WHERE CANADA GOES AFTER "KEYSTONE XL"PIPELINE - An Action Blueprint for Canada Yimin Jiang PRC Sauvé Scholar 2011 2012
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
2011-2012
WHERE CANADA GOES AFTER
“KEYSTONE XL”PIPELINE
An Action Blueprint for Canada
Yimin Jiang PRC Sauvé Scholar 2011~2012
CONTENT
CANADA IS STANDING AT A CROSSROAD ...............................................................3
FUNDAMENTAL PILLARS ....................................................................................................5
CANADA’S OIL SANDS IN A WORLD THIRSTY FOR ENERGY..........................7
An Increasingly “Thirsty” World ...................................................................................7
Oil Sands in Canada: Angel or Devil? ................................................................... 11
KEYSTONE XL：CONTROVERSY & LESSONS ..................................................... 17
Key Facts on Keystone XL Pipeline ....................................................................... 17
Controversy around Keystone Pipeline: Proponents and Opponents....... 19
Key Judgments and Lessons from “Keystone XL”............................................ 22
PROMOTE SUSTAINABLE DEVELOPMENT OF OIL SANDS ........................... 26
Canada needs a leadership for Oil Sands Development ............................... 26
Visions on Energy leadership& National Energy Strategy ............................. 28
Key Elements of National Strategy Energy ......................................................... 29
Goals Anchored by Canada’s Public Interest ............................................ 30
A Blueprint Articulating the Priority and Timeline ..................................... 31
Political Leadership and Renewed Management Structure ................. 32
CONCLUSION ......................................................................................................................... 34
1
How did this leadership emerge in a region where the ghost of the 1980
National Energy Program still stalks the land and regularly springs to life
in pub conversations and boardrooms? Part of the answer is that 32 years
have elapsed since the NEP and the world has changed. Jimmy Carter is no
longer President of the United States, Pierre Trudeau is no longer Prime
Minister, the Cold War is over and the Internet has arrived; it’s time to move
on without dragging the policy ghosts of the past along with us.
Dr. Roger Gibbins President & CEO of the Canada West Foundation
2
CANADA IS STANDING AT A CROSSROAD
Energy is essential for the survival of humans on this planet.
History illustrates our quest to seek and develop energy to ward
off the cold and prepare food. Now energy is essential for
ENERGY
everything in our daily lives from homes to vehicles to space
exploration and has rise to one of the world’s largest industries.
Canada’s rich abundance of resources and its success in building
an open and vibrant energy market has created a significant and
strategic sector for the Canadian economy. A great deal has been
accomplished under a complex legislative and regulatory
framework encompassing federal, provincial and territorial
jurisdiction. With the world’s biggest Oil Sands reserves, Canada
has the full potential to become next energy superpower.
Environment, defined as all living and non-living things that occur
naturally on Earth, is a factor that could not be ignored. The
negative impact that the exploitation of energy has caused to
Canadian natural environment has generated heated dispute. The
controversy around Oil Sands exploitation has greatly undermined
the Canada’s international credibility especially in the context of
the global awareness of environmental issues like climate change
and global warming. With the recent rejection of Keystone XL
pipeline, the heating dispute around Oil Sands has reached its
peak, placing Canada into an embarrassing dilemma.
Historically, although with a relatively small population compared
to its large territory, Canada has demonstrated its power and value
by establishing a stable and reliable political and social system
supported by a healthy and prosperous economy. Canada’s history
is remarkable for its contributions to global development.
3
Presently, Canada is the fifth largest energy producer in the
world. The energy industry generates about a quarter of
Canada’s export revenues and employs more than 650,000
people across the country. Despite the controversy around
ENVIROMENT
Oil Sands exploitation, the record of Canada’s achievement
in energy is still impressive. In a world featuring a
geopolitically more tenuous balance of powers, economically
more vulnerabilities with a tightening resource constrain and
socially more focusing on stability as well as sustainability,
every government is expected to take decisive action
managing its nature resources with both economic and
strategic value. It is without doubt that every nation,
including Canada, is witnessing rapid changes both in the
national and international circumstances. If Canada is to
preserve – and, ideally, strengthen – its position as a
resource-rich and energy-producing nation, it must respond
in a strategic way to these challenges to the status quo.
Should Canada fails to act, Canada’s national potential,
economic competitiveness, and ability to provide social
benefits will be greatly constrained. The rejection of
Keystone XL has obviously rung the emergency bell calling
for immediate political action for the leadership of
Oil-Sands managing to better serve Canadian public interest.
Canada needs a blueprint for next step on resources
management in this regard.
Standing at a crossing road, Canadian governments, both
federal and provincial, are duty bound to take decisive action
on behalf of Canadian public interest. There is an urgent
need for a strategy to consolidate various concerns and
achieve a sustainability of energy development in order to
maximize Canadian public interest.
4
FUNDAMENTAL PILLARS
There are four pillars that are designed as the bases of the study on Keystone XL
pipeline and beyond, Oil Sands exploitation. They take into account various
considerations held by different stakeholders and serve as the groundwork for further
recommendations and solutions.
Energy sector plays a crucial role in promoting Canadian economy and public
interest.
In the year 2010, energy sectors have generated more than 10% of Canada’s GDP and
will definitely play an increasingly important role in promoting Canadian public welfare
in the context of soaring global demand for energy. It is without doubt that the recession
of energy sector will directly undermine Canadian economy, which will further lead to a
chain of negative effects spillover from economy to society and eventually influenced the
majority of Canadian population.
Responsible standards of environmental stewardship must be introduced and
employed, ensuring energy, environmental and economic imperatives are
inextricably coordinated.
All forms of energy must be developed in a responsible method that minimizes
environmental impacts. While stewardship of current Oil Sands assets and the
development of cleaner, less carbon-intensive and more efficient energy infrastructure is
vital, a renewed regulation structure must be established with a sensible plan on
environmental preservation based on the coordination among various groups, whether
individuals, businesses or public sector entities.
