Sunday, February 12, 2012

What To Do With Alberta's Oil

This post is mostly in response to Andrew Leach's response to Elizabeth May regarding refining Alberta oil in Canada. I think most people are over thinking what needs to be done instead of following the KISS principle. So here is my plan. Bear in mind it's a broad plan so while it doesn't contain many details I believe in the broad sense it's both feasible and economically sound.

In the short term (present to 2020) we would stop building pipelines that export Alberta's oil. Since existing capacity to export the oil exists this would not create any problems for a minimum of 8 years. During that time refineries would be built as close to the mining operations as possible so that when existing export capacity is reached any additional oil mined would go straight to the refineries built here. There are several benefits to this. The most obvious is that it will create jobs in the refining industry; mainly in Alberta and Saskatchewan but also possibly in the Northwest Territories, British Columbia and Manitoba. The second obvious benefit is that no new long distance pipelines transporting oil will be built; note, it is likely that short distance pipelines will still be required. The third is the near elimination of transport costs from the mining operations to the refineries. The fourth benefit is that it would slow down oilsand expansion while maintaining economic growth; this will be most likely due to a shortage of labour as some workers move into the refining industry. This would trigger the fifth benefit; Alberta's oil would last longer.

Obviously this will create new products for export; refined oil mostly in the form of gasoline. Since we're not all going to drive to Alberta to fill up our tanks this gasoline will need to be transported. The most efficient is by pipeline; yeah, I know, there are those dreaded pipelines again. Consider though, Alberta's oil is going to be transported one way or another. Transporting it in the form of gasoline via pipelines is the cheapest and most environmentally friendly way of doing it. So get over it, there will be pipelines unless you invent something that will magically transform our society overnight into one that doesn't move our fat arses around with gasoline.

So the question now becomes where do we move Alberta's gasoline to. I can't say for certain as the location of the refineries is not nailed down but there are many options. The BC west coast is one and the US west coast is another. Both provide the shortest route to tankers and the rest of the world. Other options include south to the US where it can connect with any existing gasoline pipelines and the last option is the Great Lakes; though the last is probably the least likely option.

In the medium term (2020 to 2030) oil mined prior to 2020 would still be exported while refining capacity would expand at the same rate as oilsand production. In short this period of time would continue the expansion set out in the short term phase in order to establish an infrastructure to refine oil and transport gasoline.

In the long term (2030 to 2050) we'd begin to eliminate oil exports. This can be done in two ways. The first is by simple attrition. Pipelines now exporting oil will wear out so instead of replacing them with new oil pipelines we simply replace them with new gasoline pipelines. The second is to convert existing pipelines that now transport oil into ones that transport gasoline. The goal by the end of this long term phase is to completely stop exporting oil and instead export gasoline along with the various other refined products.

Now that I've laid out the broad plan I'll address some of the most likely questions.

Why not just transport the oil to the east for refining? If you didn't like the Keystone pipeline to Texas what makes you think you'll like a pipeline that's just as long or longer to the east.

Isn't transporting gasoline just as bad as transporting oil? I can't answer this for certain, but circumstantial evidence says no. While it may happen I've never heard of a tanker transporting gasoline spilling it's contents into the seas. Nor have I ever heard of a pipeline leaking thousands of litres of gasoline into ecologically sensitive land. Most importantly, I've never heard of massive protests against transporting gasoline. So while I don't have a definitive answer, my hunch is that transporting gasoline--likely due it's lower viscosity--is more economical and environmentally friendly.

Won't investing in refineries here mean less investment in other industries here? Nope. Alberta's oil will be refined somewhere so the money to invest in refineries already exists. The only difference is where that money is invested; here or China or Texas. So while we definitely will rob some other nation of that investment it will in no way affect the amount of money that will be invested in other industries.

Isn't it a lot cheaper to build and operate refineries in China making our refineries uncompetitive? Yes, for now. But given current trend lines that advantage is shrinking. A rapidly expanding middle class in China is quickly pushing up labour costs. While the gap may never close over the time frame I've established it will likely narrow enough for the benefits to outweigh the remaining differential. Aside from that, refineries in the US are competitive so there's good reason to believe we can be as well.