Richard Masson with the University of Calgary School of Public Policy speaks with Alberta Primetime host Michael Higgins about new developments in Alberta’s energy industry, including the recent memorandum of understanding with the federal government.
This interview has been edited for clarity and length.
Michael Higgins: How far does this MOU actually move the bar on bringing private sector investment into the pipeline sector?
Richard Masson: It starts to take away the big impediments that were there, like the oil and gas emissions cap. Of course, we have an industrial carbon price in Alberta. We’ve had one for a long time, and the way that the emissions cap was going to be implemented was another carbon price on top of that carbon price. The two systems didn’t work together, so it was providing all kinds of confusion. Investors were just not interested in that, given all the other places their money can go in the world.
Clean electricity regulations, all those things that were in that MOU, start to make Canada more competitive. They’re not there yet, of course. Many of these things are contingent on other things happening. But they’re starting to show the Canadian government and the Alberta government are willing to work together to try and bring investors back to our country and get things moving again.
MH: What responsibility is now resting on the shoulders of the Smith government to earn social license across the border in BC, while also convincing those potential investors to get on board?
RM: It’s a huge challenge for them. We can put it in the frame of what happened on previous pipelines. Enbridge worked on Northern Gateway for years. By the time it was finally canceled they had lost $600 million, after years and years of senior management effort.
When we look at the Trans Mountain expansion, [former CEO] Ian Anderson and the team there worked for years on consultation up and down the line. It ended up in court a couple times and ended up six times over budget. The environment for some private sector company to want to step up and say, “OK, I’m willing to try this again,” is not very good. You’ve got to be able to convince your board and your shareholders it’s a good use of your money to do that.
In the meantime, Alberta has dedicated only $14 million toward consultation, route selection and design. There’s many, many things that need to be sorted out. Will this pipeline even be economic? Will producers want to sign up for 20-year commitments on it? There’s so many things to sort out before we know if this is a real project.
MH: Speaking of sorting things out, BC Premier David Eby now says he’s open to the conversation if there’s an agreement on the tanker ban staying in place.
How does that further the conversation?
RM: It’s hard to understand exactly what he’s thinking about because the ports that have been looked at are Kitimat and Prince Rupert in the north, which would be subject to the tanker ban, and Burnaby-Vancouver area in the south, which isn’t. That’s where TMX goes, Enbridge. When they were looking at Northern Gateway, they selected Kitimat for a number of reasons. There’s challenges with getting a major pipeline over the mountain ranges and through the valleys to get to Prince Rupert. It’s possible, but it won’t be easy if that’s the route that’s selected. It seems like Premier Smith has ruled out Kitimat and is focused on Prince Rupert. And Prince Rupert, as far as I understand, is squarely in the tanker ban.
MH: To what degree does this MOU stand to unlock investment in the production side in Alberta?
RM: That’s, to me, the more immediate, near term benefit. We don’t need a pipeline right away to have production start to grow quicker. Trans Mountain has said they could probably be bottlenecked by 400,000 barrels a day. Enbridge has said they could do 450,000 barrels a day. That’s a lot of additional capacity that can be brought on stream. The reason that will come on stream is because production is growing quicker, and producers are willing to take that capacity.
A million-barrel-a-day pipeline would require really rapid growth, as rapid as we’ve ever seen. That’s another challenge for backstopping a pipeline. You would need probably 700,000 barrels a day of 20-year commitments from producers. There are not that many producers anymore, so each of them would have to make big commitments over 100,000 barrels a day. It just doesn’t seem very likely, given where we’re at. But let’s hope that we can actually start to move the system faster and move to a higher level of production growth that will really add value for Canada.
MH: Is that purely about expanding oil sands production to feed those pipelines, or could there be revitalization on the conventional side?
Pump some optimism into communities across the province that have long relied on the oil patch?
RM: There’s two parts to that. In my mind, the oil sands will remain the driver. We have many projects. We know how to operate them. They can grow their production. Right now they are doing about 100,000-barrels-a-year growth. It could start to move up quicker to let’s say, 200,000 barrels a year growth. In order to ship bitumen, you actually need diluent. Diluent comes from natural gas. So if we were going to build this million barrel a day pipeline, we would need an incremental 300,000 barrels a day of diluent. You’d go after that through liquids-rich gas.
I heard a calculation that said it would require 7 billion cubic feet a day of new gas production in order to provide the diluent to meet the pipeline requirement. All these things are intertwined. It’s really a question about if we can find a way to develop our resources more effectively, they will lever off each other, and the growth will benefit many, many different communities.
MH: There were major layoffs announced at Algoma Steel in Sault Ste. Marie, Ont., this week. That’s a plant that produces pipe.
How does a situation like that accelerate pressure across the board in this push for a new pipeline?
RM: It’s difficult to say because each company makes different kinds of steel in different ways, but a pipeline to the West Coast probably is a minimum of five years before it actually needs steel in the ground. You’ve got to go through a couple of years of design. You’ve got to go through a couple years of acquisition and consultation. In this case, we would need to include Indigenous groups through ownership interests. That’s never easy. Then you’ve got to go through a regulatory process where even if there are some major project office supports, would still be very detailed and complicated. So it’s at least four, five years before we’re going to start constructing anything. I wouldn’t hold my breath if I was a steel worker hoping this is going to help.