Four years ago, word of a peculiar commodity marketing phenomenon began seeping out into the general consciousness, one that was the equivalent of South Korea borrowing North Korea’s human rights handbook because they couldn’t find theirs. The phenomenon was that Saudi oil was flowing into a New Brunswick refinery as feedstock. The story unfolded while the Energy East pipeline project was still considered a possibility, and the absurdity of Canada not being able to get its own oil from one side of the country to the other resonated with people, particularly at a time when, simultaneously, Canada’s oil sector was under siege for various environmental/social reasons and Saudi Arabia’s ESG scores were the sociological equivalent of absolute zero.
For a few informed pockets of insiders, this oil trade wasn’t news; it had been happening for some time and was simply a function of the way global oil marketing works – seaborne oil travels to the best markets, wherever they may be. These same people noted that the Irving refinery wasn’t particularly well-suited to utilize heavy oil and that Energy East wasn’t going to plug straight into Irving’s refinery and displace all other international feedstock. While this was technically true, as an argument against Energy East it was pretty thin soup, and it became a moot point when Trudeau’s green arm mockingly required the pipeline’s builders to account for the greenhouse gas emissions of what went into the pipe as well as the emissions of what the end product would be used for, a level of justification not applied to any other commercial activity in Canada or the world for that matter (as in planes, trains, bicycles, electrical transmission lines, solar panels, or any other manufactured object this side of a rubber boot).
Despite the brouhaha about Saudi oil imports/dead Energy East, a more significant overarching issue was that Canada had no coherent energy policy of any kind other than a firm but vague pledge to meet UN goals, with seemingly no thought given to Canada’s context as a natural resource economy, natural resource exporter, and its general existence as a huge cold place with few people. Dimwits leapt out of their chair to say ha, look, the oil patch was furious about the elder Trudeau’s National Energy Program but is now asking for a new one; the more-than-pertinent point missed by such hide-bound haters is that it is possible to have different types of policies. It is most likely that Canada’s hydrocarbon sector could work wonders with even the present federal government if the powers that be looked at energy security and prosperity as a whole, even with a significant anti-emissions focus, in a sincere national effort. But how long should we wait for that? As the old chestnut goes, “A man can stand on the side of a mountain with his mouth open a very long time before a roast duck flies into it.”
In a surprising series of events, rather than waiting for the airborne arrival of the roast duck, New Brunswick’s Irving organization has recently stepped into this void, showing a type of leadership and vision the country desperately needs. What makes the Irving actions so significant is that their plans, in addition to being economically viable, include a component that acknowledges the value of national strategic thinking in a way that present-day Ottawa seems utterly disinterested in.
Irving recently received approval to mobilize Canadian crude to its New Brunswick refinery, proving that there is value in doing so. It’s no ordinary feedstock, mind you – consider the lunacy of this journey: Canadian crude oil production will head west to the BC coast, board tankers, sashay down the US coast, possibly do a little sightseeing in Seattle, San Francisco, Los Angeles, maybe stop for an interesting evening in Tijuana, cruise through the Panama canal, mingle with the cruise ships in the Caribbean, stop for golf in North Carolina, pose for pics with the Statue of Liberty, then finally head for St. John, New Brunswick. The journey is some 6,300 nautical miles or nearly 12,000 kilometers (don’t clobber me for that conversion; it’s from Irving’s statement) or 2.5 times the length of Energy East’s white chalk outline on the country.
The absurdity of this isn’t to be hung on Irving; they are standing resolute as beacons of sanity in this mad world: “”It is critical to our customers, to our business, and to energy security throughout Atlantic Canada that we are able to use foreign crude oil tankers to access Western Canadian crude oil on an urgent basis and going forward for one year to allow for effective and flexible supply chain planning and to strengthen the link between Canadian oil producers and our refinery in this challenging and uncertain time,” said Irving. A second quote is even better: ““From western Canada to offshore Newfoundland, we’re expanding our reach as we continue to pursue solutions that help create energy security for our country. We know that by working together, we are all stronger.”
While the first Irving statement makes it sound like a temporary phenomenon, within days news broke that Irving had purchased the Come By Chance refinery in Newfoundland. That refinery is primarily suited to light crude, however Irving speculated that it might build a coker unit to allow processing of heavier crudes. Most significantly, Irving spoke of the refinery as a “building block” in a larger strategy to process more Canadian oil. The Come By Chance purchase may be in large part to utilize expected feedstock from offshore Newfoundland, and while that doesn’t necessarily help western Canadian producers as much, it is still (and even more importantly) an example of a move to strategically use Canada’s oil resources. Ottawa has little interest in such pursuits beyond the shotgun-marriage TMX, and, with McKenna et al apparently creating a new Franken-policy energy beast in the bowels of Ottawa, appears more determined than ever to dynamite what’s left of Canadian inter-regional relations.
