Pembina gets it

[JRM]

This is one of those threads that the politics sections was meant for. Why was it posted here again?

 

Actually understanding the problems and possibilities here is critical for anyone considering investing in Canadian O&G producers. I hate the politics threads on here but I'm glad to have read this.

 

I agree.  I have been following the BC antics due to my investment in Kinder Morgan.  It has provided for a lot of entertainment value.

[Cardboard]

This is really a post about logistics, money and how many businesses are affected.

 

There are multiple threads on: Macro Enterprises, oil, O&G producers. Should we move them all to the Politics section? Should we also move to the Politics section the: "I love Elon Musk thread?"

 

What is also at stake is that we have a country that could potentially turn out very different than it is now if a new leader is elected in Alberta in 2019. We already have the current pro-environment Alberta leader boycotting B.C.'s wine, electricity purchases, etc. in retaliation to what is going on. What happens if someone with a more populist thinking comes to power?

 

So I think that understanding what is going here is pretty important for any investor in Canada. This goes further than left or right. An out of control constitutional crisis could affect credit ratings, how business gets done in the country and potentially worst. In another words, a black swan.

 

Cardboard

[Pelagic]

Perhaps I'm in the minority but I tend to view pipelines and their associated risk as an engineering issue. Spending money on political debate seems wasted when it could be put toward better design, monitoring, and containment in the event of a spill. If oil companies and subsequently provinces are losing millions a day in revenue due to low differentials, there's a lot of incentive to design a pipeline that isn't going to leak and to replace old ones that might.

 

The above goes for oil pipeline opposition, which does present a real risk in the event of a failure. NG pipelines are different and relatively benign in terms of their potential impact on the environment should they leak. 

[petec]

There's a lot of incentive to design a pipeline that isn't going to leak and to replace old ones that might.

 

 

Yes - but the issue comes in persuading the public/public authorities that you can be trusted when you say your new design won't leak. Public understanding around energy is woeful.

[SharperDingaan]

It might not be popular, but this thread is in the right place.

The reality is that o/g investment in the WCSB includes a material political component, and it should be part of your decision to invest.

 

Canada already has pipelines going west, east, and south. Unfortunately they are nearing end of life (corrosion & leaks), and were sized for smaller volumes than we have today. Fortunately the rights of way already exist, as does the permiting. Most folks would suggest that the long term solution is both replacement (& bigger) pipe, double piping in sections, and removing/re-cycling the old pipe/steel. Long term utility infrastructure investment, ideal for pension fund investment to offset their long term liabilities. Less enviro damage, lower cost through scaling, all kinds of construction/operations jobs in Canada, unrestricted tidewater access on both coasts, and much lower differentials. All Canada benefits, and in a very big way.

 

Canada is a pretty civil place - a industry has to have been behaving pretty badly, and for a long time, to meet this much resistance AND from so many disparate people. We used to think that 'rock 'em, sock 'em hockey' was 'part of the game' - but have since moved on once it was realised how destructive it was to play this way.

 

Agreed it's frustrating to be Albertan, but at times they are their own worst enemy.

The smartest thing the fighting kids can do for themselves is to shut-up, and let the adults (fed) clean up their mess.

 

SD

 

 

[RichardGibbons]

Perhaps I'm in the minority but I tend to view pipelines and their associated risk as an engineering issue. Spending money on political debate seems wasted when it could be put toward better design, monitoring, and containment in the event of a spill. If oil companies and subsequently provinces are losing millions a day in revenue due to low differentials, there's a lot of incentive to design a pipeline that isn't going to leak and to replace old ones that might.

 

The above goes for oil pipeline opposition, which does present a real risk in the event of a failure. NG pipelines are different and relatively benign in terms of their potential impact on the environment should they leak.

 

This is largely misunderstanding the issue.  From what I read, the indigenous people are mostly the ones concerned with a pipeline leak.  The issue almost everyone else seems to be more  concerned about is a dilbit tanker leak because it's unclear how to clean it up--there's even debate on whether or not dilbit sinks, which to me seems like a pretty basic attribute. 

 

It might be Horgan just looking for excuses to say "No" when he says we ought to understand how to clean up dilbit before increasing dilbit shipments, but it actually is a real argument.  Dumping 100K tonnes of a slow-degrading carcinogen in Vancouver harbor or the Georgia Strait seems likely to me to have a negative impact.

