Why Canada needs more pipelines

Great questions continue to roll in from Canadians interested in learning more about pipelines. This is an important conversation and that’s why we strive to answer every question. In response, we’ve created a segment of our About Pipelines blog to provide more thorough answers to some questions and to share them more broadly. This week’s blog answers a question about the need for additional pipelines.

If you have a question about energy transmission pipelines in Canada, we’d like to hear it.

Do energy pipelines transport oil for oil-based products other than gasoline? Is demand great enough to need additional pipelines?

 

Yes, we do need more pipelines. Let’s explore why.

Canada’s energy pipelines transport much more than oil for gasoline. Energy pipelines transport oil (and natural gas) that’s used to produce electricity, keep our homes warm in winter or to cook our meals. A vast array of the everyday items we take for granted likely contain some component of oil or gas – from shoes and clothing, household appliances and furniture, to toys, tires and vehicles (and the roads we drive on), building materials and much more.

There are two types of transmission pipelines – liquids and natural gas. Liquids pipelines take crude oil, and natural gas liquids (e.g. condensate, propane, ethane) to refineries and petrochemical plants where they’re converted into several different products, including gasoline, diesel, jet fuel, and the raw materials for making plastics.

The Canadian Energy Pipeline Association’s (CEPA) members operate transmission pipelines that transport oil, natural gas and other products from refineries to distribution terminals and end-use customers, for instance, jet fuel to airports. Demand is high for the products that pipelines transport and that means there’s a high demand for pipelines.

Not enough pipelines = lower prices for Canada’s oil and gas products

The International Energy Agency’s (IEA) World Energy Outlook 2018 forecasts global energy demand will grow 25 per cent by around 2040. The growth will be led mainly by demand from developing countries. Canada is well positioned to meet this growing global demand. We have the third-largest proven oil and gas reserves in the world, and leading standards and practices in safety, environmental protection and social responsibility.

A recent National Energy Board report on Canada’s Energy Future concludes we have the potential to increase production of many forms of energy, both renewable and from fossil fuel sources. But, one of the factors continuing to affect our ability to increase production is our capacity to transport those commodities to market. In other words, we’re being held back by a lack of market access for our energy resources.

CEPA’s members operate almost 135,000 kilometres of transmission pipelines across Canada and the U.S., supplying oil and natural gas products for domestic use and to U.S. consumers. The most pressing demand for new pipelines comes from the urgency to get Canadian oil and natural gas products to global markets. Access to global markets would allow us to receive fair value for our resources and decrease our reliance on the U.S. market. Here are a few reasons why:

Rise in global natural gas demand

  • According to the IEA, global natural gas demand is growing substantially, especially in China, where it’s needed to fuel economic growth and improve air quality.
  • Almost all of Canada’s natural gas is exported to the U.S.; however, U.S. demand has fallen since 2007 due to a large increase in their own shale gas production. As a result, the price for western Canadian natural gas is now among the lowest in the world.
  • In recent months, Canadian natural gas has been trading as low as one-third the price of U.S. gas, and sometimes close to one-tenth the price it could fetch in new markets, such as China, Japan, Korea and India.
  • For producers to realize better prices for natural gas they must diversify away from dependence on the U.S. market to areas where there’s greater demand. And this means building more natural gas pipelines to Canadian tidewater to meet the growing world-wide demand for liquified natural gas (LNG).

Large price gaps for Canadian crude oil due to lack of pipeline capacity

  • The price gap for western Canadian crude oil is no better. One glaring instance of the gap in price could be seen in late 2018, when Canadian crude oil (traded as Western Canadian Select or WCS) was being sold as low as $14 per barrel.
  • That’s a discount of around $40 to $50 against West Texas Intermediate (WTI). And again, it’s due to lack of pipeline capacity to get our products to the markets that need it.

Canada’s energy resource sector accounts for tens of thousands of high-quality jobs across the country and contributes roughly 11 per cent of gross domestic product (GDP). It’s fair to conclude all Canadians would derive substantial benefit if we could market our oil and natural gas products at a fair price to meet growing global energy demand. And, countries seeking to diminish their reliance on coal would also benefit from cleaner, responsibly-produced fuel to meet energy requirements. That’s why we need additional pipelines.

Check out some of the other questions we have recently answered: