new development in Canadian political history. Ms Clark has asked for a ‘fair share’ of tax revenue from Alberta.

 A report by Calgary firm Wright Mansell estimated that BC would only be getting a paltry 6.7 billion dollars worth of tax revenue from the pipeline over 30 years from a total pie of 80 billion. Ms Clark pointed out that BC would be shouldering 100% of the maritime environmental risks and over 50% of the land based risk. With such false assertion the BC Premier is effectively spitting in Albertans and Canadians faces. The environmental risks don’t start at Bruderheim, they start near Athabasca Lake where the extraction occurs and where Alberta will cover 100% of the risk. Let’s face it, the oil sands represent the largest oil related environmental risk worth monitoring, Northern Gateway is a sideshow. The oil must flow through pipelines all the way down to Bruderheim first where again Alberta is responsible for all leak risks. In any case the monetary responsibility of cleanup falls squarely on Enbridge so what kind of risk is the Province assuming exactly? With proper regulation, which BC is entitled to implement, risks can be minimized if not eradicated so why demonize Alberta?

 Ms Clark further added injury to insult when she said, “This project is good for Canada. It’s great for Alberta and at the moment it’s not very good for British Columbia”. It would seem that 60% of concerned First Nations disagree. Such blatant ‘not in my backyard’ styled blackmail is unbecoming of a Canadian Premier. What would Canada look like today if it weren’t for generations of Ontarian and now Albertan uncompromising funding of equalization? Such inter-provincial self-centeredness hasn’t been seen since the Lower Churchill Falls deal where Quebec unceremoniously screwed over Newfoundlanders.

 If political leadership is bringing out the best out of one’s constituents, BC’s Liberals have succeeded in wrestling the crown of leadership deficiency from Quebec. It was bad enough when Obama blocked Keystone XL for electoral purposes to the detriment of America’s economy and North American relations, that such demagoguery and populism should have crossed the 49^th parallel is a new low in the history Canadian Confederation.

(First published on The Prince Arthur Herald website)

***Apologies to all readers, this post has somewhat strayed from the more economic level headed commenting this blog was started for. None the less this was worth posting enjoy.

Another Spill Another Outrage

Oil spill on Red Deer River, Alta

Another spill another excuse for environmentalists to block the Keystone XL and Northern Gateways of this World. Alberta suffered its third significant oil spill of 2012 near Elk Point 200 km northeast of Edmonton, as Enbridge’s Athabasca pipeline spilled some 1450 barrels of oil onto farmland. This comes as environmental crews are still cleaning up two larger oil spills in Alberta near Red Deer in Alberta’s deep north.

One can now expect to see the Pembina Institute, Greenpeace et al. descending on Alberta with renewed fervour to oppose the Oil Sands development. Likewise, south of the border, environmental groups will use these spills as further proof that Keystone XL and other pipeline projects must be stopped. Industry insiders and astute observes might come to a different conclusion based on these spills.

It is well know in the industry that the leading cause of pipeline rupture is third party related. That is to say I pipeline is most likely to be ruptured when a construction crew doesn’t do its land surveying due diligence. In the rest of incidences, the leading cause for ruptures or spills are corrosion and excess pressure.

Now both these causes have their own causes and those are the ones environmentalists should be worrying about.

Corrosion occurs most often when the interior coating of a pipeline isn’t adequately maintained and is exposed for long periods of time to acidity. Heavy Crude oil can be highly viscous and must be diluted with various sorts of acids and chemicals to help ease the flow in a pipeline. Such additives may corrode a pipeline over time when coating isn’t sufficiently or regularly applied. In Germany for example most of the pipeline infrastructure dates from the post war recovery, and thanks to consistent coating, the industry there reports some of the lowest incident records.

Excess pressure is a problem due to mismatching of the pressure pumped through a pipeline and its design pressure capacity. With time the structural integrity of a pipeline tends to diminish somewhat, which means that pressure needs to be corrected downward as a pipeline ages. With the ramp up of production in the Bakken oil fields of North-Dakota and Oil Sands in Alberta’s Athabasca Region, expectation is that pipeline operators will be pushed to capacity, increasing pressure flow to its limits and playing catch up on pressure capacity assessment.

In both cases monitoring is key to safety. Nobody argues that industry norms need to be updated regularly if not imposed through regulation. What can be argued is that in both cases there is a common variable. Time. A Canadian study by the Energy Board of Canada said that non third party related spills were time dependent. On average the first spill in a pipeline system occurred after 28 years of operation. After adequate monitoring of pressure and coating adequacy quality control, the most important contributor to pipeline spill prevention is keeping pipeline systems young. In other transportation industries such as airlines, shipping and railroads the norm is to limit the age of fleets as well as do proper maintenance.

