Canadian Oil Transport Conundrum

Recent events have elevated the importance of how we transport energy—specifically oil—to high profile status. The long-stalled approval of the Keystone XL pipeline is probably the highest profile political event that has caused oil transport to surge to the fore in energy policy discussions today, but more prosaic economic issues also have played a role. Most importantly, because of limitations in the ability to ship oil to coastal refiners and overseas markets, Canada is forced to sell crude oil into the US market at a considerable discount relative to world oil price markers such as Brent. This is costing Canadians at least $15 billion each year (Beltrame, 2003, Apr. 13). Among other things, this shortfall has been blamed (wrongly, we believe) for problems with the balance sheet of Alberta?s government, bringing the issue to still greater prominence (Milke, 2013). Economic research has shown that eliminating bottlenecks (whether physical or political) can reduce oil price discounting similar to that which Canada currently endures (Bausell Jr. et al., 2001). Aside from price, in a recent Fraser Alert, we also observe that securing additional transport infrastructure is important to Canada?s energy security (Green and Eule, 2013). Most recently, US President Barack Obama has turned up the heat on the discussion, dismissing the importance of the Keystone XL pipeline to the US in terms of job creation, and repeating his requirement that the pipeline may not exacerbate anthropogenic climate change (New York Times, 2013, Jul. 27).

To understand the many challenges Canada faces in fixing its oil-transport problems, we have first to understand the basics of oil transport: how much we produce, where it goes, and how it gets there. Next, we have to consider the different environment, health, and safety considerations attendant on different modes of oil transport. Third, we need to know where the key bottlenecks are in North America's integrated oil transport networks. We also need to know how Canada might resolve issues pertaining to First Nations' acceptance of needed infrastructure. In this series of essays, the Fraser Institute will explore each of these issues, with the goal of advancing the oil transport discussion in Canada. This first essay is intended to simply provide an overview of the important public policy issues pertaining to transportation of these important energy commodities. Later essays will discuss bottlenecks in the transport system, compare the safety of rail vs. pipeline transport, and discuss Aboriginal affairs that relate to oil and gas transport.