Innovation bridges the gap between economy and environment.
People should be dynamic and flexible regarding the Oil Sands exploitation. There is no
absolute deadlock existing between economy and environment. Despite the particular
challenges faced by energy-intensive Oil Sands exploitation, Canada still has the potential
to cultivate innovation thus provide solutions that could bridge the gap between
economy and environment. Importantly, the development and commercialization of
those innovation will improve the “social license to operate” for energy-intensive
Canadian producers and further promote Canada’s international reputation and
credibility.
Canadian government is obligated to manage Oil Sands properly
The Oil Sands is not merely an important resource but also a strategic asset for Canada.
This reality requires Canadian government coming up actively with a renewed structure,
5
with the function of planning the Oil sand development, monitoring the environment
impact and stimulating technology innovation and managing the Oil Sands revenue.
Technology Innovation
Environment
Economy
6
CANADA’S OIL SANDS IN A WORLD
THIRSTY FOR ENERGY
Canada is abundant in energy resources, a large portion of which exists in the form of
Oil Sands. In a world with soaring energy demand, Canada is considered as one of the
countries with potential of becoming energy super power. However, all forms of energy
must be developed in a responsible manner that minimizes impacts on environment,
including climate change, air quality, water, land, habitant and human health. The
considerable controversy and final rejection of Keystone XL pipeline has put Canada at
a strategically important crossroad.
An Increasingly “Thirsty” World
The World is increasingly dependent on energy. Energy has played a crucial role in
creating and enhancing economic opportunities. Major Powers around global all come up
with their respective energy strategies with clearly defined strategic goals and smart
energy management to maintain economic growth and mean while reduce environmental
cost.
Energy Demand is Growing Worldwide
The last two decades since the industrial revolution have witnessed the happening of
more than half of the energy consumption in the history of humanity. According to
International Energy Agency (IEA), world statistics in four years from 2004–2008 the
world population increased 5%, annual CO2 emissions increased 10% and gross energy
production increased 10%. From 1990 to 2008 the average use of energy per person as
IEA data increased 10 % and the world population increased 27 %. Regional energy use
grew from 1990 to 2008: Middle East 170 %, China 146 %, India 91 %, and Africa 70 %,
Latin America 66 %, USA 20 %, EU-27 7 % and world 39 %.
Influenced by financial crisis in
2009,the world energy
consumption decreased for the
first time in 30 years, with a
reduction of 1.1% and a GDP
drop by 0.6%. However, in
spite of the overall decline of
global energy consumption,
two contrasting trends have
emerged, providing significant
7
implication of world future energy structure. Firstly, energy consumption growth
remained vigorous in several developing countries, specifically in Asia with a growth of
more than 4% compared with the year 2008. Secondly, in OECD countries, consumption
was severely cut by 4.7% in 2009 and was thus almost down to its 2000 levels. In North
America, Europe and the CIS, consumptions shrank by 4.5%, 5% and 8.5% respectively
due to the slowdown in economic activity. China became the world’s largest energy
consumer, taking up 18% of the total with its consumption surged by 8% during 2009.
In the year 2010, world energy
consumption grew over 5%. As one
of the world’s most energetic
markets, energy market has
combined crisis recovery and strong
industry dynamism. Energy
consumption in the G20 soared by
more than 5% in 2010, after the
slight decrease of 2009. Two trends
converge to further promote the
global energy consumption. On the
one-hand, industrialized countries,
which experienced sharp decreases
in energy demand in 2009,
recovered firmly in 2010, almost coming back to historical trends. Oil, gas, coal, and
electricity markets followed the same trend. On the other hand, China and India, which
showed no signs of slowing down in 2009, continued their intense demand for all forms
of energy.
Despite the fact that its share has been decreasing over time result from the growing
diversification of energy consumption, oil remained the largest energy source with a
proportion of about 33%. OECD countries as well as the emerging economies are the
major players in the current global energy market.
Major Players and Trends in Global Energy Market
As the world’s largest economy, the U.S. is highly independent on the global energy
market. Currently, the U.S. could only produces about 40% of the oil that it consumes.
Over history, its oil production peaked in 1970 and its imports have exceeded domestic
production since the early 1990s. As the tendency of the enduring growing U.S.’s oil
consumption while declining of its oil production continues, the U.S. increasingly
become independent on overseas energy, which exerts great influence both on its
domestic economy and foreign policy. Between the years from 1985 to 1989, America’s
dependence on foreign oil rose from 26 percent to 47 percent. While in 2010, America’s
dependence on foreign oil fell below 50 percent the first time since at least 2000. Despite
the decline of dependence, there is still growing concerns among America that the
8
potential for political unrest in major oil suppliers, such as Saudi Arabia, Venezuela,
and Nigeria is abundant, and often cause great fluctuations in crude oil prices, especially
in the short-term, which will greatly impact U.S. economy in the mire of recession. For
defending the U.S. energy security and national interest, President Barack Obama has
developed a renewed energy strategy prioritizing renewable energy and energy efficiency,
which marks “a new era of energy exploitation” in the United States.
China, the most energetic economy in the current global, has risen to an influential player
with an ambitions energy strategy in the present international energy market. According
to some think tanks, although the per capita emissions are still far behind most of the
developed countries, China has already become the world’s largest emitter of greenhouse
gases. Although China is still a major crude oil producer, it has become an oil importer in
the 1990s. In 2002, China’s annual crude petroleum production was 1,298million barrels,
and annual crude petroleum consumption was 1,670million barrels. In 2006, it imported
145 million tons of crude oil, accounting for 47% of its total oil consumption. China’s
national owned companies, – Sinopec, CNPC, and CNOOC – dominate its domestic
market and is expanding ambitiously aiming at the overseas energy resources.
