Cushing Oklahoma is a price settlement point for West Texas Intermediate (WTI) light crude oil and the town proclaims itself to be the “Pipeline Crossroads of the World,” However, petroleum stored there is landlocked, disconnected from global markets. Declining U.S. demand and rising domestic production have created a North American oil glut.
Producers have adapted methods used in extraction of shale gas, including ground destabilization by hydraulic fracturing, which allows profuse capture of trapped hydrocarbons. In the Bakken formation, underlying Saskatchewan, Manitoba, North Dakota and Montana, production is rising so rapidly there is no pipeline capacity to move oil to refineries. Instead, it is transported by rail and truck. (source)
The significant oversupply makes sustaining high prices increasingly difficult for the oil industry in Canada and the USA. Oil trading on world markets is not in similar surplus so the gap between WTI and Brent Crude, the European sourced price that benchmarks most internationally traded petroleum, has widened in recent months.
Planned increases in North American crude supply, coupled with soft consumer demand, dictate the gap between WTI and Brent, already substantial, will grow. In OPEC countries, oversupply can be dealt with by reducing production but in North America, reserves are quasi-private assets. Essential corporate thirst demands ever greater revenues and that requires new markets for new levels of production. Therefore, the industry aims to build pipelines to tidewater for delivery of oil to overseas markets: Keystone XL to the Gulf Coast and Northern Gateway to Kitimat on the Pacific Coast. Jeffrey Rubin, former Chief Economist at CIBC World Markets, says that Churchill MB offers another possibility for export of Canadian crude.
By not becoming part of North America’s landlocked surplus oil, Canada’s crude will rise in price to Brent levels. That offers a substantial profit opportunity to producers and substantial pain to Canadian consumers. Of course, no government in this country stands accused of caring about the interests of consumers. We experience that fact every time we open our wallets to make a purchase.
Beyond increasing our own current energy prices, new pipelines to export bitumen or crude oil will also export the potential for thousands of refining and upgrading jobs and billions of dollars in wealth. Expanded shipments will accelerate liquidation of Canada’s fossil fuel reserves, stealing from a legacy that could pass to future generations. At projected production rates, Alberta tar sands will be largely exhausted within 40 years. However, what will remain is ruination: exhaustion of Alberta’s natural gas, destruction of the world’s third largest watershed, creation of the globe’s largest concentration of toxic waste and the eradication of wildlife and boreal forests. In Andrew Nikiforuk’s words, unrestrained oil production will enrich a few powerful companies, hollow out the economy and industrialize one-quarter of Alberta’s landscape.
The Northern Gateway pipeline puts vast areas of British Columbia’s hinterlands and mid-coast at risk, and, most particularly, harm First Nations people with traditional lifestyles. Again, for the benefit of a few mostly foreign owned corporations, we will elevate consumer prices, threaten the existence of aboriginal people, degrade the environment and enable speedy depletion of fossil fuel resources. It’s a lose-lose-lose situation, guaranteed.