 

That said, Stubble's post about the NEB taking responsibility for pipeline spills is reassuring (since I assume it would also apply to tanker spills).  I'm not keen on the government paying private expenses, but it's certainly better than nobody paying for it.

[RichardGibbons]

This is really a post about logistics, money and how many businesses are affected.

 

LOL, no it isn't.  Other than the link, this is the entirety of what you said in the initial post on this the thread.

 

Amazing what is going on. Go through Alaska or Oregon to avoid B.C.! $100 billion of projects that would have happened in Canada being done in the U.S. instead.

 

Just imagine how many jobs, businesses and communities this would have helped? And while our obstructionists think they are doing something great, reality is that the same quantity of fossil fuels end up in the global market. Someone else is benefiting vs Canadians and that is the only difference being made.

 

I mean, I get that you want to lie about why you're posting something, but if you really want to pretend a thread isn't isn't political, you should at least delete the really politicial initial post so that your story is at least a bit plausible.

 

[StubbleJumper]

Perhaps I'm in the minority but I tend to view pipelines and their associated risk as an engineering issue. Spending money on political debate seems wasted when it could be put toward better design, monitoring, and containment in the event of a spill. If oil companies and subsequently provinces are losing millions a day in revenue due to low differentials, there's a lot of incentive to design a pipeline that isn't going to leak and to replace old ones that might.

 

The above goes for oil pipeline opposition, which does present a real risk in the event of a failure. NG pipelines are different and relatively benign in terms of their potential impact on the environment should they leak.

 

This is largely misunderstanding the issue.  From what I read, the indigenous people are mostly the ones concerned with a pipeline leak.  The issue almost everyone else seems to be more  concerned about is a dilbit tanker leak because it's unclear how to clean it up--there's even debate on whether or not dilbit sinks, which to me seems like a pretty basic attribute. 

 

It might be Horgan just looking for excuses to say "No" when he says we ought to understand how to clean up dilbit before increasing dilbit shipments, but it actually is a real argument.  Dumping 100K tonnes of a slow-degrading carcinogen in Vancouver harbor or the Georgia Strait seems likely to me to have a negative impact.

 

That said, Stubble's post about the NEB taking responsibility for pipeline spills is reassuring (since I assume it would also apply to tanker spills).  I'm not keen on the government paying private expenses, but it's certainly better than nobody paying for it.

 

 

No, the first nations are not worried about a pipeline spill.  They are far more intelligent than that.  What's going on with the indigenous bands is that they want to make a buck from any pipeline that crosses their land, which is something that I completely understand.  However, at the moment, it's far more profitable for them to accept money from foreign eco-terrorist groups than to cut a deal to actually build the pipeline.  So, like all of us, the indigenous have chosen the more profitable route and trotted out the spurious excuse that a pipeline could cause a spill with grievous consequences to the land. 

 

If it were more lucrative for first nations to build a pipeline, the indigenous would suddenly say that the elders consulted the spirit world and the Great Bear and White Wolf would like the pipeline to be built.

 

 

SJ

[RichardGibbons]

Actually understanding the problems and possibilities here is critical for anyone considering investing in Canadian O&G producers. I hate the politics threads on here but I'm glad to have read this.

 

In that case, you should know that this pipeline is a pretty big deal to people in BC.  A recent survey indicates that 23% say that they are willing to perform acts of civil disobedience to stop the pipeline.

 

Most of the 23% are lying, but if only 5% of them are serious you still have 1% of the population of Greater Vancouver willing to commit acts of civil disobedience to mess with this pipeline.  And a small minority of those could be total psycho extremists, willing to do things like violence or sabotage. 

 

I think the housing crisis in Vancouver also magnifies the potential for extreme behavior as the millenials realize just how badly the government has screwed them, and a lot of that anger will (irrationally) spill over to the pipeline.  Gross inequality creates instability.

 

In sum, I think it means that there's likely to be a lot of grief building this pipeline, and it still isn't clear it will happen.  (My bet is that it will, so I think it's over 50% likely, but I don't think it's over 80% likely.)  So, if you're trying to analyse investment based on this pipeline, these possibilities are worth throwing into your analysis.

 

[RichardGibbons]

No, the first nations are not worried about a pipeline spill.  They are far more intelligent than that.  What's going on with the indigenous bands is that they want to make a buck from any pipeline that crosses their land, which is something that I completely understand.  However, at the moment, it's far more profitable for them to accept money from foreign eco-terrorist groups than to cut a deal to actually build the pipeline.  So, like all of us, the indigenous have chosen the more profitable route and trotted out the spurious excuse that a pipeline could cause a spill with grievous consequences to the land. 

