TransCanada’s “Energy East” pipeline is a project estimated at $15 billion dollars that would convert an existing natural gas pipeline to one that carry oil and adding new sections for a total of 4 600 KM. The pipeline would run between the Canadian provinces of Alberta to New Brunswick. That would link the tar oil rich western Canada to the Atlantic Ocean to enable export.
This project has fuelled much debate in Canada recently especially since the Obama administration has blocked the southbound “Keystone XL” project. Now, I don’t normally talk much about these question in this blog but the heated debate has escalated lately in Canada to the point that some are considering that any one opposing the project is committing an act of treason against the country.
For me, it sounds like desperation and it prompted me to think a little bit about the matter.
The first thing that jumps to mind is amortization. How long to they expect it to last and it is typically 40 years.
40 years, that’s right. It makes sense, 15 billion dollars is a huge investment and the pipes are good for a long time so why not?
That means that this will be financed with financial tools and it is most likely that money from small investors or retirement funds will get used to fund that.
But 40 years means that they expect to make money and pay back the debt until 2060. 2060. How much oil will get exported in 2060? I submit that if is still in full use in 2060, the world will be in real trouble.
More than likely, alternatives sources of energy will be far more effective than extraction of oil from tar sands and the transportation of it in crude form across the world way before 2060. How soon before? Anybody’s guess at this point but that threshold will likely be crossed before 2030. That means that the debt of the last 30 years will probably become worthless. This is yet another “sub-prime” type loss in the making for small investors.
The executives of TransCanada will have a few years to milk huge bonuses obtained over the investors money and will be far gone by the time it all fall.
There are arguments that we will not stop using oil. Oil after all is not only used as source of energy but is also used to manufacture plastic goods, tires and so on. Further, technology to render oil uses “carbon neutral” will be develop so we can all continue using the wonderful stuff without any adverse effects on the environment.
Maybe. But then, why transport it?
Why do we need to spend energy extracting the oil from the tar and then transport it across the world and use further energy doing it to then manufacture goods with it?
If we want to develop carbon-neutral technology to produce good, why not transforming and producing onsite? We wouldn’t have to offset the transport, just the transformation. Further, this would be closer to the consumers saving further transport. Transporting only finished good makes a lot more sense for me than transporting the crude product and then transforming it!
Making Business Sense
In today’s context, putting aside any short term environmental concerns (like pipeline leaks, train accidents…), there is just no business model that justify building such a pipeline.
Spending $15 billions on technology to transform the stuff onsite in a carbon-neutral way, that is what makes business sense today. Not building pipes!