In future, several factors are considered would continually contribute to the soaring
demand for energy, especially oil consumption.
x Industrialization, especially in emerging markets. Businesses and factories in
particular, require significant amounts of energy in the form of both electricity and
9petroleum-based fuels in order to operate. As economies industrialize, energy
demand increases.
x Increasing wealth in emerging markets, especially China and India. When
economies grow, their energy needs grow. Consumers want cars, air conditioners,
refrigerators, and other energy hogs.
x Globalization. Transportation is one of the largest consumers of energy in the
world, accounting for 58 percent of liquid fuel consumption in OECD countries in
2004. As the people move more often, further, and with greater speed, the energy
people use in transportation will inevitably increase. Air travel in particular is a heavy
user of fuel.
x Concerns over energy security. While energy demand is typically driven by
short-term considerations, long-term concerns over energy security around the
world have led to what some might consider an irrational premium paid for energy
assets. This is most apparent in the very favorable deals struck by China with host
governments in countries around the world to explore for oil & gas, one of the
contributing factors to the increasing premium paid per barrel of proven oil reserves
in the oil exploitation and production industry.
The next 20 years are
likely to see continued
global integration, and at
the global level, the most
fundamental relationship
in energy and economics
remains robust – more
people with more income
mean that the production
and consumption of
energy will rise.
Population growth is
trending down, but
income growth is trending
up. World primary energy consumption grew by 45% over the past 20 years, and is likely
to grow by 39% over the next 20 years.
Despite the fact that oil is expected to be the slowest-growing fuel in supply over the
next 20 years, global liquids demand mainly including oil and other liquids is likely to rise
dramatically by 2030. Growth comes exclusively from rapidly-growing non-OECD
economies. Non OECD Asia accounts for more than three-quarters of the net global
increase. The Middle East and South & Central America will also grow significantly.
OECD demand has likely peaked, and consumption is expected to decline slightly.
The considerable demands bring tremendous challenges to the world as a whole but also
10opportunities for the countries abundant in energy. In the era of globalization and
growing interdependence, how a country manages its energy resources is of vital
importance both for its national security and public welfare. Any government, as the
provider of public service and defender of public interest, should assume the
responsibility to strategically manage the energy issue in this regard.
Oil Sands in Canada: Angel or Devil?
Canada is abundant in energy resources, a large portion of which exists in the form of
Oil Sands. Oil Sands extraction is generally held to be more environmentally damaging
than conventional crude oil. The environmental impact caused by oil sand extraction is
frequently criticized by environmental groups and has triggered great controversy which
surfaced in the case of Keystone XL pipeline.
The History of Oil Sands Exploitation
Oil Sands or more technically Bituminous Sands is a type of unconventional petroleum
deposit. The Oil Sands are loose sand or partially consolidated sandstone containing
naturally occurring mixtures
of sand, clay and water, saturated with a
dense and extremely viscous form
of petroleum technically referred to
as bitumen. Natural bitumen deposits
are reported in many countries
worldwide, but in particular are found
in extremely large quantities in Canada.
According to the data, total natural Oil Sands
Source:http://greenestoil.ca/blog/wp-content/uploads/2010/12OilSands-6
bitumen reserves are estimated at
249.67 billion barrels globally, of which 176.8 billion barrels are in Canada.
The exploitation of bituminous
deposits and seeps dates back
to Paleolithic times. The earliest
known use of bitumen was
by Neanderthals, some 40,000 years
ago. Bitumen has been found
adhering to stone tools used
by Neanderthals at sites in Syria.
After the arrival of Homo sapiens,
humans used bitumen for
construction of buildings and water
Alberta Oil Sands Exploitation 1900
Source http://en.wikipedia.org/wiki/File:Alberta_Oil_sands.jpg
proofing of reed boats, among other
11uses. In ancient Egypt, the use of bitumen was important in creating Egyptian mummies.
The bitumen was explored and used worldwide in ancient time. The area along
the Tigris and Euphrates rivers was littered with hundreds of pure bitumen seepages,
where bitumen was primarily a Mesopotamian commodity. The Mesopotamians used the
bitumen for waterproofing boats and buildings. While in North America, Canadian First
Nations also made use of bitumen from the vast Athabasca Oil Sands to waterproof
their birch bark canoes. In Europe, they were extensively mined in some of European
cities, where the vapor separation process was in use in 1742.
Over a long period, the exploitation of Oil Sands is not considered economically
profitable due to the fact that it will cost much higher than the exploitation of
convention oil. It was only since the time that higher oil prices and new technology
enable the producers to be profitably extracted and upgraded to usable products that the
value of Oil Sands has been identified. In order to distinguish oil extracted from Oil
Sands from conventional crude oil, they are often referred to as unconventional oil or
crude bitumen.
The extracting of Oil Sands is completely different. According to Canadian government,
the crude bitumen contained in the Canadian Oil Sands is defined as “petroleum that
exists in the semi-solid or solid phase in natural deposits.” “Bitumen is a thick, sticky
form of crude oil, so heavy and viscous (thick) that it will not flow unless heated or
diluted with lighter hydrocarbons. At room temperature, it is much like cold molasses.”
The World Energy Council (WEC) defines natural bitumen as “oil having
a viscosity greater than 10,000 centipoises under reservoir conditions and an API
gravity of less than 10° API.” Natural bitumen and extra-heavy oil differ in the degree by
which they have been degraded from the original crude oil by bacteria and erosion.
According to the WEC extra-heavy oil has “a gravity of less than 10° API and a reservoir
12viscosity of no more than 10,000 centipoises”. Making liquid fuels from Oil Sands
requires energy for steam injection and refining. This process generates two to four times
the amount of greenhouse gases per barrel of final product as the “production” of
conventional oil. If combustion of the final products is included, the so-called “Well to
Wheels” approach, Oil Sands extraction, upgrades and use emits 10% to 45% more
greenhouse gases than conventional crude. As of 2007, crude oil prices were significantly
in excess of the average cost of production, which was about $28 per barrel of bitumen.
