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Energy

We can and must adjust to climate change – and not kill billions

Published

10 minute read

From the Frontier Centre for Public Policy

By Paul Driessen and Ronald Stein

The futures of poor developing countries hinge on their ability to harness foundational elements: fuels, electricity, minerals and feed stocks made from fossil fuels and other materials that are the basis for all buildings, infrastructures and other technologies in industrialized countries.

We’ve always done so and have no right to tell others they can’t have modern living standards.

Earth’s climate has changed many times over four billion years, and 99.999% of those changes occurred before humans were on this planet. During that short time, humans adjusted their housing, clothing and agriculture in response to climate changes. Can we now control the climate?

Except for decades-long droughts or massive volcanic explosions that ended some civilizations, humanity generally adjusted successfully – through a Pleistocene Ice Age, a Little Ice Age, a Dust Bowl and other natural crises. Numerous state high temperature records were set in Dust Bowl years.

After putting our current “microsecond” on Earth into its proper perspective, we might therefore ask:

* With today’s vastly superior technologies, why would humanity possibly be unable to adjust to even a few-degrees temperature increase, especially with more atmospheric carbon dioxide helping plants grow faster and better, providing more food for animals and people?

* How dare the political, bureaucratic, academic and media ruling elites – who propagate GIGO computer predictions, calculated myths and outright disinformation – tell us we must implement their “green” policies immediately and universally … or humanity won’t survive manmade climate influences that are minuscule compared to the planetary, solar and galactic forces that really control Earth’s climate?

* How dare those elites tell Earth’s poorest people and nations they have no right to seek energy, health and living standards akin to what developed countries already enjoy?

Scientists, geophysicists and engineers have yet to explain or prove what caused the slight change in global temperatures we are experiencing today – much less the huge fluctuations that brought five successive mile-high continental glaciers, and sea levels that plunged 400 feet each time (because seawater was turned to ice), interspersed with warm inter-glacial periods like the one we’re in now.

Moreover, none of the dire predictions of cataclysmic temperature increases, sea level rise, and more frequent and intense storms have actually occurred, despite decades of climate chaos fearmongering.

Earth continues to experience climate changes, from natural forces and/or human activity. However, adjusting to small temperature, sea level and precipitation changes would inflict far less harm on our planet’s eight billion people than would ridding the world of fossil fuels that provide 80% of our energy and myriad products that helped to nearly double human life expectancy over the past 200 years.

Today, with fuels, products, housing and infrastructures that didn’t even exist one or two centuries ago, we can adjust to almost anything.

When it’s cold, we heat insulated homes and wear appropriate winter clothing; when it’s hot, we use air conditioning and wear lighter clothing. When it rains, we remain dry inside or with umbrellas; when it snows, we stay warm indoors or ski, bobsled and build snowmen.

Climate changes may impact us in many ways. But eliminating coal, oil and natural gas – with no 24/7/365 substitutes to replace them – would be immoral and evil. It would bring extreme shortages of reliable, affordable, essential energy, and of over 6,000 essential products derived from fossil fuels.

It would inflict billions of needless deaths from diseases, malnutrition, extreme heat and cold, and wild weather – on a planet where the human population has grown from 1 billion to 8 billion since Col. Edwin Drake drilled the first oilwell in 1859.

Weather-related fatalities have virtually disappeared, thanks to accurate forecasting, storm warnings, modern buildings, and medicines and other petroleum-based products that weren’t available even 100 years ago.

* Fossil fuels for huge long-range jets and merchant ships move people, products, food and medications to support global trade, mobility, health and lifestyle choices. Indeed, more than 50,000 merchant ships20,000 commercial aircraft and 50,000 military aircraft use fuels manufactured from crude oil.

* Food to feed Americans and humanity would be far less abundant and affordable without the fertilizers, insecticides, herbicides, and tractor and transportation fuels that come from oil and natural gas.

* Everything powered by electricity utilizes petroleum-based derivatives: wind turbine blades and nacelle covers, wire insulation, iPhone and computer housings, defibrillators, myriad EV components and more.

Petroleum industry history demonstrates that crude oil was virtually useless until it could be transformed in refineries and chemical plants into derivatives that are the foundation for plastics, solvents, medications and other products that support industries, health and living standards. The same is true for everything else that comes out of holes in the ground.

Plants and rocks, metals and minerals have no inherent value unless we learn how to cook them, extract metals from them, bend and shape them, or otherwise convert them into something we can use.

Similarly, the futures of poor developing countries hinge on their ability to harness foundational elements: fuels, electricity, minerals and feed stocks made from fossil fuels and other materials that are the basis for all buildings, infrastructures and other technologies in industrialized countries.