So what do Keystone XL and Northern Gateway have to do with all this. These pipelines would both do three things. One, they would reduce average pressure throughout the North American pipeline system by increasing flow capacity for a predetermined amount of oil and gas production. Secondly, modes of oil transportation with even worst safety records wouldn’t be used. Trains and trucks tend to derail or get into highway accidents, causing injuries or fatalities as well as spills that wouldn’t occur in pipelines; today without XL and Northern Gateway trucks and trains are increasingly being used to transport large amounts of oil. The third effect of building Keystone and Northern Gateway would be to decrease the average age of the pipeline system, as they’d be new.

All in all these pipeline mega projects would serve to increase the safety of the North American energy industry and reduce ecologically destructive oil and gas spills. Environmentalists should ask themselves whose side they’re on: the anti-oil lobby side, or the environment’s.

Also published in the Prince Arthur Herald here. 

Wildrose in Hot Pursuit

The Provincial election in Alberta is underway. Alberta which has consistently elected majority Tory governments since Peter Lougheed’s Progressive Conservative win over the Social Credit in 1971, may now be flirting with a new sheriff in town. The blog Three Hundred and Eight who’s tracking of polling results tends to shadow actual voting results fairly accurately, is now forecasting a razor thin majority for Allison Redford’s Tories.

While the campaign has barely started, the drama is already quite high. One poll by Forum research is giving the Danielle Smith’s Wilderose party of Alberta  a 10% lead over the PC’s, other polls have either the PC’s slightly leading or in a statistical tie with Wilderose.

Before I pronounce myself for or against either party some due diligence is required, but in the mean time let’s indulge in the fact that competition has returned to Alberta politics, and more competition is always welcome.

Cius

Debunking McGuintonomics

So last week Alison Redford the Premier of Alberta asked Ontario’s Premier Dalton McGuinty to show some public support for the Oil Sands, currently facing a heap of criticism from environmentalists. No one knows what Mrs. Redford was expecting as a response, in any case the answer sounded a little bit like “If Alberta didn’t exists Ontario would be better off”. His conclusion was based on the popular belief that the Canadian dollar had become a ‘PetroDollar’ and that it’s meteoric rise had crushed Ontario’s manufacturing base. Now because McGuinty and his family seem to be career politicians we will pardon his ignorance of economics and try to fill some of his knowledge gap.

So McGuinty thinks a high dollar is bad. First mistake. Very broadly speaking a relatively high currency is a mark of wealth. Basically the World wants to buy our stuff more than we want to buy the worlds stuff. Okay so foreigners recognize that we are a nice country worth investing in and who’s products look alright, but if you still believe a high currency is killing jobs in manufacturing well that would seem like a mightily expensive accolade. However Ontario is not innocent in this. Unfortunately the worlds appreciation of fiscal virtuousness is quite lagged to reality by a couple crises. So when Canada starts supplying the World with all our AAA rated (and less well rated but ‘made in Canada’ stamped debt) in an environment where some of the deepest debt markets are not nearly as risk free as they used to be, obviously foreign investors gobble it up our debt greedily. What is the effect of that? well essentially the world values our debt more than our goods and services, so when that appetite for financial assets inflates the Canadian dollar, our exports will suffer (see the US current account deficit/reserve currency status/trade deficit quagmire). Now since Alberta doesn’t have any debt and hasn’t issued some for a while they can’t be guilty on that front. So who is exactly contributing to our soaring Looney from a financial assets trade perspective? The feds are! Alright since much of the stimulus package was spent in Ontario (G8/G20 summit spending, carmakers bailouts etc, etc…) maybe McGuinty should move to accuse the second biggest  new Canadian debt emitter… oh wait a minute, that’s Ontario, oops. So McGuinty’s spending problem is partly to blame for a high Canadian dollar not Alberta. Okay in all fairness international financial assets trade is not the only contributing factor to currency mouvements so let’s move on.

The gist of McGuinty’s argument was that Albertan energy sales are increasing the value of the CAD to the detriment of manufacturing. So he is implying that their is a a negative correlation between manufacturing exports and energy exports. That data does not support this claim one bit! When looking at seasonally adjusted and 2002 chained dollars (inflation adjusted) Canadian total energy product sales have risen by 24% since 2000 and total manufacturing (sum of statscan’s industrial goods, manufacturing and equipment, automotive parts categories) have gone down by 14% over the same periode would imply the Premier is right, However when looking at proportions the increase in energy sales is only of 40 billion yearly versus a 125 billion drop for total manufacturing. So basically if there actually was a one-for-one tradeoff between energy and manufacturing exports energy would only be responsible for ~32% of the decline. However when one looks at balance of trade in those subcategories and asks what percentage of net energy exports accounts for the decline of net manufacturing exports the answer is a measly ~4.5%. So to reiterate if there even was causality (which is not proven) it would be weak at best. Now that we’ve lain waste to McGuinty’s foolish idea that Alberta is guilty for his province’s hard times, let’s bring up one more point.

Ontario is now a have-not province. Ontario received upwards of 3 Billion dollars last year from equalization transfers. Alberta paid in over 8 Billion into equalization. Bottom line Ontario got some money from Alberta to pay for its social services. Methinks McGuinty owes Redford and Albertans an apology, don’t you?