ECON 366: Energy Economics

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.title[
# ECON 366: Energy Economics
]
.subtitle[
## Topic 2.5: Oil and Gas Transportation Infrastructure
]
.author[
### Andrew Leach, Professor of Economics and Law
]
.date[
### <a href="mailto:aleach@ualberta.ca"> aleach@ualberta.ca</a> <a href="https://github.com/leachandrew"> leachandrew</a> <a href="https://twitter.com/andrew_leach"> @andrew_leach</a> 
]

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# Oil and gas transportation
At the end of this section, you should feel comfortable answering all of these questions:
- Why are pipelines and other transportation technology important in crude oil and gas markets? What impact does infrastructure have on prices?
- What is Canada’s current pipeline infrastructure and how are we positioned to accommodate future growth or contraction in production?
- How and why are pipelines regulated as they are? 
  - What does the Canadian Energy Regulator (CER) do?
  - Why does the CER need to be involved in pipeline approvals?
- What is the difference in realized value for oil sands bitumen transported by pipe vs transported by rail and why?

We will leave toll setting for a different set of slides later on, but we'll introduce the basics here.
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# Oil supply chain

<img src="oil_supply_chain.png" width="800px" style="display: block; margin: auto;" />
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# Pipelines link our products to markets

For today's discussion, we're interested in transmission pipelines:
- long distance pipelines which carry oil and natural gas out of Alberta
- oil pipelines you *may* have heard of: 
  - Keystone (not the XL one, RIP)
  - TransMountain (and the TransMountain Expansion or TMX)
  - Enbridge Mainline system
- gas pipelines you *may* have heard of: 
  - TCPL Mainline
  - Nova Gas Transmission Line (think NIT gas prices)
  - Alliance (NGLs)

The transmission pipeline network is [much bigger](https://www.cer-rec.gc.ca/en/data-analysis/facilities-we-regulate/pipeline-profiles/index.html) than you might have thought

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# Pipelines link our products to markets (Source: AER)
<img src="padds_and_pipes.png" width="650px" style="display: block; margin: auto;" />
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# Pipelines link our products to markets (Source: Enbridge)
<img src="oil_pipes_map.png" width="900px" style="display: block; margin: auto;" />
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# Enbridge Mainline
<img src="enb_pipes.png" width="1000px" style="display: block; margin: auto;" />

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# Canadian Production
![](oil_transp_files/figure-html/cdn_prod_graph-1.png)
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# Imports
![](oil_transp_files/figure-html/cdn_imports_graph-1.png)
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# Exports
![](oil_transp_files/figure-html/cdn_exports_graph-1.png)

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# Canadian Major Pipeline Exports by Line

<img src="cer_oil_pipe.png" width="1000px" style="display: block; margin: auto;" />
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# Canadian Major Pipeline Exports by Grade

<img src="cer_oil_grade.png" width="1000px" style="display: block; margin: auto;" />
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# Canadian Major Pipeline Exports by Grade and Line

<img src="cer_oil.png" width="1000px" style="display: block; margin: auto;" />
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# Enbridge Mainline Movements into Sarnia

<img src="enb_sarnia.png" width="1000px" style="display: block; margin: auto;" />
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# TransMountain

<img src="tm_prods.png" width="1000px" style="display: block; margin: auto;" />
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# Canadian Crude Trade in the US

<img src="import_plot.png" width="1000px" style="display: block; margin: auto;" />
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# Crude by Rail

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# Rail Network and Loading

.cite_fn2[Source: RBN Energy]

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# Domestic Loadings: Crude by Rail

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# Domestic Loadings: Crude by Rail

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# Domestic Loadings: Crude by Rail

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# Exports by Rail
![](oil_transp_files/figure-html/cbr_graph-1.png)
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# Current pipeline capacity situation
<img src="pipe_capacity_real_bw.png" width="950px" style="display: block; margin: auto;" />

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# Gas supply chain

.cite_fn2[Source: CER]

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# Our gas pipeline infrastructure

<img src="gas_pipes.png" width="750px" style="display: block; margin: auto;" />
.cite_fn2[Source: CER] 
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# TCPL Mainline

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# NGTL System James River (NE)

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# NGTL System James River Gate

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# NGTL System James River Gate

<img src="ngtl_james.png" width="1000px" style="display: block; margin: auto;" />
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# NGTL System West Gate

<img src="ngtl_west.png" width="1000px" style="display: block; margin: auto;" />
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# NGTL System East Gate (access to prairies system)

<img src="ngtl_east.png" width="1000px" style="display: block; margin: auto;" />
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# Changes in gas movements in North America

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# Pipeline Regulation
There are multiple steps in the regulation of pipelines. We'll glance at a few of them:
- approval for construction and operation
  - the certificate of public convenience and necessity
      - the Canadian Energy Regulator Act
      - the Impact Assessment Act (for now?)
  - Governor in Council approval
  - US Presidential Permits
  - The duty to consult affected First Nations
- tolls and negotiated settlements on common carrier pipelines
  - more on cost-of-service regulation to come
- open seasons and firm service agreements
- apportionment of common carrier pipeline volumes
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# Duty to consult

**35** (1) The existing aboriginal and treaty rights of the aboriginal peoples of Canada are hereby recognized and affirmed.

