Question 1

The Alberta Federation of Labour has two main criticisms of the Northern Gateway pipeline: (1) Canadian jobs would be created if the crude bitumen was refined in Canada and then exported rather than being exported directly; and (2) The pipeline will reduce the “Asian” premium, which means a higher price of oil in Canada and job loss due to the higher processing costs for Canadian refineries.

In about 200 words carefully explain why the creation of the Gateway pipeline from Alberta to Kitimat BC will raise the price of crude oil for Canadian refineries. Be sure to include proper references to your background material. In your UBC Blog create an entry that includes the above link, my question and your response.

Answer:

The issue of The Enbridge Northern gateway project has been discussed. It is a proposal to build pipeline between the Alberta oil sands and the west coast (1). Enbridge claims it creates 3000 constructions jobs, and 360 long term positions. As well the group says that as long as Asia is willing to pay high price of oil, called Asia premium, the construction of pipe line leads to high profits in Canada. However, Gil McGowan, president of Alberta Federation of labour, criticizes that the project eventually causes the price of crude oil in Canadian refineries to increase(2). It is because in order to make profits from Asia premium, Canada oil producers would export some portion of oil to Asia. This means, however, less stock of oil is available to Canadian oil refinery sector. As a result, Canadian oil price is increasing. To explain it by graph, the construction of pipeline causes the supply curve to shift to the left, so the initial effect is an increase in price for Canadian refineries.

References

1 http://www.cbc.ca/news/canada/story/2012/01/10/f-northern-gateway-pipeline.html

2 http://www.cbc.ca/asithappens/episode/2012/09/04/the-tuesday-edition-45