For the 80% of humanity in Africa, Asia and Latin America who still live on less than $10 a day – and the billions who still have little to no access to electricity – life is severely complicated and compromised by the hypocritical “green” agendas of wealthy country elites who have benefited so tremendously from fossil fuels since the modern industrial era began around 1850. Before that:

* Life spans were around 40 years, and people seldom travelled more than 100 miles from their birthplaces.

* There was no electricity, since generating, transmitting and utilizing this amazing energy resource requires technologies made from oil and natural gas derivatives.

* That meant the world had no modern transportation, hospitals, medicines and medical equipment, kitchen and laundry appliances, radio and other electronics, cell phones and other telecommunications, air and space travel, central heating and air conditioning, or year-round shipping and preservation of meats, fruits and vegetables, to name just a few things most of us just take for granted.

There are no silver-bullet solutions to save people from natural or man-made climate changes. However, adjusting to those fluctuations is the only solution that minimizes fatalities which would be caused by the callous or unthinking elimination of the petroleum fuels and building blocks that truly make life possible and enjoyable, instead of nasty, brutish and short. The late Steven Lyazi explained it perfectly:

“Wind and solar are … short-term solutions …. to meet basic needs until [faraway Ugandan villages] can be connected to transmission lines and a grid. Only in that way can we have modern homes, heating, lighting, cooking, refrigeration, offices, factories, schools, shops and hospitals – so that we can enjoy the same living standards people in industrialized countries do (and think is their right). We deserve the same rights and lives.

“What is an extra degree, or even two degrees, of warming in places like Africa? It’s already incredibly hot here, and people are used to it. What we Africans worry about and need to fix are malnutrition and starvation, the absence of electricity, and killer diseases like malaria, tuberculosis, sleeping sickness and HIV/AIDS…. We just need to be set free to [get the job done].”

Paul Driessen is senior policy analyst for the Committee For A Constructive Tomorrow (www.CFACT.org), and author of articles and books on environmental, climate and human rights issues.

Ronald Stein is an engineer, senior policy advisor on energy literacy for the Heartland Institute and CFACT, and co-author of the Pulitzer Prize-nominated book “Clean Energy Exploitations.”

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Alberta

The beauty of economic corridors: Inside Alberta’s work to link products with new markets

Published on

From the Canadian Energy Centre

Q&A with Devin Dreeshen, Minister of Transport and Economic Corridors

Devin Dreeshen, Alberta’s Minister of Transportation
and Economic Corridors.

CEC: How have recent developments impacted Alberta’s ability to expand trade routes and access new markets for energy and natural resources?

Dreeshen: With the U.S. trade dispute going on right now, it’s great to see that other provinces and the federal government are taking an interest in our east, west and northern trade routes, something that we in Alberta have been advocating for a long time.

We signed agreements with Saskatchewan and Manitoba to have an economic corridor to stretch across the prairies, as well as a recent agreement with the Northwest Territories to go north. With the leadership of Premier Danielle Smith, she’s been working on a BC, prairie and three northern territories economic corridor agreement with pretty much the entire western and northern block of Canada.

There has been a tremendous amount of work trying to get Alberta products to market and to make sure we can build big projects in Canada again.

CEC: Which infrastructure projects, whether pipeline, rail or port expansions, do you see as the most viable for improving Alberta’s global market access?

Dreeshen: We look at everything. Obviously, pipelines are the safest way to transport oil and gas, but also rail is part of the mix of getting over four million barrels per day to markets around the world.

The beauty of economic corridors is that it’s a swath of land that can have any type of utility in it, whether it be a roadway, railway, pipeline or a utility line. When you have all the environmental permits that are approved in a timely manner, and you have that designated swath of land, it politically de-risks any type of project.

CEC: A key focus of your ministry has been expanding trade corridors, including an agreement with Saskatchewan and Manitoba to explore access to Hudson’s Bay. Is there any interest from industry in developing this corridor further?

Dreeshen: There’s been lots of talk [about] Hudson Bay, a trade corridor with rail and port access. We’ve seen some improvements to go to Churchill, but also an interest in the Nelson River.

We’re starting to see more confidence in the private sector and industry wanting to build these projects. It’s great that governments can get together and work on a common goal to build things here in Canada.

CEC: What is your vision for Alberta’s future as a leader in global trade, and how do economic corridors fit into that strategy?

Dreeshen: Premier Smith has talked about C-69 being repealed by the federal government [and] the reversal of the West Coast tanker ban, which targets Alberta energy going west out of the Pacific.

There’s a lot of work that needs to be done on the federal side. Alberta has been doing a lot of the heavy lifting when it comes to economic corridors.

We’ve asked the federal government if they could develop an economic corridor agency. We want to make sure that the federal government can come to the table, work with provinces [and] work with First Nations across this country to make sure that we can see these projects being built again here in Canada.