 

Fair point, Stubble.  I don't totally agree, but I think what you say is likely far more true than not true.

[Cardboard]

"In that case, you should know that this pipeline is a pretty big deal to people in BC."

 

That guy Gibbons is such an arrogant...... He keeps telling everyone that they should know everything but, reading his posts just on this thread alone show a level of ignorance that is pretty high.

 

He is essentially just one more of those: not in my backyard type. Well, if the millenials in B.C. get so upset about inequality, lack of jobs, housing, etc. then I won't cry when they come for you.

 

Cardboard

[RichardGibbons]

"In that case, you should know that this pipeline is a pretty big deal to people in BC."

 

That guy Gibbons is such an arrogant...... He keeps telling everyone that they should know everything but, reading his posts just on this thread alone show a level of ignorance that is pretty high.

 

He is essentially just one more of those: not in my backyard type. Well, if the millenials in B.C. get so upset about inequality, lack of jobs, housing, etc. then I won't cry when they come for you.

 

You're awesome, Cardboard.  Because of flak you got on other threads for ad hominem attacks on other people, you were trying really hard not to insult people here.  But in the end, you couldn't resist.  It reminds me of a 4 year old doing the marshmallow test.

 

(I'll remind you if you don't want me to respond to political threads, just leave political threads in the politics section.  But I know that's just another marshmallow to you. :) )

 

 

[Spekulatius]

Ouch!. This thread went downhill really fast. :-\

[rb]

No, the first nations are not worried about a pipeline spill.  They are far more intelligent than that.  What's going on with the indigenous bands is that they want to make a buck from any pipeline that crosses their land, which is something that I completely understand.  However, at the moment, it's far more profitable for them to accept money from foreign eco-terrorist groups than to cut a deal to actually build the pipeline.  So, like all of us, the indigenous have chosen the more profitable route and trotted out the spurious excuse that a pipeline could cause a spill with grievous consequences to the land. 

 

If it were more lucrative for first nations to build a pipeline, the indigenous would suddenly say that the elders consulted the spirit world and the Great Bear and White Wolf would like the pipeline to be built.

 

SJ

I think you are correct that it's an economic decision and mainly about money. Though I don't think it has anything to do with money from "eco-terrorist groups" as you put it. I think it's a lot more simple. It's that those groups realized that they have a powerful negotiating position and won't roll over anymore. So if you want their valuable product you'll have to take out your wallet and pay for it. They're probably right too.

 

Now about non aboriginal BC people, most of their money is in very expensive real estate. In their mind the real estate prices are linked to beautiful mountains and pristine waters. Pipelines and tankers are generally pretty safe but every now and then they spill. Now I don't know what a bitumen spill would do to real estate prices. I don't think it would help them or maybe it won't do anything. But if you were one of the people of BC where so much of your wealth is ties to that one asset, why take the chance? You may be able to buy the aboriginals with a higher price but the price but the price required by people in Vancouver/Victoria areas may be uneconomical. In that case maybe it's better to route through Oregon if they're willing to take your bid.

 

By the way, my opinion is that these pipes should be built because it's for the best. But let me invest this a bit. If this is about money as you and I think it is. Then the government jamming this thing though amounts to the government interfering in a market to set prices. It's funny that all the market, anti government people all of a sudden become big government interventionists when it comes to pipelines - is it superseding ideology, one's portfolio, or both?

 

Also thinking more about routing through Oregon. Is that so bad? As a country we would cede the some rents and some maintenance jobs. We still get to ship our oil which is the most important bit. The rents aren't very high and the maintenance jobs are few. Tanker and pipeline spills are also real and we get to outsource those. The big risk would be that the US could shut down our pipes for whatever reason. While that risk went up slightly in the past couple of years it is still negligible in my view. So maybe we're actually getting a good deal with an Oregon route.

 

Some musings on pipelines in general... I've been reading a lot over the past few years about dissatisfaction between land owners and pipeline owners/operators. It basically comes down to the fact that they feel that they're getting a bad deal and it's not worth it to have a pipeline on their land. If that's the case in the future pipes will have to sweeten the deal and shipping costs will rise. Now if I were a producer a pipeline is an inferior way to ship. I'd much prefer to ship by rail. Pipe's only advantage is cost. But if the price between pipe and rail should narrow, are pipes even viable in the future? I guess it depends on how much that gap narrows. But it's something to think about.

