Quebec should build Energy East or we may face an Albertan revolt
With Western crude trading at a $40 discount, until forced cuts partially narrowed the cost difference, many politicians have begun to suggest the re-opening of Energy East.
They suggest this as a way to allow further refining in Canada, while potentially also opening another path to market for Canadian crude currently facing a monopsony at the hands of our southern neighbours.
That plan at this moment looks like it will fail before even being discussed, and it is surprisingly due to a Conservative “pro-business” government.
Quebec’s Problematic Anti-Oil Stance
This year the Quebec Conservative government will receive $13.1-billion, a whopping $1.4 billion more in equalization payments, at a time when Alberta’s oil sector is hurting, to such an extent that for the first time when more than one in six Albertan children is now forced into poverty.
While Quebec benefits from the wealth of Western Canada, Premier Legault, the leader of the CAQ has publicly announced that “There is no social acceptability for a pipeline that would pass through Quebec territory.”
He further labelled Western Canadian Crude as “dirty” oil.
This view is extremely interesting, given the Premier’s past statements in support of ending Quebec’s need for equalization, alongside the actual pro-environmental argument which underpins the need for Canadian pipelines.
The Premier would also like other provinces like Ontario to buy Quebec’s energy, while actively rejecting one of the most urgent needs of multiple fellow energy supplying Premiers.
This is especially hard to understand when you take in that Quebec at this moment has two refineries, which still use American and Algerian oil, both of which could easily be replaced with further supply from Western Canada, a source they already use.
While some reporters do state that the benefit could be less than we expect, a study TransCanada commissioned last September, conducted by Deloitte & Touche LLP, noted Quebec and New Brunswick refiners would see big cost savings if connected with lower-cost western crude.
According to the same report, on a 100,000 barrel per day basis, Quebec refineries would save between $92 million and $336 million per year, while in New Brunswick the annual savings would be between $51 million and $377 million.
All of which could be passed on as a significant competitive advantage or increased earnings.
Furthermore, the pipeline could greatly reduce Canada’s overall import of Saudi crude, a source where the nation spends billions annually. This includes a whopping 35% of Atlantic Canada’s fuel which currently comes directly from the oppressive regime.
Perhaps most importantly, this kind of project could allow for more room in terms of equalization payments nationwide.
On the side of the environment, this project makes far more sense than transport by rail or import by sea, which is what would likely occur if we reduce our own production.
This is because as many studies point out the continued need for oil worldwide well past the year 2040, not just for fuel, but for industrial production.
Given the immense economic, environmental and political benefits, Energy East would be a nation-building project, with massive run-on effects.
Energy East as a nation-building project
According to a 2016 Macleans interview with former Saskatchewan Premier Brad Wall, the pipeline is expected to generate $55 billion in economic benefits for Canada, including $4.3 billion in Saskatchewan and $9.3 billion in Quebec.
This kind of project could both help increase Quebec’s relative wealth while also helping reduce the built-up resentment many in Albertans feel towards their equalization payment receiving cousins.
This massive provincial gain is perhaps why some polls have placed the project at 64% support nationwide. Even in Quebec, the province which least supported the pipeline, approval hovered at around 48%.
Quebec’s Finance Minister Éric Girard has already indicated that his province’s share of the equalization program is rising, and has expressed a desire for his province’s share of equalization payments to decline through economic growth.
“With a stronger GDP, we’ll have lower public debt and lower equalization payments, but this will take time,” he said.
Perhaps it is time to take a pro GDP decision and approve the $16 billion Energy East project simply waiting for approval.
If they don’t, in the long term they may face the same response of there’s no “social acceptability” for giving Quebec billions of dollars of Albertan money.
That idea may sound awfully intense at this moment but simply look at the scale of the Yellow Vest protests in Alberta, in comparison to any other area in this nation.
This is no denying it, Albertans are angry, and if we do not nation-build today, we may lose them tomorrow.
What do you think about the Energy East pipeline? Join the conversation by commenting below!