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Keystone XL vs. Trudeau's NEP?

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Old
03-15-2013, 09:51 PM
  #1
Melrose Munch
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Keystone XL vs. Trudeau's NEP?

How come Alberta has no problem sending oil to Texas but sending it to Eastern Canada (Ontario, Quebec, Nova Scotia) has created nearly 40 years of resentment?

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03-15-2013, 10:26 PM
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Xelebes
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Simple. Oil is sold at a dutch auction price with limited pipeline capacity to export refined or unrefined oil. Building the pipeline means we get to sell it at WTI which is a higher price than what we are currently selling at.

NEP was coming at a time when the pipes were not stressed and there was external pressure to sell at prices that were not negotiated.

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03-15-2013, 11:02 PM
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I'd say it another way. Some people and energy companies wanted a smaller federal government footprint in the industry. The NEP is gone and Petro-Can privatized. That happened. So now what. The CPC have practically wrapped themselves up around the flag on this. It's almost unpatriotic now to even question a pipeline, or even environmental law.

I admit I have lamented the gutting of environmental laws. But I haven't spent my time dissing on pipelines. Just follow the laws (the ones remaining anyway) and leave me out of it. If Keystone doesn't go through, sell to the Chinese. If you can't come to a deal with First Nations, build around it. Otherwise pay the tolls and shut up. The messaging gets difficult if you are actually exporting jobs with a pipeline (aside from construction and maintenance) but that's the industry's PR problem.

The CPC can try to make this a patriotic or nationalistic issue but to me it's basically a private sector issue. You can have an opinion on business strategies but all the flag waving is making me yawn.

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03-15-2013, 11:11 PM
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Krut
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Quote:
Originally Posted by Melrose Munch View Post
How come Alberta has no problem sending oil to Texas but sending it to Eastern Canada (Ontario, Quebec, Nova Scotia) has created nearly 40 years of resentment?
It's just that simple isn't it?

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03-15-2013, 11:23 PM
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Melrose Munch
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Quote:
Originally Posted by Xelebes View Post
Simple. Oil is sold at a dutch auction price with limited pipeline capacity to export refined or unrefined oil. Building the pipeline means we get to sell it at WTI which is a higher price than what we are currently selling at.

NEP was coming at a time when the pipes were not stressed and there was external pressure to sell at prices that were not negotiated.
So this is a money thing. Like everything else.

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It's just that simple isn't it?
Well, you tell me because I want to know

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03-16-2013, 12:14 AM
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03-16-2013, 07:41 AM
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The Liberals paid a political price in Alberta by meddling with NEP. Now we will see how the CPC fare in BC with their own stealthy un-named NEP. They don't call it that but we have been witnessing the stealthy CPC version of an NEP (on the environment, on deregulation, on First Nations, in Omnibus Budget bills).

I must admit I was impressed with Harper's tactical handling of his harmonized tax plan. The BC Liberals paid the full price on that while Harper stealthily walked away unscathed. In the last election, I thought the CPC would get decimated on the idea of huge tankers on the coast and pipelines, let alone HST but I didn't see it. Harper so far has been a master tactician (he did get nicked in Nova Scotia and Newfoundland on equalization but they don't have the seats to worry him that much).

It's going to be interesting to see how Harper skates around in BC with his own NEP (although they have been smart enough not to call it anything so far). Perhaps a new NDP government in BC will help the CPC messaging by branding the socialists as anti-business? The industry and their party definitely need a new demon to galvanize opinion to push their own agenda (Ontario isn't in the immediate picture and the new Trudeau demon isn't there yet). But I'll accept KirkP's BC viewpoint that the CPC will survive ok in the BC interior and fundie heartland.

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03-16-2013, 12:33 PM
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The Moose
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Quote:
Originally Posted by Xelebes View Post
Simple. Oil is sold at a dutch auction price with limited pipeline capacity to export refined or unrefined oil. Building the pipeline means we get to sell it at WTI which is a higher price than what we are currently selling at.