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Energy

Why are Western Canadian oil prices so strong?

Published on

Macdonald-Laurier Institute By Rory Johnston for Inside Policy

While Canadian crude markets are as optimistic as they’ve been in months regarding US tariffs, the industry is still far from safe.

Western Canadian heavy crude oil prices are remarkably strong at the moment, providing a welcome uplift to the Canadian economy at a time of acute macroeconomic uncertainty. The price of Western Canadian Select (WCS) crude recently traded at less than $10/bbl (barrel) under US Benchmark West Texas Intermediate (WTI): a remarkably narrow differential (i.e., “discount”) for the Canadian barrel, which more commonly sits around $13/bbl but has at moments of crisis blown out to as much as $50/bbl.

Stronger prices mean greater profits for Canadian oil producers and, in turn, both higher royalty and income tax revenues for Canadian governments as well as more secure employment for the tens of thousands of Canadians employed across the industry. For example, a $1/bbl move in the WCS-WTI differential drives an estimated $740 million swing in Alberta government budget revenues.

Why are Canadian oil prices so strong today? It’s due to the perfect storm of three distinct yet beneficial conditions:

  • Newly sufficient pipeline capacity following last summer’s start-up of the Trans Mountain Expansion pipeline, which eliminated – albeit temporarily – the effect of egress constraint-driven discounting of Western Canadian crude;
  • Globally, the bolstered value of heavy crudes relative to lighter grades – driven by production cuts, shipping activity, sanctions, and other market forces – has benefited the fundamental backdrop against which Canadian heavy crude is priced; and
  • The near elimination of tariff-related discounting as threat of US tariffs has diminished, after weighing on the WCS differential to the tune of $4–$5/bbl between late-January through early March.

We break down each of these factors below.

A quick primer: differentials, decomposed

Before we dive in, let’s quickly review how Canadian crude pricing works. WCS crude is Canada’s primary export grade and is virtually always priced at a discount to WTI, the US benchmark for oil prices, for two structural reasons outlined below. More accurately referred to as the differential (in theory, the price difference could go both ways), this price difference is a fact of life for Canadian crude producers and sits between $11–$15/bbl in “normal” times. Over the past decade, WCS has only sported a sub-$10/bbl differential less than 10 per cent of the time and most such instances reflected unique market conditions, like the Alberta government’s late-2018 production curtailment and the depths of COVID in early 2020.

The structurally lower value of WCS relative to WTI is driven by two main structural factors: quality and geography.

First and very simply, WCS is extremely heavy oil – diluted bitumen, to be specific – in contrast to WTI, which is a light crude oil blend. Furthermore, WCS has a high sulphur content (“sour,” in industry parlance) compared to the virtually sulphur-free WTI (“sweet”). WCS crude requires specialized equipment to be effectively processed into larger shares of higher-value transportation fuels like diesel as well as the remove the sulphur, which is environmentally damaging (see: acid rain)l; so, WCS is “discounted” to reflect the cost of that additional refining effort. Quality-related discounting typically amounts to $5-$8/bbl and can be seen in its pure form in the price of a barrel of WCS is Houston, Texas, where it enjoys easy market access.

Second, Western Canadian oil reserves are landlocked and an immense distance from most major refining centers. Unlike most global oil producers that get their crude to market via tanker, virtually all Canadian crude gets to end markets via pipeline. So, this higher cost of transportation away from where the crude is produced (aka “egress”) represents the second “discount” borne by the relative price of Canadian crude, required to keep it competitive with alternative feedstocks. Transportation-related discounting typically amounts to $7-$10/bbl and can be seen in the difference between the price of a barrel of WCS in the main hub of Hardisty, Alberta and the same barrel in Houston, Texas.

Moreover, transportation-related discounting is worse when pipeline capacity is insufficient, which has so frequently been the case over the past decade and a half. When there isn’t enough pipeline space to go around, barrels are forced to use more expensive alternatives like rail and that adds at least another $5/bbl to the required industry-wide pricing discounting – because prices are always set at the margin, or in other words by the weakest barrel. In especially acute egress scarcity, the geographic-driven portion of the differential can blow out, as we saw in late-2018 when the differential rose to more than $50/bbl before the Alberta government forcibly curtailed provincial production to reduce that overhang.

Additionally, the election of US President Donald Trump – and, specifically, the threat of US tariffs on Canadian exports – has introduced a third factor in the differential calculation. Over the past few months, shifts in the WCS differential have also been reflecting the market’s combined handicapping of (i) the probability of tariffs hitting Canadian crude and (ii) the rough share of the tariff burden borne by Canadian exporters.

All three of these factors – global quality, egress availability, and market anticipation of tariff US risk – have shifted decisively and strongly in favour of WCS over the recent weeks and months.

