On Resources to Markets - Energy Corridors in Western Canada

I’ve been doing a lot of thinking about energy corridors over the past several weeks, watching reaction to Ministerial appointments, Prime Minister Mark Carney’s and Minister of Energy and Natural Resources Tim Hodgson’s rhetoric and positioning - particularly Hodgson’s words this past week at the Calgary Chamber of Commerce - as well as discussion around Canada’s trade dynamics and refreshed diversification efforts. 

A few thoughts on getting resources to markets:

On resources (in this article meaning Western Canada natural resources in the form of fossil fuels (oil & natural gas) and electricity; critical minerals is a separate but equally complex discussion):

• First Nations first - I’m seeing much more of this type of thinking from the corporate resources world; it’s refreshing, and hopefully effective in driving project development with FPIC.

• To that end - let’s not railroad local or Indigenous communities - I think we should be wary about efforts like Bills 15 and 5, in BC and Ontario, respectively. It is kind of funny to see alignment on opposition to these bills from activist- and resource-oriented communities alike.

• Let’s make sure that Canadian taxpayers aren’t on the hook for effectively failed private sector investment projects like we are for the Trans Mountain Expansion Project. To that end, let’s be careful about how much government subsidization ends up funneled into these projects, and can we maybe be transparent about what a ‘private sector investment’ actually means, if taxpayers’ dollars are on the line?

On pipelines and transmission lines:

• Ah, pipelines. Ever controversial, even after Western Premiers make a concerted effort at promoting unity within the region. Maybe there is a path forwards for them, for oil, or gas, or both (maybe CO2 as well?), but what it means is compromise, where several stakeholders at the table make concessions.

• For transmission lines, seems to me to that the relative islanding of provincial/territorial grid regulatory systems to be the dominant issue, alongside the strong north-south links that exist today; admittedly, this is something I’m learning more and more about every day. How do we reconcile, as an example, the BC Hydro Crown corporation monopoly with the Alberta deregulated electricity system to encourage more interties?

On markets:

• For oil

• There are a wide range of end uses other than motor vehicle fuel (gasoline/diesel, for which demand is slowly but surely shifting largely outside of North America due to growing EV penetration rates), so the picture of demand is I think reasonable for the time being, especially given WCS unique characteristics and sanctions from a range of like-minded countries on similarly heavy Venezuelan and Iranian oil products.

• Exports of TMEP have shifted towards China in recent months and drifted away from the west coast of the US, but let’s not run with that as a dramatic success story, as flows from Canada to the US would likely be the same today as they were when exports started from that pipeline if a trade war hadn’t started.

• For gas

• The main end uses for gas (or LNG) are power generation or industrial use; I think the picture of demand is less favourable than oil, but it’s important to consider end users’ perception of strategic energy sources; that is, countries like Japan, South Korea, Singapore, etc. likely have sufficient gas supply access from Australia and growing gas fields in SE Asia. But if strategy 101 involves diversification, it stands to reason that Canada can help serve that demand; evidence of this includes TotalEnergies SA’s recent purchase of a stake in the (yet to reach FID) Ksi Lisims LNG project.

• Let’s not get wrapped up in Canada possibly taking credit for decarbonizing coal-powered electricity in Asia through LNG. I don’t think (in carbon credit terms - Article 6 of the Paris Agreement) that any of that would hold up to scrutiny of additionality; this is wasted effort.

• Let’s also be cautious of the unintended consequences of exporting too much gas - Australia has seen domestic gas price rises since developing their LNG export industry, which started sending cargoes in the mid-2010s, and has contributed to at least a degree of backlash to that industry.

• For electricity

• We need a sizable jump in our electricity generation capacity, across the country. Ideally, it’s renewables and storage that create that capacity. If gas generation + CCS can work, let’s make it work. And if not, let’s see how we can make it work.

• Now is also the time for creative and strategic thinking. Our electricity exports have exclusively gone to the US in the past, and our grids are heavily intertwined. But what would it conceivably look like if we broadened where we send our (generally) lower-emissions electricity? Singapore and Australia are working towards a HVDC line between the two countries, for solar power to be transmitted across 5,000 km of ocean with the creatively named SunCable. What if something like that was possible from our west coast? What if we literally shipped clean electricity across oceans?

On the implications for decarbonization efforts, which are complex:

• We (Canada) have simply been put into a rough position, and have to confront the new economic realities of the day; strategic positioning of decarbonization efforts is the name of the game.

• Effective policy can still contribute to our decarbonization

• Let’s not hamstring the policy mechanisms that have contributed to industrial decarbonization within the country - in particular, the industrial carbon pricing systems. Let’s focus on improving them and driving competitive advantage because of them. Across party lines, Alberta’s used the line “we’ve had the longest held industrial carbon pricing system across North America” for a long time; let’s keep that attitude and ensure it contributes to our competitive edge.

• Let’s enable further diversification of our energy sector through improving and tightening policy mechanisms like the Clean Fuel Regulations, through which significant investments have been made, in Canada.

• I think it’s an unfortunate reality, but I believe the pendulum will swing back towards public attention paid to climate change when we see the next wave of severe, disruptive natural disasters. Ignoring it as an issue doesn’t make it go away, despite geopolitics.

There’s lots of work to do. Garrett Kent Fellows, I think, summarily captures the way we need to think about things (via Resource Works):

[The] idea of corridors lends itself to idealism, but they still demand that people think realistically and be prepared for hard-headed analysis. Corridors are challenging, full of details, bureaucratic, institutional, and diplomatic—hardly an easy task. “Shortcuts make for long delays.”

Being aware of past failures in this regard is important, but Fellows says this makes the difference between accomplishing goals and spouting political rhetoric.

“Realization of any corridor is going to be hard work, but it will be worth it.”