Will Eastern Canada freeze in the dark?
Vulnurability of the East Coast
In one of my earlier posts, I pointed out the often overlooked fact that although Canada is a huge exporter of oil, it also imports a very large amount of crude from overseas as well. In fact all of Eastern Canada relies in imported crude oil for heating oil, diesel, gasoline and other petroleum products.
Earlier this month, Gordon Laxer from the University of Alberta wrote an article entitled Freezing in the dark - Canada needs Strategic Petroleum Reserves (SPR) which examines the vulnerability of Eastern Canada to oil supply shocks due to the lack of east-west pipelines. He points out that since Atlantic Canada and parts of Quebec are almost completely reliant on oil countries, geopolitical events which could disrupt supply could cause hardships for nearly half the country.
Are reserves the solution?
The piece continues on to propose as a solution a Canadian Strategic Petroleum Reserves as a buffer against possible future supply disruptions. The proposal of having a 90 day supply of imported oil (approx 76 million barrels) would reduce the impacts of the interruption of oil imports. Creating a Strategic Petroleum Reserves of this size would be quite costly. The crude oil alone would cost over $7 billion. In addition the added cost of maintaining and managing the reserves would quickly make this a costly endeavour.
Is better distribution of crude oil is the answer?
Another proposal put forward by Laxter is to reverse the flow of the current pipeline between Sarnia and Montreal (which currently flows westward and moves foreign oil into southern Ontario) in order to allow Western Canadian oil to flow to refineries in Montreal lessening the dependence on foreign oil and hence the impact of foreign disruptions. On the surface this sounds like a good idea but I imagine that reversing a large pipeline would cause capacity bottleneck and problems in other parts of the distribution network and so it might no be as simple as it sounds. A nice map of existing pipelines shows the existing structure of the distribution network.
I would suggest taking Laxter’s pipeline reversal idea a step furthur and propose an east-west pipeline connecting to refineries in Montreal, expanding to refineries in Quebec City and Saint John, NB and eventually expand the pipeline to the refinery in Dartmouth, NS. This course of action would allow refineries in Eastern Canada to have the option to use Western Canadian oil or to continue to import foreign oil. By having a pipeline in place however Canada would be more resistant to supply shocks as we could supply our own oil and thus be self-sufficient.
Is it feasible?
I will be the first to admit that the cost for such a pipeline would be huge with little immediate benefit but we can place a dollar figure on the risk reduction achieved. The 1000 kms for a pipeline from Montreal to Saint John would cost ~$2 billion but if we compare that cost to the Petroleum Reserves discussed above, this is not an overwhelming amount. Besides if we do experience a disruption in oil and Eastern Canada freezes in the dark, the cost will be much more than $2 billion.
