Development in Alberta used to be so brutally simple. The oil shills, led by former premier Ralph Klein and his energy minister of the day, would sell oil leases to all comers at the time for any plot of gooey land. The result was a digging and building bonanza, and the province took off, along with wages, house prices, capital costs, water pollution, carbon dioxide output and other nasties.
It also contributed to a dangerous lack of diversification and entrenched boom-bust cycles. After Klein retired in 2006, the development-at-any-cost campaign was reined in gradually, to be replaced by “measured” or “controlled” development. That meant slowing things down for the sake of the environment and Alberta’s (deteriorating) international image, and to take pressure off costs. Still, Alberta was hit by spasms of panic when oil sank below $100 a barrel (all currency in U.S. dollars) following the 2008 financial crisis.
And what that controlled development hasn’t brought yet is actual economic diversification. To wit: the Keystone XL pipeline, the latest Canadian attempt to export jobs, wealth and technology—even pollution—to the United States. Why can’t value be added to the sludge in Canada?
Keystone XL, proposed by pipeline giant TransCanada Corp., would cost about $7 billion and carry 500,000 barrels a day from the Alberta oil sands to refineries on the Gulf of Mexico. Albertan oil bosses and American refinery chiefs said the tube would provide a vast market for the oil sands’ burgeoning production, create thousands of jobs and lessen American dependence on “Arab” oil. Federal Resources Minister Joe Oliver said Keystone XL was part of Canada’s “overarching objective of becoming a responsible energy superpower.”
What was not to like? Plenty, as it turned out. Environmentalists and the usual mob of hit-and-run celebrities filled the streets around the White House last summer, and again in November, to protest a project that would greatly increase the output from Canada’s fastest-growing source of CO2.
Then there was the question of whether the United States really needs more Alberta crude. Demand is essentially flat and the country is suddenly gushing oil, thanks to the shale discoveries. Indeed, much of the Alberta crude might be re-exported after being treated by the Gulf refineries.
In mid-November, President Barack Obama delayed the Keystone XL approval decision until 2013, safely after the 2012 U.S. elections. But don’t assume the project is dead. Energy industry lobbyists typically get their way in Washington.
Giving Keystone XL the go-ahead would be a huge blow to Canada’s diversification strategy, such as it is, and the efforts to create value-added businesses and high-paying, skilled jobs. This country has always moved with alacrity to export raw, or semi-raw, materials into the U.S. market—oil, minerals, logs, fish and commodities. It’s a never-ending cycle of unambitious or non-existent industrial strategies. Just think of what the Chinese, Koreans, Indians or Japanese would do with Alberta, home of the world’s second-largest oil reserves. The province would be stuffed with upgraders, refineries and factories that would make everything from rubber duckies to tires.
Alberta, thank you, would rather take a pass. To be sure, it has endless excuses, some valid, many more not. The main excuse is that the technology to upgrade the tarry oil sands bitumen is still imperfect and very expensive, meaning it’s not attractive to investors. Note: Canada’s large pension funds are among the most powerful investors on the planet, but they’d rather pump money into European infrastructure than Canadian refineries. Profit margins are better when existing refineries (largely American) are modified to upgrade heavy oils and turn them into a broad range of products that can be pumped into nearby markets.
The traditional argument is leaky, however, because upgraders are now—ever so slowly—being built in Alberta. About 60% of the current output from the oil sands is upgraded in the province, but that percentage would likely shrink drastically if production soars.
With the Canadian dollar falling again, oil prices stubbornly high in spite of looming recessions, and technology that is improving, the risks of building upgraders and refineries are declining. They may not be as profitable as U.S. refineries, but they would make money. And think of the spinoffs from a new industrial base. Shiny new Canadian refineries would probably be cleaner than the old bangers south of the border.
Expanding the oil sands should be conditional on upgrading the output somewhere in Canada—Alberta or the refinery complexes in Montreal and Sarnia, Ontario, which rely on imported oil. Building the Keystone XL pipeline is a cop-out, especially since Canada is awash in capital. If the oil sands are to be expanded to the point where they melt the planet, at least stud them with refineries to create some wealth along the highway to hell.