 

Apologies about the long post, I wanted to squeeze a few extra points to make it comprehensive.

[petec]

 

Now if I were a producer a pipeline is an inferior way to ship. I'd much prefer to ship by rail.

 

Why? Sorry if this is a dumb question.

[StubbleJumper]

No, the first nations are not worried about a pipeline spill.  They are far more intelligent than that.  What's going on with the indigenous bands is that they want to make a buck from any pipeline that crosses their land, which is something that I completely understand.  However, at the moment, it's far more profitable for them to accept money from foreign eco-terrorist groups than to cut a deal to actually build the pipeline.  So, like all of us, the indigenous have chosen the more profitable route and trotted out the spurious excuse that a pipeline could cause a spill with grievous consequences to the land. 

 

If it were more lucrative for first nations to build a pipeline, the indigenous would suddenly say that the elders consulted the spirit world and the Great Bear and White Wolf would like the pipeline to be built.

 

SJ

I think you are correct that it's an economic decision and mainly about money. Though I don't think it has anything to do with money from "eco-terrorist groups" as you put it. I think it's a lot more simple. It's that those groups realized that they have a powerful negotiating position and won't roll over anymore. So if you want their valuable product you'll have to take out your wallet and pay for it. They're probably right too.

 

Now about non aboriginal BC people, most of their money is in very expensive real estate. In their mind the real estate prices are linked to beautiful mountains and pristine waters. Pipelines and tankers are generally pretty safe but every now and then they spill. Now I don't know what a bitumen spill would do to real estate prices. I don't think it would help them or maybe it won't do anything. But if you were one of the people of BC where so much of your wealth is ties to that one asset, why take the chance? You may be able to buy the aboriginals with a higher price but the price but the price required by people in Vancouver/Victoria areas may be uneconomical. In that case maybe it's better to route through Oregon if they're willing to take your bid.

 

By the way, my opinion is that these pipes should be built because it's for the best. But let me invest this a bit. If this is about money as you and I think it is. Then the government jamming this thing though amounts to the government interfering in a market to set prices. It's funny that all the market, anti government people all of a sudden become big government interventionists when it comes to pipelines - is it superseding ideology, one's portfolio, or both?

 

Also thinking more about routing through Oregon. Is that so bad? As a country we would cede the some rents and some maintenance jobs. We still get to ship our oil which is the most important bit. The rents aren't very high and the maintenance jobs are few. Tanker and pipeline spills are also real and we get to outsource those. The big risk would be that the US could shut down our pipes for whatever reason. While that risk went up slightly in the past couple of years it is still negligible in my view. So maybe we're actually getting a good deal with an Oregon route.

 

Some musings on pipelines in general... I've been reading a lot over the past few years about dissatisfaction between land owners and pipeline owners/operators. It basically comes down to the fact that they feel that they're getting a bad deal and it's not worth it to have a pipeline on their land. If that's the case in the future pipes will have to sweeten the deal and shipping costs will rise. Now if I were a producer a pipeline is an inferior way to ship. I'd much prefer to ship by rail. Pipe's only advantage is cost. But if the price between pipe and rail should narrow, are pipes even viable in the future? I guess it depends on how much that gap narrows. But it's something to think about.

 

Apologies about the long post, I wanted to squeeze a few extra points to make it comprehensive.

 

 

The government could only be considered to be interfering in the market to set prices if those who are attempting to extract the price actually have the property rights to do so.  Or, at least that's what Coase would say.  Much of the noise and fury that is driving the provincial government's decisions originates from people with no affected property who are using foreign money to fund a protest campaign.  The aboriginals themselves probably do have the property rights that entitle them to extract a price and they are manageable in the absence of a renegade provincial government. 

 

 

SJ

[SharperDingaan]

 

Now if I were a producer a pipeline is an inferior way to ship. I'd much prefer to ship by rail.

 

Why? Sorry if this is a dumb question.

 

We would suggest that this is a version of Taleb's 'taxi driver' anti-fragility.