However, bitumen production costs are rising rapidly, with production cost increases of
55% from 2005 to 2007, due to shortages of labor and materials.
Oil Sands Reserves in Canada
According to the World Energy Council, natural bitumen is reported in 598 deposits in
23 countries, with largest deposits in Canada, Kazakhstan and Russia. Discovered original
oil in place is estimated to be 2,511.326 billion barrels and total original oil in place is
estimated 3,328.598 billion barrels. Natural
bitumen reserves are estimated at 249, 67
billion barrels globally, of which 176, 8
billion barrels are in Canada, 42,009 billion
barrels in Kazakhstan and 28.38 billion
barrels in Russia.
Most of the Oil Sands of Canada are
located in three major deposits in
northern Alberta. These are the
Athabasca-Wabiskaw Oil Sands of north
northeastern Alberta, the Cold Lake deposit
of east northeastern Alberta, and the Peace
River deposits of northwestern Alberta.
Between them they cover over 140,000
square kilometers—an area larger
than England—and hold proven reserves of 1.75 trillion barrels of bitumen in place.
About 10% of this, or 173 billion barrels, is estimated by the government of Alberta to
be recoverable at current prices, using current technology, which amounts to 97% of
Canadian oil reserves and 75% of total North American petroleum reserves. The Cold
Lake deposits extend across the Alberta’s eastern border into Saskatchewan. The largest
bitumen deposit, containing about 80% of the Alberta total, and the only one suitable
for surface mining, is the Athabasca Oil Sands along the Athabasca River. The smaller
Cold Lake deposits are important because some of the oil is fluid enough to be extracted
by conventional methods. All three Alberta areas are suitable for production
using in-situ methods, such as cyclic steam stimulation (CSS) and steam assisted gravity
drainage (SAGD).
13The Oil Sands industry has historically been dominated by the interests of two primary
actors; government, both federal
and provincial and
industry. Governments both in
federal and provincial level
assume the responsibility of
policy making and regulation. The
governance including policy,
administration, and regulation
over the Oil Sands is held mainly
by the Ministry of Energy in
Alberta, which has caused great
controversy about the policy
making process since it lacks of
public involvement.
The considerable economic
potential of Oil Sands has caused
great interest worldwide. In early December 2007, London based BP and Calgary
based Husky Energy announced a 50/50 joint venture to produce and refine bitumen
from the Athabasca Oil Sands. BP would contribute its Toledo, Ohio refinery to the joint
venture, while Husky would contribute its Sunrise Oil Sands project. Sunrise was planned
to start producing 60,000 barrels per day of bitumen in 2012. BP would modify its
Toledo refinery to process 170,000 bbl/d of bitumen directly to refined products. It was
a change of strategy for BP, since the company historically has downplayed the
importance of Oil Sands.
In mid December 2007, ConocoPhillips announced its intention to increase its Oil Sands
production from 60,000 barrels per day to 1 million barrels per day over the next 20 years,
which would make it the largest private sector Oil Sands producer in the world.
ConocoPhillips currently holds the largest position in the Canadian Oil Sands with over 1
million acres under lease. Other major Oil Sands producers planning to increase their
production include Royal Dutch Shell; Sync rude Canada; Suncor Energy and Canadian
Natural Resources.
As of December 2008, the Canadian Association of Petroleum Producers came up with
its 2008-2020 crude oil forecasts to account for project cancellations and cutbacks as a
result of the price declines in the second half of 2008. The new forecast predicted that
Canadian Oil Sands production would continue to grow, but at a slower rate than
previously predicted. There would be minimal changes to 2008-2012 production, but by
2020 production could be 300,000 barrels per day less than its prior predictions. This
would mean that Canadian Oil Sands production would grow from 1.2 million barrels
per day in 2008 to 3.3 million barrels per day in 2020, and that total Canadian oil
production would grow from 2.7 to 4.1 million barrels per day in 2020. Even accounting
14for project cancellations, this would place Canada among the four or five
largest oil-producing countries in the world by 2020.
Controversies around Oil Sands
The exploitation of Oil Sands has generated considerable controversies due to the
tremendous impact that it has caused environmentally and socially. Critics contend that
government and industry measures taken to minimize environmental and health risks
posed by large-scale mining operations are inadequate, causing damage to the natural
environment.
x Possible Impacts of Oil Sands contaminants on downstream residents.
First Nation and community have addressed their concerns of higher cancer rates
that might possibly result from the Oil Sands exploitation. There are also concerns
about population health in Wood Buffalo that a population level evidence show that
residents of the regional
municipality of wood buffalo
experience a range of health
indicators, consistent with boom
town impacts and community
infrastructure deficits, which are
poorer than those of a
comparable Alberta region and
provincial average.
x Possible impact on regional
water supply
The environmental Impact of Oil Sands Development
Source: http://radiofreethinker.files.wordpress.com/2011/12/eo0.jpg
The concern has been expressed
that current industrial water use demands might possibly endanger the Athabasca
River as well as its ecosystem system if without a Water Management Framework
developed and completely implemented.
x Possible impacts of Oil Sands on air quality and greenhouse gas emissions
Concern exists that the Oil Sands development might exert negative impact on
regional air quality, leading to the regional acidification potential. The processing of
bitumen into synthetic crude requires energy, which is currently being generated by
burning natural gas. A 2009 study by CERA estimated that production from
Canada’s Oil Sands emits about 5 percent to 15 percent more carbon dioxide, over
the “well-to-wheels” lifetime analysis of the fuel, than average crude oil. The
forecast growth in synthetic oil production in Alberta also threatens Canada's
international commitments.
