Economist disputes Northern Gateway benefits
Consumers could be paying two cents more per litre at the pumps every year for 30 years if the Northern Gateway Alliance pipeline goes through, according to one of the country’s leading economists.
“My analysis is based on their models,” Robyn Allan, an economist and the former head of ICBC, said during a stop in Prince George this week.
Allan said she began taking a deeper look into the pipeline project about a year ago after her son asked her opinion on it.
What she found led her to conclude that, environmental factors aside, it just doesn’t make sense economically for the residents of B.C.
She said the rising costs at the pumps won’t be the only increase consumers will see. Every industry that uses gas and oil to transport goods will have to raise costs to keep up, and that expense will be passed onto the paying public. And in the Prairies, where 40 per cent of the gas and oil consumed is used to produce agricultural products, there will be significant increases.
“So what will that do to our export industry?” Allan asked.
Allan visited Prince George this week to talk about the economic impact of the Enbridge pipeline on the province, sharing her findings during an open lecture at the university. The week prior to that she gave evidence on the economics of the project before the joint review panel in Edmonton.
Allan said Enbridge has stated they will not be drawing more oil from the oilsands to sell to Asia. Rather they will be harvesting the same amount of oil and redirecting the product into the Asian marketplace.
“When you restrict the supply, you increase the price of oil,” she said.
Her analysis was based on the work Enbridge provided, however she called into question the models the company used. She said they are based on the Canadian dollar sitting at 85 cents American, meaning the equations automatically get a 20 per cent increase in benefits.
“But when the Canadian dollar is up, the oil industry suffers,” she said, adding the commodity is sold in American dollars.
Other questions should be asked of the industry, she said, like the viability of building a pipeline so the oil in western Canada can benefit eastern Canada.
Another question revolves around upgrading the bitumen in Alberta.
Bitumen must be mixed with dilutent in order for it to move through the pipeline. Essentially, Allan said, this means shipping through two pipelines, one shipping in the dilutent to be mixed with the bitumen, and the other shipping out the diluted product. Dilutent is expensive and something Canada has to import. Thirty per cent of the end mix is dilutent, she said.
The dilbit, or mixed product, is then shipped to China and upgraded in their refineries, which are heavily subsidized.
Allan said many people have noted it isn’t economically feasible to build a refinery in Canada, and she said that is because they are not subsidized in the way they are in China, a country that has a built in set of price controls to protect its own consumers.
Canadians have no such protection at the pumps.
Also, bitumen is heavy and sinks during an oil spill. The dilbit is light and vaporizes poison into the air.
She pointed out the difficulty Enbridge Energy Partners had dealing with the oil spill in Kalamazoo. There was a leak for 17 hours before anyone knew it was happening. In effect, Allan said, what began as a small spill became the largest on-land spill in North American history, costing $800 million to clean up and likely to cost more in fines and restoration.
Enbridge, however, was not liable for this though the partnership in Kalamazoo was.
Likewise, the Northern Gateway, also a partnership under the Enbridge umbrella, would be responsible for any mishaps in B.C. not the parent company.
“Enbridge will not stand by Northern Gateway,” Allan said. “And if the pipeline is down there is no way they can cover the cost of a spill.”
She added the alliance should have a billion minimum in insurance, however it is suggesting $250 million will suffice, meaning the cost of such a spill could wind up being born by the people of B.C.
Allan said the idea of the pipeline is being sold as an exchange - a certain amount of environmental danger compared to a large economic benefit. However, she said, since the promised economic benefit has little substance, it doesn’t have to be that way.
“We’ve been told there are huge benefits, so we must trade-off the environmental risk. There doesn’t have to be this trade-off. We don’t have to make that choice.”
She added B.C. should never have opted out of the environmental review process.
Since that happened she pointed out Prime Minister Stephen Harper, who makes no bones about the federal government’s support of the project, has loosened the regulations governing portions of the process.
“We have to do our own environmental review and it has to have have some teeth in it. B.C. has to take back it’s sovereignty, it’s right to decide.”
Denying a project like the Northern Gateway pipeline won’t leave the oil industry in distress, Allan said.
Allan said the industry is prospering. The pipeline will allow them to increase profits and open Asian markets to their product, however not building the pipeline will not damage the oil and gas sector. In fact, Allan said, it may force them into exploring other options that would be more beneficial to Canadians.