“Northern Gateway Heartings. The Alberta Federation of Labour says the Enbridge pipeline project will actually eliminate Canadian jobs” http://www.cbc.ca/asithappens/episode/2012/09/04/the-tuesday-edition-45/
Although positive outcomes are associated with the construction of the Enbridge northern pipeline, the Alberta Federation of Labor believes that the loss outweighs the gain that Canada receives. One of the negative consequences of the pipeline being built is the increase in crude oil price for Canadian refineries. With the pipeline built, approximately 585,000 barrels of crude bitumen is exported to Asia countries, such as China, every day. Consequently, the world supply of crude oil increases, and world oil price decreases, whereas the domestic crude oil supplies in Canada is reduced, which results in an increase in price for crude oil in the home country. Economist Bob Mansell estimates that Canada’s gasoline price will increase by 1.5 cents per liter from massive exporting. Therefore, consumers buying oil from Alberta will be paying more, and the gas pump businesses will pay more for energy. However, Mansell predicts that Canadian refiners are most likely to bear the burden, as there is pressure to keep the price low to compete with gasoline imports. In addition, the crude oil feedstock price is also estimated to increase by 12%; hence, Canadian producers will pay more for the cost of production to run refineries. Furthermore, by sending the raw materials to Asia, Canadian refineries’ activity and capacity drop by apparently 5% and worsens over time.
On the other hand, while producers are expecting to earn “Asian” premium from exporting, it is not guaranteed that China will continue to pay the premium when the supply for bitumen has increased dramatically.
To conclude, the Alberta Federation of Labor suggests an alternative plan to refine the crude oil in Canada, and export the finished products instead of the raw materials.
References:
http://www.cbc.ca/asithappens/episode/2012/09/04/the-tuesday-edition-45/
4 replies on “Why the creation of The Gateway Pipeline from Alberta to Kitimat BC will raise the price of crude oil for Canadian Refineries (FRE501)”
Hi Vicki,
I enjoyed your blog post because I saw that you pulled out some interesting statistics, and hence I think you’re ahead in that you’ve already thought about the magnitude of the impact. I think you would find it interesting that TMPL, the current only pipeline to Vancouver, is already working on doubling its capacity.
On price increase: I think it is true that Gas prices in Canada will indeed go up as a result, if successful. However, Canada as a country will also receive more for its Oil selling to China than right now when they’re pretty much forced to sell to the US.
On your remark about refining capacity: interestingly, refining is uneconomic in many parts of the world (esp where labor is expensive, and it is far from the point of consumption) but as you would suspect, many countries choose to have them for strategic reasons. Singapore has it for national security (makes it harder to invade). Others have them to have security of supply of gasoline.
Hi, Mark,
Canada will definitely receive more as a result of exporting to China and other Asian countries. However, it seems like the Alberta Federation of Labor believes that the numbers of potential jobs and income lost will be more than the amount of profit gained from exporting. The Enbridge Northern Gateway definitely disagrees with that though.
Thank you for the interesting and detailed reply; as well as the additional information on the refineries. I didn’t know that Singapore use it for national security reasons. =)
Vicki, well put! Also noteworthy that Saudi Arabia is the main provider of crude oil to China. The worry is that as Canada sends more oil to Asia, Saudi Arabia will drop prices in order to maintain market share.
Hi, Lauren,
Thank you for pointing out that and it’s likely that China’s willingness to pay for the premium will decrease as the supply of crude oil increases. =)