Alberta's Keystone XL investment benefits oil companies more than Albertans

Earlier this week, Premier Jason Kenney announced that the Government of Alberta will borrow money to debt finance the construction of TC Energy’s Keystone XL (KXL) pipeline.

More specifically, the Alberta government is making an equity investment in TC Energy of $1.5 billion CAD in 2020, and the government will provide a backstop for the pipeline through a $6 billion CAD loan guarantee in 2021. TC Energy says KXL’s overall cost will be more than $10 billion CAD ($8 billion USD).

KXL is a very large pipeline that TC Energy first proposed 15 years ago. Once complete, KXL will transport up to 830,000 barrels of oil per day from Alberta to Nebraska, where KXL will connect to TC Energy’s existing pipelines to refineries in the US Gulf Coast and Midwest.

TC Energy says the construction of KXL will create 13,200 jobs (10,400 in the US and 2,800 in Canada). Four in every five construction jobs will be created in the US because most of the pipeline’s route is in the US.

The Alberta government’s investment in TC Energy is a big win for the company, who may not have been able to begin construction of KXL in 2020 without the injection of public funds. KXL is now expected to be operational in 2023.

The other big winners of the Alberta government investment in the pipeline are the Big Five oil sands producers – Suncor, CNRL, Imperial, Cenovus, and Husky – who together will fill up much of KXL with their bitumen in the coming years.

The Big Five account for most of Alberta’s bitumen production, and shipping more of their bitumen in pipelines like KXL, as opposed to crude-by-rail, may save these companies a few bucks per barrel and thus reduce their costs per barrel by up to 10% (their costs per barrel are in the $20-$30 range).

In 2018, the Big Five transferred $11.34 billion CAD to their shareholders via dividends and share buybacks. That same year, the companies transferred $5.53 billion CAD to various municipal, provincial, federal, and Indigenous governments in Canada. This lopsided split of the profits that don’t remain in the firms’ bank accounts suggests that the cost savings that the Big Five accrue from shipping oil in KXL will mostly be passed on to shareholders, not government treasuries in Alberta or Canada.

This lopsided split of profits was already set to get worse for Alberta taxpayers in the coming years because the United Conservative Party (UCP) government is slashing the province’s tax rate for large corporations from 12% in spring 2019 to 8% by January 2022. In total, the Big Five estimate they will save $4.3 billion in 2019-2022 from the UCP corporate tax cut.

On top of the lopsided split of profits, structural changes in Alberta’s oil sands industry in the last decade raise further questions about why the Alberta government would choose to invest tax dollars in the industry at this time.

In the last decade, advancements in extractive technologies and modular facility design have enabled leading oil sands producers, like the Big Five, to increase production with less capital and fewer jobs. These ongoing trends were accelerated by oil sands companies after the 2014 oil price crash. The result is, since 2014, oil sands production has increased 23%, while jobs have declined 23% and capital spending is down about 65%.

In other words, productivity per employee in the oil sands has increased a lot. In 2019, every oil sands worker produced on average 72% more bitumen than in 2011. Productivity in the Canadian oil and gas sector overall grew 47% in the same timeframe. This suggests that most of the 53,000 Canadian oil and gas jobs that have been cut since 2014 are likely not coming back, even after KXL comes online.

Taking into account the long-term capital spending, employment, and technology trends of Alberta’s oil sands industry, and the urgent need for science-based emissions reductions, Albertans have to ask if it’s worth it to continue betting on the cost-cutting and job-cutting oil sands industry, or if now is the time to position our province to more fully benefit from the ongoing global energy transition.

The Alberta government’s press release about the KXL investment does not even mention climate change, let alone specific numbers on the greenhouse-gas implications of the government’s decision. That omission at this point in history is truly astounding.

In his quote in the press release, Premier Kenney claims that KXL “will have a net return of over $30 billion to the Alberta taxpayer through royalties and higher prices for Alberta oil in the next 20 years.” Albertans should take this claimed benefit with a huge grain of salt until further details are made available.

Journalists from The Star tried to report further details on Premier Kenney’s claim by asking Alberta’s Energy Minister “what oil prices were used to back up that estimate, but didn’t receive a response.”

It is profoundly undemocratic for the Alberta government to negotiate the KXL deal in secret and then refuse to provide the detailed case for the investment to the public. Albertans deserve better from our government.

This post is part of the Corporate Mapping Project, a research and public engagement initiative investigating the power of the fossil fuel industry in Western Canada. The CMP is jointly led by the University of Victoria, the Canadian Centre for Policy Alternatives, and Parkland Institute. This research was supported by the Social Science and Humanities Research Council of Canada (SSHRC).

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Photo credit: shannonpatrick17 under a Creative Commons licence