(2) In this Act, “aboriginal peoples of Canada” includes the Indian, Inuit and Métis peoples of Canada.

(3) For greater certainty, in subsection (1) “treaty rights” includes rights that now exist by way of land claims agreements or may be so acquired.

(4) Notwithstanding any other provision of this Act, the aboriginal and treaty rights referred to in subsection (1) are guaranteed equally to male and female persons.
  
  
.cite[*Constitution Act, 1982*, s 35]
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# Duty to consult

We have case law from both successful ([*Gitxaala Nation v. Canada*](https://www.canlii.org/en/ca/fca/doc/2016/2016fca187/2016fca187.pdf) and [*Tsleil-Waututh Nation v. Canada (Attorney General)*](https://www.canlii.org/en/ca/fca/doc/2018/2018fca153/2018fca153.html?autocompleteStr=tsleil-wau&autocompletePos=2)) and unsuccessful ([*Bigstone Cree Nation v. v. NOVA Gas Transmission Ltd.*](https://www.canlii.org/en/ca/fca/doc/2018/2018fca89/2018fca89.pdf)) appeals of project approval decisions

What can we say is required to fulfill the duty to consult? This, via Osler, is a good list:
<hr.space-1>
- early, direct, meaningful engagement between the proponent and Indigenous groups, prior to and in parallel with the regulatory process;
- demonstrated serious consideration of Indigenous rights and concerns;
- addressing Indigenous rights and concerns through proponent commitments, project conditions, further studies and other mitigation measures, where appropriate;
- CER / GiC reasons for decision that consider the adequacy of consultation; and,
- opportunities for future consultation re: fresh concerns throughout the life of the project.

.cite_fn2[Source: [Osler](https://www.osler.com/en/resources/regulations/2018/resource-projects-and-indigenous-consultation-what-is-best-practice-after-a-year-of-uncertainty)]

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# Duty to consult

The Duty to consult is not a veto

The duty "falls along a spectrum ranging from limited to deep consultation, depending upon the strength of the Aboriginal claim, and the seriousness of the potential impact on the right." (Clyde River (Hamlet) v. Petroleum Geo‑Services Inc., 2017 SCC 40 at para 20, citing *Haida Nation v. British Columbia (Minister of Forests)*, 2004 SCC 73, at paras. 39 and 43-45).

New case law ([*Yahey v British Columbia*, 2021 BCSC 1287](https://canlii.ca/t/jgpbr)), tells us that cumulative effects are germane to consideration of the impingement of First Nations' rights: i.e. you can't subject rights to death by 1000 cuts

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# Pipeline Regulation: timelines are long
<hr.space-1>
<embed src="keystone_timeline.pdf" width="1100px" height="540px" style="display: block; margin: auto;" type="application/pdf" />

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# Pipeline Tolls

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# Pipeline Tolls

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# Common Carrier Pipelines

All CER-regulated oil pipelines are common carriers by default, and all must have some uncommitted capacity available each month for shippers without contracted capacity.

*Canadian Energy Regulator Act*:
> 239 (1) Subject to any regulations that the Commission may prescribe and any exemptions or conditions it may impose, a company operating a pipeline for the transmission of oil must, according to its powers, without delay and with due care and diligence, receive, transport and deliver all oil offered for transmission by means of its pipeline.

The Enbridge Mainline offes 100% all its capacity on an uncommitted basis every month

.cite[Source: [CER: What is Pipeline Apportionment?](https://www.cer-rec.gc.ca/en/data-analysis/energy-markets/market-snapshots/2018/market-snapshot-what-is-pipeline-apportionment.html)
]

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# Common Carrier Nomination Process

Customers **nominate** the volume they would like to ship on a monthly basis

If total nominations exceed uncommitted capacity, capacity is **apportioned** on a pro-rata basis based on nominated volumes

Issues have arisen with respect to shippers over-nominating *air barrels*

*Curtailment* may be applied to contracted volumes if the pipeline cannot carry its committed capacity.

.cite_fn2[Source: [CER: What is Pipeline Apportionment?](https://www.cer-rec.gc.ca/en/data-analysis/energy-markets/market-snapshots/2018/market-snapshot-what-is-pipeline-apportionment.html)
]

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# Pipeline Apportionment

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# Pipeline Apportionment

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# Contracted Volumes

<img src="committed_capacity.png" width="900px" style="display: block; margin: auto;" />
.cite_fn2[Source: CER]

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# Pipeline Tolls - Firm Service Agreements
- New pipelines (Keystone, TMX) have not been built as exclusively common carrier pipelines
- Keystone and TMX negotiated *committed* tolls with shippers through open seasons
- Shippers on these pipelines hold long-term contracts (subsciptions, commitments to pay) for most of each pipeline's capacity
- Both lines have uncommitted rates for small shares of their capacity
  - e.g. Keystone has 36k bbl/d
- Enbridge proposed to shift 90% of Mainline volumed to contracted service, but that application was rejected by the Canadian Energy Regulator

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