NEP was coming at a time when the pipes were not stressed and there was external pressure to sell at prices that were not negotiated.
To me is not very clear how Keystone benefits Canadian oil prices, perhaps someone with a better knowledge can explain it to me. My understanding is that US pays less than WTI for Alberta oil because the refining cost are higher and they are the only buyer. How do we get better prices for our oil by sending more of it their way. Doesn't an increase in supply leads to even lower prices. I understand the need for Northern Gateway and market diversification, but not really the need for Keystone.

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03-16-2013, 01:06 PM
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Xelebes
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Originally Posted by The Moose View Post
To me is not very clear how Keystone benefits Canadian oil prices, perhaps someone with a better knowledge can explain it to me. My understanding is that US pays less than WTI for Alberta oil because the refining cost are higher and they are the only buyer. How do we get better prices for our oil by sending more of it their way. Doesn't an increase in supply leads to even lower prices. I understand the need for Northern Gateway and market diversification, but not really the need for Keystone.
Alberta oil is sold in the WTI market. To get to market, it needs to be transported to where it becomes just like every other barrel of oil. Edmonton Light is another price for oil as there is quite a bit of refining going on here. Right now, Edmonton Light is sold at a discount because there is not enough consumers locally and there is not enough pipeline to carry it to other consumers.

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03-16-2013, 03:21 PM
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Because people in Alberta want to sell their oil to Texas for business reasons, but they were told by Ottawa they had to sell their oil to the East for political reasons. End of story.

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03-16-2013, 06:21 PM
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Melrose Munch
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Originally Posted by rebel diamond View Post
Because people in Alberta want to sell their oil to Texas for business reasons, but they were told by Ottawa they had to sell their oil to the East for political reasons. End of story.
But really wants wrong with helping the rest of the country? The economy was in the tank back then.

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03-16-2013, 11:26 PM
  #12
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I don't think the economy was in the tank back then. And a lot of the problems were global in nature, not just Canada-centric.

Many of the companies at the oil sands are US and there are prolly nationalistic and domestic security reasons to send oil there. Just like the Chinese are going in to send the product back home (or trying to); their primary motivations aren't about investing in the oil sands to send it to Europe.

The Eastern provinces have accepted the fact they are going to pay world price for oil. Back then OPEC was considered a heretic organization and the quotas and artificial high prices were considered highway robbery. Now OPEC is more accepted and nobody goes into hysterics anymore when prices jump. Not saying they like it but...

I think the odds are good that Keystone gets finished unless something bad happens. I think Washington does want it but there are hiccups, as always. There is going to be more resistance in BC however but there are powerful forces that want it (forces that get what they want by hook or by crook).
(I don't have a crystal ball, just my 2 cents)

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03-17-2013, 11:15 AM
  #13
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Quote:
Originally Posted by The Moose View Post
To me is not very clear how Keystone benefits Canadian oil prices, perhaps someone with a better knowledge can explain it to me. My understanding is that US pays less than WTI for Alberta oil because the refining cost are higher and they are the only buyer. How do we get better prices for our oil by sending more of it their way. Doesn't an increase in supply leads to even lower prices. I understand the need for Northern Gateway and market diversification, but not really the need for Keystone.
I'm not an expert Moose but the supply-demand curve for tar sands oil is operating within a subset of the universe in the energy food chain. Supply and demand inside the Alberta tar sands oil micro-bubble is different than the rest and supply is exceeding demand (inside that subset bubble) . But if the pipeline gets built, oil refineries on the Texas Coast will switch from product currently brought in by tanker, to tar sands oil supplied by the pipeline.

The following is a link to an article by an analyst.

http://theenergycollective.com/danie...ut-keystone-xl

If the pipeline is built, more refinery capacity in the US will switch over to tar sands oil. That will allow the tar sands to expand even more.

Once they switch over (it isn't done quickly), then there will be more consistent demand for tar sands oil and more demand for that product will work itself into the S/D equation for that specific subset of the universe...


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03-17-2013, 11:20 AM
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I'm just concerned about it being built over the midwest's water supply. If something like the Kalamazoo River disaster happened over those aquifers there'd be severe issues. I can't really be considered an environmentalist, but our special relationship isn't worth risking our water.