15x Possible impact of Oil Sands contaminants on land
Currently, approximately 20% of Alberta’s Oil Sands are recoverable through
open-pit mining, while 80% require in situ extraction technologies largely because of
their depth. Open pit mining destroys the boreal forest and muskeg. The Alberta
government requires companies to restore the land to “equivalent land capability”.
This means that the ability of the land to support various land uses after reclamation
is similar to what existed, but that the individual land uses may not necessarily be
identical.
16KEYSTONE XL ： CONTROVERSY &
LESSONS
The term “Keystone” means “a central cohesive source of support and stability”.
However, this name fails to bless the controversial pipeline system. Initiated by one of
the biggest pipeline companies in North America, TransCanada, Keystone XL is
supposed to play an important role in linking a secure and growing supply of Canadian
and American crude oil with the largest refining markets in the United States. Since the
day Keystone XL pipeline was proposed, it has invited fierce criticisms.
Key Facts on Keystone XL Pipeline
Keystone XL is an approximate 2,673-kilometre (1,661-mile), 36-inch crude oil pipeline
that would begin at Hardisty, Alberta and extend southeast through Saskatchewan,
Montana, South Dakota and Nebraska. It would incorporate a portion of the Keystone
Pipeline (Phase II) through
Nebraska and Kansas to
serve markets at Cushing,
before continuing through
Oklahoma to a delivery point
near existing terminals in
Nederland, Texas to serve the
Gulf Coast marketplace.
Keystone XL will have the
capacity to transport 830,000
barrels of oil per day to
Cushing, Oklahoma and Gulf
Coast refineries. Keystone
XL pipeline is supposed to
considerably increase the
capacity of delivering crude
oil from Oil Sands in Canada.
Approximately 25 per cent of
the oil delivered by Keystone
XL will be American crude
from the Bakken oilfields in
Montana and North Dakota
and from Cushing, with the remaining capacity supplied by Canadian Oil Sands. Together
with the existing two phases of the Keystone Pipeline, the entire system would be able to
17transport 1.3 million barrels per day.
TransCanada, one of the major energy infrastructure providers in North American
energy market, has already invested more than 7 billion U.S. dollars on this pipeline
system. According to the TransCanada, the construction of Keystone XL pipeline will
inject billions of private-sector dollars into U.S. economy, creating more than 20,000
direct jobs and 118,000 spin off jobs during construction. Once in operation, Keystone
XL will contribute an additional $5.2 billion in property taxes to communities along the
route during the operating life of the pipeline.
In June 2010 TransCanada commenced commercial operation of the first phase of the
Keystone Pipeline System. Keystone’s first phase was highlighted by the conversion of
natural gas pipeline to crude oil pipeline and construction of an innovative bullet line
that brings the crude oil non-stop from Canada to market hubs in the U.S. Midwest.
Phase II of Keystone was an extension of the pipeline from Steele City, Nebraska to
Cushing, and began operations in February 2011. The 36-inch pipeline connects to
storage and distribution facilities at Cushing, a major crude oil marketing/refining and
pipeline hub.
With the approval by the National Energy Board (NEB) of Canada in 2010, the Project
is ready to commence construction activities as it awaits final approval from U.S.
regulators. In March of 2011, the U.S. Department of State committed to delivering a
definitive decision on Keystone XL before the end of the year. However, in the light of
18intense controversies that Keystone XL has caused both in U.S. and Canada, the U.S.
Department of State in 2011 extended the deadline for federal agencies to decide if the
pipeline is in the national interest, and in November, 2011, President Obama postponed
the decision until 2013. On November 30, Senate Republicans introduced legislation
aimed at forcing the Obama administration to approve the Keystone XL pipeline within
60 days, unless the president declares the project is not in the national interest. In
December 2011, Congress voted to give the Obama Administration a 60-day deadline to
make a decision on TransCanada’s application for the construction of the Keystone XL
Pipeline. On January 18, 2012, President Obama rejected the application, stating that the
deadline for the decision had “prevented a full assessment of the pipeline’s impact.”
Controversy around Keystone Pipeline: Proponents and
Opponents
Once the application was issued, various concerns have been voiced concerning potential
impacts that Keystone XL might have brought. Various stakeholders polarized to
support or oppose this project. While positive side highlights the potential economic
benefit as well as job creation, negative side stresses the possible environmental risks.
Proponents
Stakeholders, mainly from oil and gas industry supported by both Canadian Federal
Government and Provincial Government, have argued the construction of this pipeline
will bring both Canada and United States considerable benefits.
Promoting economy both in United States and Canada
19An independent study finds that construction of the Keystone XL Pipeline project
would provide significant, positive contributions to U.S. energy security and the U.S.
economy valued at over $20 billion. The study further concludes that once the pipeline is
operational, the states along the pipeline route are expected to receive an additional $5.2
billion in property taxes during the estimated operating life of the pipeline.
Creating jobs both in United States and Canada
The Perryman Group study states that the proposed pipeline project should improve U.S.
energy security with the ongoing benefit to the U.S. economy of a more stable source of
consistent energy supply over an extended period of time. The $7 billion pipeline project
is expected to directly create more than 20,000 high-wage manufacturing jobs and
construction jobs in 2011-2012 across the U.S., stimulating significant additional
economic activity.
Promote American national energy security
An independent study highlights the
significant ongoing benefit to the U.S.
economy of a more stable, consistent and
reliable supply of oil. When completed,
the Keystone Pipeline System is expected
to provide 5% of current U.S.
petroleum-consumption needs and
represent 9% of U.S. petroleum
imports. Once permitted and completed,
the Keystone XL pipeline will supply
roughly half the amount of oil the U.S.
currently imports from the Middle East or Venezuela.