Rather than rely on a single high paying job (pipeline build/terminal delivery process that is fragile), do a number of smaller jobs (delivery by rail to multiple terminals that is anti-fragile) where you are not as reliant on any one employer. Ultimately it may cost a little more (insurance premium), but you will never suffer a total shut-down (& economic collapse) - as you always have a way of getting at least some of your oil out. In business we try not to be beholden to a single dominant customer, same idea here.

 

Transport cost/mile is important, but the real advantage of pipelines is safety. Accidents happen, and the more tanker rail-traffic the higher the odds that there will be one. Nobody wants another Lac-Megantic  https://en.wikipedia.org/wiki/Lac-M%C3%A9gantic_rail_disaster

 

SD

 

 

[Cardboard]

A good summary of various projects:

 

https://www.themaven.net/thealphadiscoverer/general/these-3-pipeline-projects-can-transform-the-canadian-oil-industry-5mmZCoDJNkyRxfg2Xouc7Q

 

Cardboard

[Cardboard]

And new technologies:

 

http://www.fractalsys.com/wp-content/uploads/2018/02/2018-02-06-FRACTAL-SYSTEMS-CONFIRMS-ENHANCED-JETSHEAR-READY-FOR-COMMERCIAL-DEPLOYMENT-v2.pdf

 

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aCVE-2570808&symbol=CVE&region=C

 

https://www.cninnovation.ca/

 

Cardboard

[Valuebo]

http://www.gbm.scotiabank.com/scpt/gbm/scotiaeconomics63/pipeline_approval_delays_2018-02-20.pdf

 

If maintained at current levels, discounts would cost the Canadian economy

roughly C$15.6 billion per year, or 0.75% of GDP. As the oil-by-rail pickup

continues, we anticipate that WCS discounts will fall to around $18/bbl later this year,

which will reduce the opportunity cost to roughly C$10.7 billion in 2018, or 0.5% of

GDP (see Table 1 on next page). We estimate that annual losses associated with

transporting marginal crude by rail rather than pipeline will settle at C$7 billion (about

0.3% of GDP) in 2019–20 until additional pipeline capacity comes into service.

 

Insane!

[rb]

 

Now if I were a producer a pipeline is an inferior way to ship. I'd much prefer to ship by rail.

 

Why? Sorry if this is a dumb question.

Not a dumb question at all. With a pipeline you can basically ship from point A to point B. That's all. But the worst part is that as a producer you usually have to sign a multi decade shipping contract (you thought your phone contract was bad?) with the pipeline and you pay whether you ship or don't. The reason why Energy East was so appealing is that it was a conversion of an old natural gas pipeline that's no longer used but the producers were still paying for it.

 

With rail you don't have long term contracts and you have flexibility of where you can deliver your product. Also oil moves faster on rails then in the pipe - maybe that's not all that important but it's another advantage. So to a producer rail is a superior way of moving oil. The only advantage pipes have is that they're cheaper. But if the price differential should narrow then we could see big changes in how oil moves around.

[petec]

Thanks. Big opportunity for CN and CP?

[Cardboard]

RB is correct on long term contracts but, now rail companies want something similar.

 

Regarding flexibility on where to ship, there are very few destinations for oil. The refineries have been in place for decades with almost none built from scratch in the last 40 years. Same for shipping docks. While there is sometime a need to ship a certain grade of oil to a refinery, it is not major.

 

Regarding safety and spills, I believe that the data speaks for itself. There are also very strict standards as to what enters a pipeline: level for certain chemicals cannot be exceeded. And train routes mostly connect cities and go right through them.

 

Cardboard

[Cardboard]

B.C. backing down and they should lose in Court since they have no authority. Although, Notley should have kept and even raised the pressure by restricting some B.C. produced gas from pipeline access:

 

https://www.google.ca/amp/s/www.theglobeandmail.com/amp/news/british-columbia/bc-attempts-to-cool-alberta-trade-war-by-referring-pipeline-fight-to-courts/article38074486/

 

Cardboard

[RichardGibbons]

It will be interesting to see what happens here--if Horgan was going to back off, he probably shouldn't have raised the issue in the first place (unless he genuinely believes he'll win in court.)  By acting as he did, he's raised the profile of this again and added gasoline to the environmentalists' fire, increasing the chance of civil disobedience.  It seems like a bad strategy for a government to increase the chance that people don't obey the government.

 

That said, it would be pretty interesting if Notley did restrict BC-produced gas. That'd totally play into the environmentalists' hands and make it far less likely for the pipeline to go through as Notley cut the legs out of the pipeline's supporters in BC.