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03-17-2013, 11:44 AM
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I'm just concerned about it being built over the midwest's water supply. If something like the Kalamazoo River disaster happened over those aquifers there'd be severe issues. I can't really be considered an environmentalist, but our special relationship isn't worth risking our water.
There is the toxic spills issue but Greens are more p*ssed that the pipelines would allow the expansion of the tar sands. Greens are losing because most of the population is linking its wealth and personal economic welfare to oil and gas energy. Environmental concerns are viewed as important too by public opinion but keeping the flow of money open trumps the rest currently. Pipeline spills are something people can see more immediate negative impacts so the first fight is at that level. Climate change in the future is a more debatable, esoteric and distant issue and people hope science and innovation will magically fix problems later. For now money is king and I'm guessing the pipelines will go through as long as there are promises of containing the spills issues.

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03-17-2013, 11:52 AM
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Quote:
Originally Posted by rebel diamond View Post
Because people in Alberta want to sell their oil to Texas for business reasons, but they were told by Ottawa they had to sell their oil to the East for political reasons. End of story.
Exactly. /thread

Quote:
Originally Posted by Melrose Munch View Post
But really wants wrong with helping the rest of the country? The economy was in the tank back then.
Alberta already helps by making huge equalization payments. Also, we shouldn't destroy provinces like Alberta economically just to help Eastern provinces.

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03-17-2013, 12:23 PM
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Trudeau actually approved of Alberta oil sands investment and development. However he was a nationalist and wanted more Canadianization of the oil industry. Trudeau and the Liberals wrapped themselves up in the flag over this (for the greater good of the country no less of course). The NEP's major weakness IMO is that it was a program centrally and quickly conceived inside a bureaucratic bubble and hadn't been vetted democratically over the long run. The forces of decentralization inside Canada did as much to undermine a 'centralised' program as much as any philosophical battle over public vs private ownership of energy development.

Decentralization and privatization won in the end. It is ironic at this point though to see the Conservatives wrap themselves around the flag on this now, and continue to push their own vision forward and using the central instruments of power of the federal government in that quest. The same minefield awaits them though in BC or First Nations as the Liberals walked in Alberta. (the current strategy seems to be to stay in the dark shadows more and push their own NEP more stealthily and disjointed than using ONE major program file across provinces with competing interests; there is no single official, central, visible NEP program packaged for the forces of lightning to more easily strike and organize against it. Oil industry's policy is CPC policy, nuff said.)


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03-17-2013, 02:37 PM
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Quote:
Originally Posted by Johnny LaRue View Post
Exactly. /thread

Alberta already helps by making huge equalization payments. Also, we shouldn't destroy provinces like Alberta economically just to help Eastern provinces.
Regarding the difference between keystone and the NEP I generally agree with you, but do you really think the trickle down economics of the federal transfer system are anywhere near the same ballpark as real jobs and investment on the ground?

Don't forget, ALL provinces pay into equalization, and its what they get back that determines if they are 'have' or 'have not'. Given how much Albertans ***** and complain about equalization, or 'handouts', you'd think they'd relish the opportunity to help other provinces contribute more to the program and require less back, becoming more financially sustainable.

It just seems somewhat ironic to (for once) emphasize the 'team player' aspect of equalization, in order to justify making a killing outside the country.

Again, this isn't really about the pipeline as much as that second nugget of rhetoric.

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03-17-2013, 06:05 PM
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In part, I feel the resentment is derived from a common perception by Albertans that the Eastern provinces neglect what happens out West unless they can benefit. Before the oil boom, Alberta was more susceptible to economic shocks during droughts, as the agricultural sector was one of the primary industries. When drought-assistance was slow to mobilize from the East/from the Feds, it built a degree of resentment. Regionalism at work, essentially.

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03-17-2013, 06:12 PM
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Quote:
Originally Posted by Johnny LaRue View Post
Exactly. /thread



Alberta already helps by making huge equalization payments. Also, we shouldn't destroy provinces like Alberta economically just to help Eastern provinces.
In fairness, it was until 4 years ago that Ontario was a have province. Quebec I will accept but Ontario has pulled its weight. I agree Alberta should not be destroyed.