More pipelines, fewer problems

The first reason that Canadian oil prices are remarkably strong at the moment is sufficient pipeline capacity. The perennial bugbear of Western Canadian oil producers, pipeline capacity is, quite unusually, sufficient thanks to last summer’s start-up of the Trans Mountain Expansion Project (TMX). TMX is the largest single addition to Western Canadian egress capacity in more than a decade and, since TMX entered service last summer, the transportation-related differential has remained low and stable, eliminating the largest and most common drag on Canadian crude pricing.

Without TMX, the Western Canadian oil industry would be suffering an all too familiar and increasingly acute egress crisis. Acute egress shortages would have dwarfed the threat of US tariffs and pushing differentials, in stark contrast to today, far wider – the spectre of provincial production curtailment would not have been out of the question. And it is also important to note that this pipeline sufficiency is inherently temporary. Current pipeline sufficiency will likely only last another year or two at most and then Western Canadian egress will require additional expansions to avoid the resurrecting of egress-scarcity-driven differential blowouts.

Heavy is the crude that wears the crown

The second reason that Canadian oil prices are remarkably strong now is the unusually strong global market for heavy crude. Heavy crude grades (e.g., Iraqi Basra Heavy and Mexican Maya), medium crude grades (e.g., Dubai and Mars), and high sulphur fuel oil (used in global shipping) have all seen their value rise relative to Brent and WTI benchmarks, which both reflect lighter, sweet grades of crude.

For WCS, the differential has narrowed from more than $10/bbl at the end of 2023 to around $2.8/bbl under WTI. The bolstered value of heavy crudes relative to lighter grades is being driven by a host of factors including ongoing OPEC+ production cuts (much of which came in the form of heavier crude grades), strong shipping activity, and tighter sanctions against traditional suppliers of heavy shipping fuel like Russia and more recently Venezuela.

What tariff threat?

Finally, the most acute and volatile reason that Canadian oil prices are remarkably strong at the moment is the near elimination of US tariff-related discounting. The US imports more than half of its total foreign oil purchases from Canada and Canadian crude has long enjoyed tariff-free access to the US market. Tariff-related pricing pressure began in earnest in late-2024 as Canadian crude markets tried to build in an ever-evolving handicapping of that tariff risk following Trump’s initial tariff threats. Tariff-related discounting grew stronger from mid-January through February with the excess geographic WCS differential rising to nearly $5/bbl (see chart above and read “Canadian Crude Drops Tariff Discount” for more on the logic of this measure).

After a months-long rollercoaster of “will he/won’t he” uncertainty around the imposition of US tariffs on Canadian crude imports, USMCA-compliant exemptions and broader US official chatter regarding potential outright Canadian crude exemptions have allowed markets to reduce the (roughly) implied probability to effectively zero. This factor alone narrowed the headline WCS differential in Hardisty, Aberta, by $3–$4/bbl over the past month.

Conclusion

Canadian oil prices are so strong today because just about everything that can be going right is going right. WCS differentials are benefitting from a perfect storm of (i) unusually sufficient pipeline capacity, (ii) exceptionally strong global heavy crude markets, and (iii) a near elimination of US tariff-related discounting. Together, these factors are lifting the relative value of Canadian crude oil exports, and this is a boon for Canadian oil industry profits, provincial royalty income, income tax receipts, and employment in the sector.

Looking ahead, WCS differentials may narrow by another dollar or two as this beneficial momentum persists. However, the balance of risk is now tilted towards a reversal (i.e., widening) of differentials over the coming year as OPEC+ begins to ease production cuts and Western Canadian production continues to grow without the hope of any new near-term pipeline additions. While Canadian crude markets are as optimistic as they’ve been in months regarding US tariffs, the industry is still far from safe – given the volatility of policy coming out of the White House, there is still a chance that this near-erasure of tariff risk from Canadian crude pricing may have come too far, too fast.

If and as tariff concerns fall away, egress sufficiency (i.e., pipeline capacity) will resume its place as king of the differential determinants. At the current rates of Western Canadian production growth, Canada is set to again overrun egress capacity – after the relief provided by the start-up of TMX – over the next year or two at most. While Canada may have dodged a near-term bullet to crude exports destined for the US, this situation serves to only emphasize the continued challenges associated with current pipeline infrastructure. It would be prudent for Canadian politicians to begin shifting their current concerns towards the structural, and entirely predictable, threat of renewed egress insufficiently coming down the pipe.


About the author

Rory Johnston is a leading voice on oil market analysis, advising institutional investors, global policy makers, and corporate decision makers. His views are regularly quoted in major international media. Prior to founding Commodity Context, Johnston led commodity economics research at Scotiabank where he set the bank’s energy and metals price forecasts, advised the bank’s executives and clients, and sat on the bank’s senior credit committee for commodity-exposed sectors.

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