Prominent Canadian economist Robyn Allan made waves in Canada last year with papers claiming that rapid oil sands growth would do more economic harm than good for her country.
Allan's controversial analyses focused on the Northern Gateway pipeline, a proposal to carry raw tar sands bitumen through British Columbia for shipment to Asia. One of her main points was that shipping raw crude for upgrading and refining in other countries also means exporting those industries—and jobs—abroad.
She also warned that increased oil sands exports would drive up the value of Canada's currency. Already, an inflated "petro-dollar" is making it tough for Canadian goods to compete in export markets and is "hollowing out" manufacturing sectors, she said.
Now, Allan is making the same arguments about an even bigger and more contentious export pipeline: the Keystone pipeline. If approved by the Obama administration, the Keystone pipeline would send 830,000 barrels of bitumen a day from Alberta to the Texas refining hub.
Allan, a former CEO of the Insurance Corporation of British Columbia, one of Canada's biggest insurance firms, says that through presentations, meetings and op-eds she's trying to "balance out" the economic debate on the Keystone pipeline, which she claims has been reduced to a simple choice between jobs and the environment.
"There are economic costs that haven't been considered," she says.
In an extensive interview, Allan—who supports measured oil sands development—explains her position on the Keystone pipeline and discusses potential economic risks to Canadians if it's approved.
Robyn Allan: No. This is a pipeline intended for the export of diluted bitumen to the U.S. And it's not in Canadians' economic, public or environmental interest.
Editor's note: Because raw bitumen has the consistency of peanut butter, producers have to dilute it with condensate—a form of gasoline found near oil and natural gas wells—so it can flow through pipelines. Hence the name diluted bitumen.
Allan: We need to ensure energy security for our country, and the best way to do that is by upgrading bitumen in Alberta and shipping it to refineries in Eastern Canada.
Allan: I actually think that the view I have is in the majority of Canadians. The average Canadian ... is concerned about this pipeline.
Allan: Ninety-nine percent of our [petroleum] exports go to the United States. So there's no question that our trade relationship with the United States is very important. It's been a historically strong and sound relationship. We want to keep it thriving.
Editor's note: Oil and petroleum products make up nearly one-third of U.S. commodity imports from Canada, according to U.S. trade statistics.
Allan: We hear a lot here in Canada that if it doesn't get approved, it's going to negatively impact our relations. I don't believe that's true. I think that a no to Keystone in the long run, and even in the short run, will enhance U.S.-Canadian relations.
Allan: Most Canadians will be encouraged by the refusal of Keystone XL, since it will allow us to deal with the serious issues of climate change and issues of Canadian energy security that supports all sectors of the Canadian economy.
Allan: The first question I would ask is, if it's not going to assist in the pace of development of the oil sands, then why would it be built?
We're talking about 830,000 barrels a day of capacity. That's a significant amount of supply. And when [the pipeline] went through the approval process up here in Canada before the National Energy Board, [the producers] had to convince the board that the pipeline was absolutely necessary to ensure that the oil could make its way to market.
That's the case that was made to approve the pipeline here. It's just really hard to believe that saying yes or no to this pipeline makes no difference whatsoever to the amount of diluted bitumen that is made available in North America.
Allan: We are an economy built on our natural resources, and it's very important that we develop them—and that we create economic growth from it. It's how you do that that's important.
Bitumen export pipelines [like Keystone XL] are not the answer. The [raw export] strategy that's driving Keystone XL is actually going to have a net negative impact on our economy.
Allan: Bitumen needs to be upgraded before it can be refined. [We're] building pipelines to ship it out and not do the upgrading in Canada. When you extract and ship bitumen down a pipeline, you ship jobs with it.
And hence, we're losing the value-added of our resource sector in Canada, and we're weakening [the oil sector] as a result, because we're not building the upgrading tier. We're not investing in ensuring our refineries can handle our [own] heavy, low-quality oil.
Keystone XL ... is driven by this lack of value-added and this increasing dependency on imported condensate [from the Middle East and U.S. oil shale basins]. We're hollowing out our resource sector.
The other issue is the current pace of development. When you rapidly extract bitumen from the oil sands, mix it with a diluent and force it down a pipeline, you can do that at a much more rapid pace than if you have to upgrade it and make it available in a higher quality. So the current pace of development is accelerating greenhouse gas emissions.
Allan: It is a handful of multinational corporations and a number of national oil companies owned by foreign governments.
In particular, we have three very large national oil companies owned by the Chinese government that have purchased the right to produce our oil sands. They want to become investor owners in the Northern Gateway pipeline. They have a fleet of tankers, and they are the refiners in Asia. They want that bitumen. We have a number of multinational corporations that want to get our raw bitumen to the [Texas] Gulf Coast. And they all want to do this because they think that they can get higher prices for that crude if they can get it to world markets.
Allan: The multinational oil companies are companies like Suncor Energy, Imperial Oil—that's owned by ExxonMobil—Husky Energy, and Cenovus. Those are the four biggest.
What happens is, these companies produce oil and they also have integrated operations—they have refineries. And their interests are, how do we maximize our bottom line on behalf of shareholders, which in fact they have to do.
So their decisions aren't driven around public interest; they're driven by their bottom lines. ... And they operate all over North America [and] some of them operate internationally ... so their motivation is different than the motivation of most Canadians.
Allan: The strategy that makes sense from so many areas—economic, environmental, long-term—is to upgrade bitumen where it comes out of the ground and turn it into a higher-quality oil that can be utilized by a number of refineries all across North America.
So, you keep in place the amount of activity that's going on right now. There are long-term relationships [to move oil sands crude] to refineries ... in the U.S. Midwest. There are plans already in place to get oil to the Gulf, and you keep all that going. And then you face the new output for the new bitumen—upgrade it, turn it into high-quality product, have it done under significantly desirable environmental standards, which all of North America is happy with—and then get that upgraded oil to Eastern Canada.