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03-17-2013, 06:14 PM
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The Moose
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In fairness, it was until 4 years ago that Ontario was a have province. Quebec I will accept but Ontario has pulled its weight. I agree Alberta should not be destroyed.
Thank you. I breathe a sigh of relief.

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03-17-2013, 06:53 PM
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Xelebes
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In part, I feel the resentment is derived from a common perception by Albertans that the Eastern provinces neglect what happens out West unless they can benefit. Before the oil boom, Alberta was more susceptible to economic shocks during droughts, as the agricultural sector was one of the primary industries. When drought-assistance was slow to mobilize from the East/from the Feds, it built a degree of resentment. Regionalism at work, essentially.
Alberta was also more exposed to the threats of drought than the other prairie provinces and up until 1947 was the poorest province in the west. Those who have agricultural roots in Alberta are the most likely to have the most resentment because hardship was so prevalent. My dad certainly has that resentment because he was a farmer and his forefathers were Albertan farmers that date as far back as the 1890s.

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03-17-2013, 07:13 PM
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Lots of greenhouse gases and not much to show for it in this thread...

Crude oil is not a completely fungible product like bottled water. Oil from the North Sea is different from the oil from Venezuela. Broadly speaking oil is graded on two scales: sweet to sour and light to heavy. Light sweet crude is easier to refine and yields a more valuable combination of end products. Heavy sour crude is harder to refine and yields a less valuable mix of end products.

Prior to the major production boom in Alberta, Venezuela and the Gulf of Mexico were the major producers of sour heavy crude in the Americas. As such, the vast majority of the refining capacity that can get the best yield out of that sort of oil is on the Gulf Coast. However, there is not sufficient pipeline infrastructure to get all of Alberta's oil to the Gulf Coast. Thus the few refineries in the Midwest that can handle heavy sour don't need to offer what the refineries on the Gulf would to buy the oil from Alberta.

The differential in the price paid for heavy oil in the Midwest and what's paid on the Gulf (tends to fluctuate around $20-40 a barrel) is caused solely by transportation costs. The alternative to pipelines is crude-by-rail. Warren Buffet is the biggest player in crude-by-rail so when you see him oppose Keystone XL don't think for a second he gives a **** about the environment. He stands to lose hundreds of millions, perhaps billions, if that pipeline is built.

Really if you can get the oil to open water you collapse the differential. Tanker costs are a fraction of crude-by-rail. That's the reason Northern Gateway and the reversal of line 9 to Montreal are also mentioned as possibilities.

Pipelines are the safest way to move oil and refined products are the safest things to move in tankers. Bitumen does not float or evaporate so a tanker spilling it would suck. Gasoline and jet fuel float and evaporate. It's not a great idea to go dumping the stuff in the ocean, but if a tanker does have an incident the remediation literally takes care of itself with refined products.

The environmentally sane thing to do is pipe the oil to the Gulf and refine it there. Will it happen? Your guess is as good as mine...

Why was the NEP unpopular? How about Ontario sells the rest of Canada cars for 50% of sticker price and eats the difference?

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03-18-2013, 12:01 AM
  #24
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If cars came out of the ground and were valued at $25,000 per car, and if (OPEC) a foreign car-tel (pardon the pun) suddenly restricted supply of cars to increase the unit price to $50,000 a car, people would get upset. If the government then said cars should be sold here at $40,000 a car, then 'Ontario' car companies would not get the extra $10,000 and they would be upset at not getting what the market will bear. Years later, the moral of the story would indicate that governments should stay out of imposing price restrictions and let markets find their own levels, lest they skew supply themselves. Although many people might forget that the price was being skewed and manipulated by a foreign cartel in the first place. At the time some people were happy the government intervened, some weren't. However when a government interferes, it leaves itself wide open to criticism because the actions are visible, unlike the back boardrooms of the marketplace's supposed 'invisible hand'.

(p.s. although governments learned the hard way that they should also stay out of the price fixing business, they also get burned when 'market prices' go down)


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03-18-2013, 01:00 AM
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This is the first I heard about it but I'd imagine in the auto industry this sort of price fixing with the cost being picked up by the Ontario government also goes a long way to protecting Ontario jobs, doesn't it?

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