Physical Data

There are approximately 840,000 kilometers (km) of pipelines in Canada — 25,000 km of feeder lines, 250,000 km of gathering lines, 450,000 km of distribution lines, and 117,000 km of transmission lines. They carry oil, refined petroleum products, and natural gas. The National Energy Board directly regulates approximately 73,000 km of this extensive pipeline network; the provinces are responsible for everything else.[1]

To compare, the United States had 4.3 million kilometers of pipelines as of 2015 — 510,331 km of gathering lines, 3,505,077 km of distribution lines, and 332,760 km of crude transmission lines.[2] Much like Canada, the US Federal Energy Regulatory Commission regulates the transportation of oil (and gas) by pipeline in interstate commerce (i.e., the rates and practices of oil pipeline companies engaged in interstate transportation of the commodity), while state public utility commissions oversee the construction of oil pipelines within their own jurisdictions.

As shown in Table 1 below, there has been a sizable 25% jump in constructed and operating US hazardous liquid pipelines (HLP), measured in kilometers, since 2006, mostly under President Obama’s watch. Since 2012 there has been a 12% increase in pipeline capacity, and of that, 4 % between 2014 and 2015. Of the total kilometers of hazardous liquid pipelines in the United States, two-thirds transport refined petroleum products or crude oil. The US added ~8,600 km of HLP between 2014 and 2015 — equivalent to 7.5 TransMountain pipelines! Canada’s pipeline additions during this same period totalled zero. In fact, no major oil pipeline has been constructed in Canada in recent memory, unlike the situation stateside.

Shifting Markets for Canadian Energy

The lack of additional Canadian pipeline capacity matters. Today, our only foreign market for both crude oil and natural gas is the United States ... a one-customer business model is risky for any supplier. What is the problem?

1. First, the United States is transitioning from being a net importer of energy to a net exporter.[3] In 2015, US crude oil production was the highest since 1972, with further growth expected in the coming decade.[4] Canadian shipments of oil are vulnerable to getting squeezed out by rising US domestic production.[5]
2. The recent US election could lead to a more inward-looking policy approach, and a heightened pre-occupation with energy security and self-sufficiency — possibly giving US policy-makers another reason to seek to reduce energy imports from Canada. Alternatively, the new US administration could conceivably be open to seeing Canada as a “reliable” source of energy as it seeks to lessen America’s dependence on Middle Eastern and other offshore oil suppliers.
3. The world still needs petroleum products. The International Energy Agency (IEA) makes a compelling case that petroleum will continue to meet a sizeable portion of global energy needs for the foreseeable future, even as most governments act to address climate change. The latest IEA data show China becoming the world’s largest oil importer by 2020, with India pegged to be the second-largest importer around 2035.[6] Both of these huge markets represent growth opportunities for energy producers here in Canada. One thing is certain: if Canada fails to develop the capacity to export energy to Asian end-use markets, other suppliers (including the United States) will happily step in to fill the void. The notion peddled by some Canadian and US environmental groups that the global environment will be in better shape if Canada abandons plans to sell oil and gas into offshore markets is wholly unconvincing.

As a major player in the global energy sector[7] with a large and diverse endowment of natural resources, Canada must find ways to get our energy and other products to market. This is a task we are failing to do. A key difference between laggards and achievers in this area is that some countries seem capable of making decisions in a reasonably timely manner (i.e., the United States), while others are not. Canada now falls squarely in the latter category.

As Canada dithers and the volume of Canadian oil (and natural gas) available for export expands, constrained pipeline capacity inevitably means price discounting (as well as more oil being shipped by rail).[8] Revenues for Canadian oil producers decrease, as shipping costs rise and competing suppliers based in other jurisdictions make inroads in the foreign markets where the demand for energy is growing. The collateral damage is a loss of full-time, well-paying jobs in Canada and diminished revenues for our governments. Already, the number of jobs in Canada’s natural resources sector, primarily oil and gas, has fallen significantly.[9]

The Americans have shown an impressive capacity to expand their oil and gas industry and build the infrastructure necessary to support this. Shouldn’t Canada be looking to follow their example?