Pipeline is safe under strict environmental management
Proponents of Keystone XL believe the construction and operation of this pipeline is in
compliance with all applicable environmental legislation and regulations to protect the
environment. TransCanada, as the owner of the pipeline, claims fully commitment to
environmental responsibility with develop an understanding of the existing
environmental resources along the route to fully anticipate and avoid or mitigate
environmental impacts to the greatest extent practical.
Opponents
Since the issue of application, the Keystone XL has received criticisms from
environmental groups, citizens, and politicians. Almost all the arguments supporting the
construction of Keystone XL have been challenged and disputed.
20Keystone XL pipeline will lead to the over capability of oil transportation
Some experts have warned that
including the Alberta Clipper
pipeline owned by TransCanada’s
competitor Enbridge, there is an
extensive overcapacity of oil
pipelines from Canada. After
completion of the Keystone XL
line, oil pipelines to the U.S. may
run nearly half-empty, leading to a
waste of resources and capitals.
Keystone XL could contribute little to job creating in both countries.
The claim that the construction of Keystone XL will create more than 20,000 jobs in
United States has been disputed by an independent study conducted by the Cornell ILR
Global Labor Institute which found that while the Keystone XL would result in 2,500 to
4,650 temporary construction jobs, this impact will be reduced by higher oil prices in the
Midwest which will likely reduce national employment.
Keystone XL is exporting “energy security”
Facing the claim that the Keystone will promote
American energy security by reducing its dependence
on Middle East oil import, some study has argued
that the Keystone XL pipeline is an export pipeline.
The Gulf Coast refiners at the end of the pipeline’s
route are focused on expanding exports, and the
nature of the Oil Sands crude Keystone XL delivers
enhances their capacity to export, which means the
construction of Keystone XL pipeline will not
contribute substantially to improve the American
energy security.
Keystone has considerable potential environmental risk
The loudest opposing voice is actually from environmental groups. Concern is that the
pipeline could pollute air and water supplies and harm migratory birds and other wildlife.
Its proposed original route crosses the Sand hills in Nebraska, a large wetland ecosystem,
and the Ogallala Aquifer, one of the largest reserves of fresh water in the world. The
Ogallala Aquifer spans eight states, provides drinking water for two million people, and
supports $20 billion in agriculture. A major leak could ruin drinking water and devastate
21the mid-western U.S. economy. Besides, portions of the pipeline will also cross an
active seismic zone that had a 4.3 magnitude earthquake as recently as 2002. Opponents
claim that TransCanada applied to the U.S. government to use thinner steel and pump at
higher pressures than normal. In October 2011, some influential media, including The
New York Times questioned the impartiality of the environmental analysis of the
pipeline.
Key Judgments and Lessons from “Keystone XL”
President Obama’s decision to reject Keystone XL pipeline came as a major setback for
oil and gas industry in Canada. It is estimated that TransCanada needs to add at least $ 1
billion investment for the delay of this project. The cost for issuing a new proposal is
even higher. Given that TransCanada is a public company, a wide range of shareholders’
interest has suffered a loss. Since energy sector, especially Oil Sands exploitation is still
one of the supporting industries in Canada. The rejection of Keystone XL pipeline will
further influence the Canadian economy and Canadian public welfare as well. From
Canadian perspective, the rejection of Keystone XL is also a big setback for U.S.-Canada
relations. Canada has been humiliated by its closest ally and neighbor by this
embarrassing rejection. It is safe to draw the conclusion that the rejection of keystone
XL means a “lose-lose” situation for everybody, not only for Canada but also for The
United States. Even the environmental groups in both countries, which are supposed to
be the winner, will see the negative impact caused by the recession of energy sectors on
their ordinary lives. Several lessons must be drawn from Keystone XL pipeline for
22Canada in this regard to avoid the possible future setbacks.
A growing influence of civil society in decision making
The rejection of Keystone XL is largely a result of the persistent protests by
environmental groups, who argue for protecting the environmentally sensitive the areas
especially Ogallala Aquifer, one of the largest reserves of fresh water in the world. Those
protests received blanket media coverage which greatly influenced the public opinion in
both countries. Especially after the release of environmental assessment report indicating
that there is “no substantial impact on environment”, several thousand environmentalists
and their supporters shouldering a long black inflatable replica of a pipeline, formed a
human chain around the White House to try to convince Barack Obama to block the
controversial Keystone XL project. Facing tremendous pressure from environmental
groups, the State Department had to change its previous stand and sOilt a new process
of environmental review. And those protests, culminating at the arrest of famous actress
in front of White House, further squeezed President Obama’s decision space, whose
primary concern is shifting to the coming presidential campaign. It is widely believed,
although denied by President Obama himself, that it is the consideration of the coming
campaign that greatly influences his decision. This entire process has seen an increasingly
weighing role of civil society both in governmental decision making and the shaping of
public opinion. Most analysts agree that without those protests and other forms of
oppositions organized by environmentalists and other concerned groups, the Keystone
XL pipeline would have been approved in the November 2011.
Vital flaws exist in current energy resource management structure
Besides its rejection in the United States, the fact that Keystone XL is approved in
Canada also demands further speculation given the great controversy that this pipeline
caused not only in the United Stated but in Canada as well. The alarming concern
expressed by some experts about the issue of transportation overcapacity from the
Canada to The United States requires special attention. Currently, Canada is highly
dependent on U.S. market, leading to the failure
of maximizing economic profit. This dilemma
actually reflects that fundamental flaws exist in
current national management structure. The
present energy management structure could be
dated back to 1867 with the Section 92 and 92A
of the Constitution Act (1867) give provinces
jurisdiction over resources and the production
and distribution of energy. While provincial
ownership and jurisdiction apply within each
province, the federal government plays a major
role in the energy sector generally with the authority over international treaties and
taxation at every stage of the energy life-cycle. On federal level, the National Energy
23Board under the Department of Natural Resource serves as the independent regulation
agency with seldom participation of related ministries like Environmental, Treasury and
Foreign Affairs in decision making. Insufficient of strategic planning on Oil-Sands
exploitation and the inter-governmental as well as inter-departmental coordination, the
present arrangement evidently could not meet the demand of strategic management and
interest maximization. A new arrangement should be build in this regard on the basis of
closer coordination and broader participation to guarantee the comprehensive strategy
could be made with both short-term and long-term factors taken into consideration.
