Mayor Coderre is Measuring the Wrong Risks

There are three reasons that Denis Coderre and the Montreal region mayors are flat-out wrong about the Energy East pipeline.

The mayors claim the economic benefits are outweighed by the potential risks to their municipalities. Which risks are they measuring?

Risk #1: Montreal gets its oil from stable countries like … Iraq.

Quebec heats its homes, runs its vehicles and operates its factories at the pleasure of countries like Saudi Arabia, Iraq, Algeria, Venezuela and Angola.

Eastern Canada imports some 634,000 barrels of oil every day to feed refineries in Quebec and Atlantic Canada that produce jet fuel, gasoline, home heating oil, diesel, feedstock for plastic products, and other products that fuel our lifestyle.

Those imports cost about $26 billion a year, more than enough to pay for Quebec’s $21 billion education and culture budget.

Worse, Canada buys high and sells low. Imported oil costs the “Brent”, or world price. But we sell oil at the deeply discounted Western Canada Select (WCS) price. The size of the gap varies, but averages around $30, costing the country a billion a month. Who does that: buys high and sells low?

Apart from the dumb choice to pay billions to despotic countries rather than buying domestic at a lower price, the risk is that those autocratic countries might turn down the tap. We’ve seen what OPEC countries can do to oil prices when they choose to ramp up production. What if they decide to increase world prices by sharply cutting back production? And Montreal has no ability to substitute Canadian oil?

Surely one obligation of these mayors is to protect their constituents’ reliable flow of petroleum products at affordable prices. The mayors take a risk in assuming that Algeria, Venezuela, Angola and Iraq will always be dependable, affordable suppliers.

Risk #2: Without pipelines, oil will move by rail.

Because of fully utilized pipeline capacity, oil producers are increasingly moving oil by rail. Crude oil shipments by rail in Canada have been escalating annually, and are projected to hit 700,000 barrels per day in 2016. Without Energy East, oil might move through Quebec to Saint John by rail.

The risk here is pretty obvious. Rail spills are 4.5 times more frequent than pipeline spills. Worse, fire is common in a train spill, and the risk of both human and environmental devastation is greater. The US State Department, in evaluating the Keystone XL pipeline, projected that if the same amount of oil were to move by rail, there would be 49 additional injuries and 6 more fatalities annually compared to 1 injury and no fatalities if the oil moved by pipeline.

It is astounding that Quebec mayors would not factor the consequences of rail accidents into their risk assessment.

Reason #3: NIMBY environmental concerns ignore the bigger picture.

We all care about the environment, but focussing on rare incidents of pipeline oil spills over other environmental risks is an irresponsibly narrow focus.

Pipelines deliver 99.999% of oil safely to its destination. 83% of pipeline spills actually occur in the facilities (pumping stations or terminuses) where containment measures are in place. 70% of pipeline spills are 1 cubic meter or smaller. But like plane crashes, it is only news when something goes terribly wrong.

Consider CO2 emissions. Rail emissions are estimated at 28% to 42% higher than pipelines. In fact, once built, pipeline emissions are mainly from the vehicles that regularly inspect the pipelines.

And have the mayors noticed that imported oil arrives in tankers?

Risk assessment means looking at the whole picture. The mayors have either overlooked key risk factors, or deliberately discounted them.

Either way, they are wrong.

 

Susan Elliott is a partner at Strategy Portal Inc., a consultancy that specializes in complex issues and reputation management involving a diverse range of stakeholders and interests. Visit our website at http://www.strategyportal.ca.

 

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