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To say that the thing happened the way it did, is not at all illuminating. We can understand the significance of what did happen only if we contrast it with what might have happened. – Morris Raphael Cohen

The U.S. Energy Information Administration reported last week that Canadian oil exports to the United States are the highest in at least four decades. That's not an illuminating piece of knowledge. But it is curious.

The pipeline ruckus over the past half dozen years would lead followers of the energy business to believe that Canada's oil production had been ring-fenced at the U.S. border like a supermax prison. Data sources show the opposite: There seems to be little containing growth in Canadian oil output and export.

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Let's try and contrast this against what might have happened had there not been any social opposition and protest campaigns against pipelines like Keystone XL and Northern Gateway. What if those and other pipelines had been rubber-stamped five years ago, shortly after they were proposed? And what if the thousands of kilometres of iron veins had been laid and oil was already flowing through them? Would the exported volumes be any different today?

Unlikely. In fact, Canada's capacity to export oil may have been less.

There is a good argument to be made that aggressive, incessant pipeline opposition has served to put Canadian oil producers on a stronger go-forward footing.

The strategy of many environmental groups on both sides of the Canada-U.S. border has been to block the development of new pipelines as a means to shut down the expansion of the carbon-intense oil sands resource. Yet, the most recent EIA report and the data in Figure 1 suggest the opposite has happened: Not only have the forces to limit oil production and export from Alberta been unsuccessful, but that the flow to the south has actually increased since the adversarial campaigns ramped up.

Look at Figure 1. Pumpjacks and oil sands mining operations were adding approximately 80,000 barrels a day (b/d) of new exports to the U.S. every year (all grades of oil) until 2008. Then the trend line kinks up. Over the past four years, the average growth rate of exports to the U.S. has more than doubled to 200,000 b/d a year, with almost all of the increment coming from oil sands and light oil production growth. The reason: Pipeline-inhibited Canadian oil was, and still is, priced at a discount to the rest of the world. If a commodity is forced to be cheaper, the captive customer is going to buy more, not less.

Discounted prices continue to invite new transport modalities too. Railways, trucks and barges are expanding infrastructure to haul oil to U.S. customers where pipelines lack capacity or can't access. Capital investment into these alternative modalities has been swift and effective in performing triple bypass surgery on continental oil supply routes.

In Canada alone, the estimated railway takeaway capacity is expected to exceed one million barrels a day in the next 12 to 18 months – greater than the capacity of Keystone XL. And once the capital is sunk into the alternative modalities, they won't go away; the greater movement of oil by rail, barge and even truck is here to stay even if Keystone XL and other pipelines are built.

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With new and diverse infrastructure to haul oil, Canadian producers are already able to access more North American refineries than before, and lean into global export terminals. Already, some oil companies are starting to trickle their domestic crudes into global markets from U.S. ports.

But back to the "what if" question; what if a few key pipelines had been built in advance of all the increasing production? Price discounts would have been muted or at least insufficient for aggressive rail substitution. Producers in Canada today would have had far less transportation flexibility and capacity. In short, pipeline approval and construction delays have created an outcome that appears to be of greater long-term benefit to the producers.

None of this should surprise the scholarly. Back in 1964, Nobel Prize-winning economist Robert William Fogel wrote a seminal book called Railroads and American Economic Growth (from where we sourced our opening quote by philosopher Morris Cohen). Dr. Fogel challenged the status quo thinking of the day. Until Fogel's work, many fellow economists had argued that America would not have achieved its status as an economic powerhouse without the massive build-out of American railways in the mid-to-late 1800s. Through fastidious data gathering and econometric analysis, Dr. Fogel demonstrated that if the railways had not been built, other means of overland transportation like trucks and canal networks would have fuelled almost similar levels of growth.

Dr. Fogel demonstrated a principle that has been lost on those who focus too much on pipelines: There is a substitute for everything, even for the transportation of bulk commodities.

Postscript: We can see the same competitive principle in action as it relates to Canadian liquefied natural gas (LNG). Currently, there are at least 15 consortia championing projects from the coast of B.C. But multiple overland alternatives are gaining momentum for moving Alberta and B.C. natural gas. For example, Veresen Inc. has recently received both Canadian and U.S. export approvals for moving LNG out of its Jordan Cove terminal in Oregon state. Much of that gas is planned to come from Alberta and B.C. As well, Western Canadian gas could end up being loaded indirectly or directly on LNG tankers that weigh anchor from the Gulf of Mexico.

It's a competitive world out there. There is no time to think about what might have happened.

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Peter Tertzakian is chief energy economist at ARC Financial Corp. in Calgary and the author of two best-selling books, A Thousand Barrels a Second and The End of Energy Obesity.

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