Political risk could never be underestimated
The TransCanada, as well as Canadian
government evidently lacks enough
awareness of political risk management.
Given the close relations between U.S.
and Canada, business leaders in Canada
tend to ignore the potential political risk.
There is no doubt that risk exists in
every country regardless of the political
regime. Broadly, political risk refers to
the complications businesses and
governments may face as a result of
what are commonly referred to as
political decisions—or “any political
change that possibly alters the expected
outcome and value of a given economic
action by changing the probability of achieving business objectives.” Political risk facing
firms can be defined as “the risk of a strategic, financial, or personnel loss for a firm
because of such nonmarket factors as macroeconomic and social policies, or events
related to political instability.” Political risk in most time lies in the long-term investment
like infrastructure construction, under which circumstance investors have to turn to
insurance company to share the risk of the potential losses. Moreover, governments may
face complications in their ability to execute diplomatic, miliOily or other initiatives as a
result of political risk. By reviewing the whole story of Keystone XL pipeline,
TransCanada evidently underestimated the possible political risks at the special and subtle
point in the eve of presidential campaign. The management of TransCanada could have
chosen other time to embark on the application process other than in the event of 2012
presidential election.
Strategic development plan is needed for future Oil Sands exploitation
A large portion of the controversy around Keystone XL pipeline is not merely from the
pipeline itself but from the Canadian oil and gas industry. For Canadian oil and gas
industry, the U.S. is the only market for oil and gas exportation. However, basic economic
24principles suggest that the value seldom be maximized when there’s only one buyer.
Although Canada’s energy sector is one of Canada’s core economic advantages, there is
no consistent and concerted game plan for its development. When the national interest is
so clearly at stake, the need for clear strategies to shape the new global reality to Canada’s
best advantage seems evident. Those alarming facts surface the more fundamental
question of the insufficiency in terms of Oil Sands exploitation planning.
25PROMOTE SUSTAINABLE DEVELOPMENT OF OIL
SANDS
The rejection of the Keystone XL pipeline application has alarmed Canadians on the
future of Canada’s energy resources. Facing the great setback caused by the rejection not
only in terms of economic interest but also international reputation, leadership with a
broader perspective is needed to better
manage the Oil-Sand exploitation. In a
broader sense, given the negative image in
global community that the Oil-Sand has
brought to Canada, leadership is also in an
urgent need to present Canada’s intention to
preserve environment and meanwhile assure
the considerable benefits from Oil-Sand
exploitation is accessible to Canadian
people of different provinces. This
leadership requires a vision featuring maximizing economic benefits with the minimal
environmental impact, which will set a role model for other countries abundant in natural
resources on how to strategically approach natural recourses to promote domestic
welfare as well as international reputation and credibility.
The reality is self-evident and has been proved by repeated studies that world energy
demand will still increase by a third between 2010 and 2035, and that oil will remain
dominant – supplying almost three-quarters of global energy needs. Canada should stand
to benefit from the fact that oil remains a key energy source. Given that Canada is an
energy superpower with the potential to achieve even more for the Canadians’ welfare,
leadership is needed to explore this potential with aggressive and focused innovation and
to maneuver strategic moves to reach the optimal point between economical,
environmental and social considerations in order to serve domestic and international
markets with energy products while maintaining Canada’s desirable environment.
Canada needs a leadership for Oil Sands Development
Though blessed with abundant Oil Sands resources, Canadian people still have to face
the risk of being a victim of an energy gold rush. Leadership is needed in this regard to
set the agenda with all the factors taken into consideration.
26Economy and Energy Security
There is no doubt that energy production is a major contributor to the Canadian
economy and it can definitely contribute more. According to the comparison with peer
industries in Canada, the oil and gas industry has lower taxation levels than all other
major industries in Canada. It is urgent to alter this situation that the industry is raking in
record profits, while still receives tax breaks and subsidies from the federal government.
Canada historically employs “free market” approach to energy, leading to the insufficient
control over Canada’s energy resources. Currently, oil and gas companies, rather than
government, are the major players who set the agenda. In this regard, the future setback,
like the rejection of Keystone XL pipeline, could still come to Canada due to the narrow
perceptive and insufficient strategic planning.
Canada now produces about 40 per cent more oil than it consumes, but still has to rely
heavily on imported oil from offshore. Due to the trade agreement of NAFTA, Canada
now exports 70 per cent of the oil and 61 per cent of the natural gas producing each
year to the United States. Meanwhile, due to absence of pipeline from west to east, there
have been concerns that in the event of a natural disaster like a hurricane on the east
coast, Atlantic Canada would be in an energy crisis. It is the absence of planning that
lead to the fact that multibillion dollar pipeline projects, like the construction of
Keystone XL pipeline, are still being built or proposed in Canada to send energy
resources to the U.S instead of East Provinces.
Environment and Public Health
Under the current technical condition, Canada’s oil and gas industry –the Oil Sands in
particular, does impact negatively on environment– which will prevent Canada from
meeting its obligations under some international agreement on climate change, which is
greatly undermining Canada’s international credibility.
Moreover, water is becoming another issue related to Oil Sands exploitation.
Approximately five barrels of water are needed to produce one barrel of crude oil. The
remaining water is poisoned to the point that it can no longer be used, leaving the water
to sit in vast, toxic pools. There are already devastating environmental impacts to
Canadian shores and sea by offshore development.
