Tuesday, August 6, 2013

TransCanada's proposed Energy East poposed east - west pipeline

This Energy East pipeline is a big deal, it could be moving 1,100,000 barrels of oil per day, though I saw some reports with higher numbers.  Globally daily oil production is about 85,000,000 barrels which means this one pipeline would be a significant amount of the world's daily oil production.

At the moment Canada produces about 3,600,000 barrels of oil a day.  The Keystone pipeline can move 590,000 barrels and the existing Enbridge pipeline network moves about 1,200,000, Transmountain can move about 300,000 barrels a day to Vancouver.   The existing capacity of pipelines in Canada is not enough to bring all the Alberta oil to market in a timely manner which is why more and oil is being moved by trains.

I have no way to even begin to measure the impact of this pipeline on the environment.   In general pipelines are not nearly bad as people make them out to be, but they do have an impact.  On much of this proposed line they already have a piepline.

The early estimate of the cost of the pipeline is $12,000,000,000.  I think that number is too low. I know that the company plans to convert and existing natural gas pipeline.   I honestly have no idea what it would take to convert to moving Alberta crude oil.   Natural gas is a very different product than the very heavy and viscous oil coming out of Canada.

The second problem with estimates for large scale projects like this is that they are routinely and consistently under estimated in cost.   I suspect that the end cost of the project is likely to be in the range of $18,000,000,000 to $24,000,000,000.   Is it still profitable at those costs?  Enbridge Northern Gateway will move 525,000 barrels of oil west each day and 193,000 barrels of condensate east for a total capacity of the project of 718,000 barrels a day, 2/3s of the capacity of the Energy East line but at less than half the initial estimated cost of $12,000,000,000.

The increased capacity in pipelines should raise the price companies can get for tar sands oil.  Right now there is serious price difference between the West Texas Intermediate benchmark and the Western Canadian Select.  Part of the $20 to $40 difference in the price per barrel is because of the Canadian oil is a lower quality crude, but it is also because it is harder to get it to market because there are not enough pipelines.

Improving the price of tar sands oil will only mean more tar sands projects are worth doing.   Each project brings more oil onto the market and more impact from the development of the tar sands on the environment.  Is this what we want?  Finally, do we really need this pipeline?  It seems like it now, but within a decade the energy alternatives to oil are going to cheaper than the cost of producing tar sands oil.

As the price of oil has remained high for a number of years, people and businesses have changed energy sources to cheaper alternatives.  We have seen global production and consumption both grow slower than the population and economic growth.   The relative amount of oil needed to produce a dollar of globally GDP in constant dollars has been falling.   We are seeing the end of the oil era coming, but not because we are running out of oil, but because we are developing other cheaper sources of energy.

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