Robert Lyman is an Ottawa energy policy consultant and frequent contributor. Mr. Lyman was a public servant for 27 years and prior to that a diplomat for 10 years.
The governments of Canada, British Columbia and Alberta are currently locked into a major political dispute over the future of the Trans Mountain Expansion Project, a proposed expansion to the facilities of the Trans Mountain oil pipeline that has served the British Columbia and Washington state oil markets since 1953. The public controversy over the issues involved has been affected by a lack of information, and perhaps some deliberate misinformation, about the role that the expansion would play and why it is needed. The purpose of this commentary is to place the proposed project into the context of the energy supply and demand systems that now meet the needs of consumers in British Columbia and Washington State.
Oil Markets in the “Pacific Northwest”
In this paper, I will use the term “Pacific Northwest” to refer to the region that includes British Columbia and the states of Washington and Oregon.
Oil markets are driven by the demands of consumers for a wide range of refined oil products – gasoline, diesel fuels, distillates, aviation and jet fuel, asphalt and other products used for transportation and other energy services. The international petroleum industry is extremely flexible and inventive in finding ways, within the constraints of existing infrastructure, of allocating supplies of crude oil and refined petroleum products so as to meet these demands. When one source of supply is constrained, or a proposed piece of infrastructure blocked, the industry finds ways to reallocate, although the result may be higher prices.
British Columbia ‘s end-use energy demand by fuel in 2015, according to the National Energy Board, was satisfied by 431 petajoules, or PJ, refined petroleum products (37%), 355 PJ of natural gas (30%), 193 PJ of electricity (17%), 182 PJ of biofuels (16%), and 8 PJ of others (less than 1%). Thus, 67% of the province’s energy supply was provided by fossil fuels.
See British Columbia’s energy profile here:
To meet the demand for refined petroleum products, British Columbia has two refineries with a combined capacity of 70 thousand barrels per day (Mb/d): Husky in Prince George and Parkland in Burnaby. Husky has a capacity of 13 Mb/d and mostly consumes light and synthetic crude oil from Alberta. Parkland has a capacity of 57 Mb/d and mostly consumes heavier Alberta and Saskatchewan crude oil transported via the Trans Mountain Pipeline.
These refineries are too small to meet all of the province’s needs so additional refined products are supplied by refineries in Alberta and Washington. In fact, most of the gasoline consumed in B.C. comes from Alberta, delivered primarily via the Trans Mountain Pipeline. Less than 10% of the gasoline consumed in B.C. is imported via ship or barge from Washington State. The absence of adequate refining capacity within B.C. to meet its needs makes the province vulnerable to swings in refined product supply, thus increasing the volatility of prices.
The existing Trans Mountain pipeline system now serves many different requirements. It transports crude oil that is used by refineries in B.C. and by those in Washington state to meet the needs of consumers in the Pacific Northwest, and it supplies refined oil products to meet the needs of people in B.C. Less well known is that crude oil delivered by the pipeline to the Westridge Terminal is also loaded on to tankers and shipped to export markets, now mainly in California.
Within the United States, most of the west coast is included in the region defined by the U.S. government as the Petroleum Administration for Defense (PADD) 5. PADD 5 is geographically isolated from other U.S. refining centres, notably the Gulf Coast, where 52% of U.S. refining capacity is located, and from global refining centres that can efficiently supply products by tanker to other regions. There are no pipelines that cross the Rocky Mountains in the United States to move products to central and northern PADD 5 from the Midwest, and only limited pipelines that deliver from the Gulf Coast to California. The U.S. west coast is 10 days travel by tanker from the U.S. Gulf Coast, three weeks from Asia, and more than four weeks from Europe. Pipeline and marine infrastructure (i.e. ports and tanker loading and unloading facilities) to move products into and out of the area are also limited. According to a U.S. Energy Information Administration report on west coast transportation fuels markets in 2015, refinery production within PADD 5 is sufficient to meet about 91% of in-region gasoline demand, 96% of jet fuel demand, and 113 % of distillate demand. See the EIA report here:
Because of heavy reliance on in-region refinery production, any disruptions tend to quickly limit short-term supplies and cause prices to increase and remain higher for a longer period than would be typical in other North American markets. As in B.C., consumers end up paying more.
Much of the crude oil needs of PADD 5 have been met since the 1980s by Alaskan production, but that has declined from about two million barrels per day (b/d) at its peak to about 550,000 b/d today. (Remarkably, it seems to be a little-known fact that millions of barrels of Alaskan oil have been shipped down the B.C. coast in tankers from Alaska to the Puget Sound for the last 30 years.) As a result, PADD 5 imports of crude oil rose from about 300,000 b/d in the 1980’s to about 1.3 million b/d today. In 2016, 226,000 b/d was supplied by Canada.