Maybe Irving’s example will be a way forward, and represent a new forward way of thinking for the energy sector. Irving, Lord knows, could have thrown up his hands after Energy East’s death and continued to access foreign crude. It is under no obligation to “create energy security for our country.” Irving simply looked at the situation, put on its wise-person’s hat, and said ‘how can we make this work?’ And they did.
Maybe the petroleum sector will begin to wrap our head around that too, that there are better ideas than fighting impossible battles. Maybe we’ll decide that Keystone XL is a nearly pointless exercise in frustration and get on with alternatives. For those that can envision strategies other than charging at a brick wall with your forehead over and over and over again, consider this: What if the Alberta government had given the $1.6 billion they gave to Keystone XL to Canapux and BitCrude instead – both of whom are developing ingenious ways to get bitumen to markets (including brand new markets not reachable by dilbit) without pipelines – instead of to TC Energy/Keystone XL? Where would that get us instead? Possibly much, much further, particularly when you consider the fact that there is no guarantee the US will ever allow Keystone XL anyway. A Nebraska grocery clerk that likes fishing can delay the project for two years if they want, and a lot of them do want.
Or how about this: What if the AB government had split the $1.6 billion, giving half to Canapux/BitCrude and the other to develop hydrogen infrastructure as a means of revitalizing the oil patch in an entirely new and revolutionary way? Personally, I’d rather see $800 million go to Proton Technologies than TC Energy, but that’s just me.
Or what if we didn’t wait for governments at all, and showed the kind of leadership Irving did? When was the last time you heard any major corporate head say something like “we’re expanding our reach as we continue to pursue solutions that help create energy security for our country”? Do we have to keep pounding our head on the same wall, or are there things we can be doing of our own accord?
Yes, it’s good to hear someone like the head of Suncor talk about the pursuit of new innovation, but where’s the beef? Where’s the results? I’ve been following some of these ideas and innovations for a decade, and I’m still waiting to see a significant revenue stream from someone like Suncor that consists of anything other than hauling oil/gas to market and cashing the cheque on the 25th. Suncor talks about being excited by all this innovation, yet their Products and Services page explains that they offer: bitumen blends, sweet and sour crude oil, diesel, gasoline, jet fuel, asphalt, chemicals, heavy fuel and home heating oils, petroleum coke, sulphur – and ethanol. Haulers of water and hewers of wood, decade after decade after decade.
It’s great to hear that Suncor is excited about producing gas/biofuels from garbage via an investment in Enerkem, and bless their little hearts that’s great work. But Enerkem was first backed by Alberta Innovates in 2005, and the success of their garbage-loving process has been credited to the city of Edmonton: “Edmonton is quite unique because they had a vision and they were advanced quite a bit into their vision,” says an Enerkem VP. Despite the success in Edmonton, Enerkem’s other most advanced projects are in Quebec and Europe, with none on the website’s radar in western Canada. Sure, Suncor only invested in Enerkem in 2019, but is that it? Is that the extent of Suncor’s vision beyond directly selling petroleum products?
Oh wait, Suncor catalogues another; the company is excited by the prospects for manufacturing carbon fibre – a cutting edge, light-weight, extra-strong material with many industrial uses – directly from bitumen. What a great idea and what a revolution that could be. Imagine a world-class carbon fibre industry right there in NE Alberta. Hmm, how about let’s start with…imagine a pilot project to do just that. Nope, can’t see that either. Why not? Did we just think of this idea two weeks ago? Keystone XL was commissioned in 2010; by 2015 it was a train wreck. And we’re starting to get excited about wider concepts like carbon fibre production now? “Now is the time for the federal government to support disruptive innovation,” says Suncor’s CEO. Sure, that’s one idea, but here’s another: why don’t you do it? If you get excited about it in 2020, does that mean you’ll do something about it in what, 2040? Yes, it’s hard, and it’s expensive, and challenging – as will be your existence if we can’t get past a commodity-price-taker mindset in an eternally strangled marketplace, where opponents are gleefully and fearlessly sawing off your legs.
And that’s just Suncor. What about the other multi-billion dollar enterprises that should be worried about western Canada’s hydrocarbon future? What about the midstreamers, the ones that frolic in money from 20-year take-or-pay contracts jammed like siphon hoses into the jugulars of producers?
Where is the will to get all these great ideas into reality? Why isn’t there $1.6 billion being shoveled in the carbon fibre/hydrogen/Canapux/Bitcrude/gas-from-garbage direction, by either Alberta or Ottawa? Not that I’m happy to see subsidies, but is there not some sort of partnership to get these things off the ground?
So much potential! Let’s hope we can abandon some old wars and go build something great.
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Read more insightful analysis from Terry Etam here, or email Terry here.