The Alberta Oil Sands project, which already accounts for 75 per cent of crude oil
exports to the U.S., has become Canada’s largest emitter of carbon dioxide. Oil Sands
development destroys enormous tracts of land, clears forests, and consumes 26 per cent
of Alberta’s groundwater. Local physicians have sounded the alarm about unusually high
rates of cancer in communities close to the Oil Sands.
Given this alarming situation, governments, primarily Environmental Departments
27Natural Recourses Department in federal level, must work together with provincial
governments to come up with a comprehensive plan to ensure the preservation of
environment without impeding economic development.
International Competition
The strategic importance of energy resources has been recognized by most major powers
in this planet. The world today has seen Canada’s competitors have already come up or
are currently working on their respective national energy strategy with the goals of
maximizing their national interests. They are using a wide variety of policy tools, such as
international financial institutions, foreign aid and trade policy to bolster their influence
in international energy market and devote considerable resources to clean energy in order
to secure an advantaged position in the future global competition. While Canada is
seeking more markets for traditional energy export, it also needs to support Canadian
clean technology leaders by diversifying access to similarly lucrative international
opportunities while fostering domestic procurement strategies so critical to
commercialize new technologies. The nonrenewable nature of Oil-Sands and other
traditional energy calls for clean technology to become a more prominent feature of
trade agreements with countries like China, India and Brazil. Expected to rise to a major
industry in future, the global clean technology industry is an economic opportunity that
should be included into the development of any Canadian energy strategy.
Visions on Energy leadership& National Energy Strategy
Both energy and environment are vital elements of public interest of Canada. Energy
sector of Canada has generated
more than 10% of Canada’s
GDP and will definitely
continue playing an increasingly
important role in promoting the
public welfare at least in the
coming decades. Meanwhile,
environment is always a matter
vital for the survival of every
human. Any government that is
blind to this point will pay a
heavy price. To manage the
tradeoff between environment
and economy requires sophisticated strategy directed by strong political leadership.
x Government, as the provider of public service and the defender for public interest,
should assume the responsibility of managing natural resources in a way that creates
a “win-win” situation acceptable by every stakeholder.
28x A national unified Strategy for Oil Sands exploitation is needed with clearly defined
strategic goals of short, middle and long terms and a set of comprehensive strategic
approaches to achieve those goals.
x Coupled with a national unified energy strategy, a renewed institution should be built
to make sure the strategy will be put into full implementation. The establishment
and operation of this new institution requires powerful leadership on closer
inter-governmental and public-private collaboration and interaction.
Key Elements of National Strategy Energy
Canada is blessed with enormous potential: a broad range of energy sources and
extensive infrastructures can support a variety of economic, social and environmental
objectives. Historically, although Canada’s energy sector is one of the core economic
advantages, there’s no consistent and concerted game plan for its development. When
the national interest is so clearly at stake, the need for clear strategies to shape the new
global reality to Canada’s best advantage seems evident.
Facing the rejection of keystone XL pipeline, proposed moves in Europe to reduce
carbon emissions in the transportation sector could Oilget production in Canada’s Oil
Sands; and potential Asian customers remain suspicious about Canada’s commitment to
building the infrastructures needed to make major exports a reality, Canada’s energy
sector has to confront a great uncertainty to produce energy to new markets although it
sets out on a pivotal phase of growth, spurred by the vast reserves in the Oil Sands, new
discoveries of major natural gas resources, and opportunities for hydroelectric
development.
Moreover, Ottawa has increasingly involved in the energy sector – from negotiating
international agreements and approving foreign investment, to regulating environmental
29standards and permitting infrastructures construction, to funding research and
infrastructure projects. It is without any doubt that a national strategy would help guide
those efforts and align them with various private sectors.
Canadian governments must have a comprehensive national energy strategy. This
strategy should equip Canada with a set of defined goals of energy development echoed
with the national interest of Canada in short-term, mid-term and long-term, and also a
set of coherent measures to assure the entire nation could move towards those goals
smoothly and efficiently. And government, as the watching dog for Canada’s public
interests, is the key enabler of energy strategy. Naturally, there are inevitable linkages and
trade-offs among economic growth, energy use, environmental stewardship and
standard-of-living objectives. The challenge is to address this trade-offs in a way that is
consistent with the goals defined in term of improving Canada’s welfare both in short
and long-term prospects. Leadership is all the more imperative because of the risks and
opportunities facing Canada in such a key sector at such a pivotal time.
An energy strategy should be economically sensible, environmentally sustainable and
socially acceptable, which requires a closer partnership between public and private
sectors and inter-governmental coordination as well. There are several elements that
could serve as the foundation in the formulation of this national energy strategy.
Goals Anchored by Canada’s Public Interest
Given the reality that Canada has world’s largest Oil Sands reserve and oil and gas
industry has already generated 10% of Canada’s GDP, there is no doubt that energy
sectors will play an even more important role in promoting Canadian public interest in
the context of the soaring oil price worldwide. However, the negative impact brought by
the exploitation of Oil Sand is also evident, which not only undermines Canada’s
environment but also Canada’s global reputation and credibility. This strategy must figure
out both the short term goals and long term
goals in this regard, with a clearly priority and
schedule. The process of defining the national
energy development goal should be open and
transparent, with a number of key factors taken
into consideration like national energy security,
maximize the economic profit allowing prices to
reflect the real social cost of energy, environment
performance which is of vital importance to
make sure that the exploitation of Oil Sands will
not dent Canadian’s lifestyle choices drastically.
By weighing the various factors covering economy and environment, there are at least
three sets of goals that this strategy should articulate defined in terms of short-term,
mid-term and long-term. In short term, how to maximize the contribution that Oil Sands
30You can also read