The Trans Mountain Expansion Project
The proposed expansion project would add a second “twinned” pipeline alongside the existing pipeline and increase the capacity of both the pipeline and the Westridge Terminal near Vancouver. There is a persistent myth that the additional facilities would only move crude oil and then only to Asian markets. In fact, as explained in the Trans Mountain application to the National Energy Board, once the expansion was finished, Line 1 (the existing system) would be used primarily to transport refined products and light crude oil. This would add to the product supply sources available and reduce the vulnerability of B.C. drivers to spikes in gasoline prices when even minor disruptions occur.
The proposed Line 2 would transport heavy crude and bitumen to Vancouver for export, but “export” includes the oil that will be supplying the Puget Sound pipeline via the Sumas delivery point to serve the four refineries in Washington State. This will reduce the amount of crude oil that has to travel to the Puget Sound by rail or by tanker. Some of the oil refined in Washington will then be imported back into B.C. to meet its refined product needs.
The expansion project will result in increased exports of crude oil via tanker from the Westridge Terminal. Opponents have questioned whether there will be markets in Asia for this additional supply. Identifying the trends in refinery configurations and in overall refined product demand is very complex, so it is difficult to project exactly where future sales of Canadian heavy crude oil and bitumen will go. Global oil demand growth is now running at the annual rate of 1.5 million barrels per day, and it is heavily concentrated in Asia. A recent report by Stratas Advisors estimated that crude oil distillation capacity in the Asia-Pacific region was 34.5 million b/d as of January 1, 2017 and that announced refinery expansion projects will add about 6 million b/d over the period 2017-2020 and another 6 million b/d over the period 2020-2025. A summary of the Stratus report can be read here:
It is certainly possible, however, that much of the additional exports from Canada’s west coast ports will go to California or other parts of PADD 5, rather than Asia. The lower shipping costs to U.S. markets would, in fact, make that more appealing to Canadian producers. There is absolutely no question that competitively priced Canadian heavy crudes and bitumen will find willing markets in the Pacific Rim.
Consequences if the TMPL Expansion is not built
The shortage of pipeline capacity to move crude oil and refined products into and out of the Pacific Northwest will probably increase without the additional facilities offered by the TMPL expansion. The alternative ways to move crude oil into the region are by tanker or by rail. The Washington state government issues quarterly reports on oil transport within the state, including rail shipments. The most recent report, published in January 2018 and covering the final quarter of 2017, can be read here:
The report shows that an increasing amount of crude oil is being delivered by rail, and that the total by-rail deliveries for the fourth quarter of 2017 were 13.1 million barrels, transported by about 1,480 rail cars per week. Most (85%) of the crude oil moved by rail was light crude from North Dakota, with the rest being light and heavy crudes from Alberta and Saskatchewan.
There is a possibility of increased rail delivery within B.C. as well, on either the CN or CP rail lines. Despite some high-profile accidents in recent years, shipment of crude oil by rail has had a very good safety record. If one compares the movement of oil by rail to that by pipeline, however, the risks are significantly higher. Blair King, an expert in the detection and remediation of contaminated sites who writes a blog as “A Chemist in Langley”, explained the differences well in a recent entry.
“One of the big benefits of pipelines is their routing. … The CN and CP rail lines took advantage of natural terrain features (rivers) when going through mountains. The Trans Mountain pipeline, however, was built over a century later and was built after the Trans-Canada highway and many of the rural highways had already been constructed. As a consequence, it runs far less of its length along river edges. Consider the pipeline in communities in the lower mainland. The current pipeline pretty much avoids the rivers and runs straight down the valley; the rail lines, meanwhile, run pretty much right along the river for much of the length of the valley…”
King estimates that oil-by-rail has a 4.5 times higher risk of incident than oil-by-pipeline. See his blog post here:
This is not to suggest that increased shipment of oil by rail should not happen or that the risks always exceed the benefits. It does indicate that TMPL expansion is a far safer way of moving oil into the Pacific Northwest than the rail alternative.
The construction of the TMPL Expansion project would increase the supply of refined oil products to B.C., thus improving the security and flexibility of the supply system. It would increase the supply of crude oil to refineries in B.C., with the same result. Both of these actions would reduce prices of refined oil products for B.C. residents, other things equal.
The TMPL Expansion would also allow more Canadian crude oil to flow by pipeline into Washington State, which the Puget Sound refiners would use to supply the product needs of both the PADD 5 region and, via marine transport, consumers in B.C. This would help to offset the decline in Alaskan crude deliveries and avoid the necessity for increased shipment of crude by rail from other areas.
Finally, it would increase the access for western Canadian producers to domestic and export markets, including markets throughout the Pacific Rim.
Oil markets operate to serve consumers of refined oil products. The needs of Pacific Northwest consumers will not end any time soon. Those in the B.C. government and in the environmentalist movement working to stop the construction of the TMPL Expansion project should perhaps value more the needs of B.C. residents.
Robert Lyman video interview: “No Pipeline” is a Problem – A Challenge to Democracy