Let’s build a Canadian oil pipeline from coast to coast – by Frank McKenna (Globe and Mail – June 18, 2012)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

The last spike of the Canadian Pacific Railway was driven in 1885. This was a remarkable accomplishment pitting the indomitable will of our early railroad pioneers against the rugged Canadian terrain. In a country where gravitational forces often move north and south, this ribbon of steel has helped knit the country together both symbolically and economically.

It is time for another bold project, national in scope: A pipeline network extending from coast to coast. This essential infrastructure project would be good for all regions of Canada. It would be an extraordinary catalyst for economic growth. It would be a powerful symbol of Canadian unity.

Much has been made recently about who wins and who loses from Western oil sands. This is the wrong way to look at it. We should turn this challenge into a nation-building exercise rather than encourage a corrosive debate pitting one region against another.

Although the ripple effect of oil-sands development across this country is well documented, a national pipeline, subject to a thorough environmental and regulatory review, would put the issue beyond dispute. The burning platform for the West and for Canada is obvious. We sell almost all of our oil to one customer, the U.S. and we are paying a bitter price for the lack of competition for our resources.

Currently, we suffer two discounts, a West Texas Intermediate differential and a heavy oil differential. At various times this year, these differentials have amounted to as much as $37 per barrel. By one estimate, $630-billion in additional GDP will be forgone over the next 25 years. This is value destruction of monumental proportions. Quite naturally, these price differentials are also slowing down the pace of production and could result in new investments being postponed or cancelled altogether.

It is a simple matter of fact that the U.S. will always remain our primary customer and we need better pipeline access to the U.S. The appropriate approval processes to secure this access are well advanced.

But we also need market diversification. This would require pipeline access to the West Coast and the East Coast. The former is more difficult for a variety of reasons. However, East Coast access is particularly promising.

Firstly, a lot of the pipeline capacity is already in place. Secondly, the East has a significant number of refineries that need access to Western crude.

Just as Western producers are suffering from being captive to U.S. pricing, our East Coast refineries are suffering from being captive to global suppliers. They need Western crude and are currently accessing some of their requirements by rail car, even though it is a more expensive option than pipelines. If we were able to sell Alberta crude into Eastern Canada, where oil is bought at the higher overseas price, we would create better value for Western producers and better netbacks for Eastern refineries. Plus, we would reduce the glut in Cushing, Okla., which could, in turn, impact the price differential.

For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/commentary/lets-build-a-canadian-oil-pipeline-from-coast-to-coast/article4299451/