The NEB Keystone Pipeline Decision – Critical Analysis from CEP

September 25, 2007 – The NEB decision: 17 jobs in hand and 18,000 in the bush

 

(Full post can be found at http://blogs.cep.ca/en/node/53 

Readers of this column have by now seen the reports of the National Energy Board decision to approve the Keystone pipeline. CEP has received extensive media coverage of its opposition, including its call on the federal cabinet to not approve the NEB decision and instead have the issues of energy security and value added jobs reviewed by a parliamentary committee. The NEB decision itself is a 115 page, well crafted document that avoids past errors of dismissing all critical arguments. In this decision, the union’s arguments are given credit for being relevant to the public interest, just less convincing to the Board than the arguments from the oil industry. For those who are inclined to read the whole decision, it is attached below. For the rest of us, I include here a concise analysis and key excerpts prepared by CEP Counsel Steven Shrybman:

The Question of Jobs Our consolation prize is that we won the battle of establishing the relevance of Value Added Production (VAP) to the Board’s public interest mandate, and getting the Board to back down from the absurd positions that this key issue was irrelevant to its mandate. The key passage states:

The Board is of the view that the concerns expressed by the CEP, the AFL, Parkland and Dr. Laxer regarding potential impacts related to the export of non-upgraded oil on domestic industries, employment and security of supply are public interest considerations relevant to the disposition of this application.

As for the evidence concerning job creation, the Informetrica report is referred to on several occasions throughout the decision and no direct challenge is made to the validity of the 18,000 job estimate as it relates to the processing of 400,000 barrels of oil per day. Rather the Board concludes that denying the Keystone approval offers no guarantee that in fact that many jobs would be created in Canada. The Board puts it this way:

It was suggested by some intervenors that an opportunity to create Canadian jobs would be lost if the Keystone pipeline exported unrefined product. The Informetrica Report provided an estimate of the number of jobs that could be created if the Canadian refining industry was expanded to process an additional 63 600 m3/d (400,000 b/d) of crude oil. The Board notes that the evidence does not, however, support the proposition that an expansion of the Canadian refining industry would necessarily result from a denial of this application. This is a decision that is normally made by the market. (emphasis added)

However at the end of the day, the Board notes that the pipeline will create 17 permanent jobs, and is unperturbed by the enormous job creation potential that may be most, in whole or in part, if the pipeline is approved. Better to take 17 jobs in the hand, than 18,000 in the bush. In effect the Board has imposed an obligation for us to demonstrate that these potential jobs would necessarily result from denying the application. That is an entirely unreasonable standard to impose on an intervener particularly in light of the Board’s repeated rejection of our efforts to cast more light on this question. Recall that it declined our motions to 1) conduct an inquiry into the impact of the pipeline on VAP; and 2) our request for subpoenas to compel the attendance of witnesses who could explain how the pipeline would be used. Apparently we have to find the 18,000 jobs wearing a blind fold.

Bitumen Exports

On the related point of bitumen exports, the board acknowledges the concerns we and others have raised, but fails to directly address the argument that to make an informed judgment about the potential impacts of the pipeline, it must have information about how the pipeline will be used. This is what the Board has to say about this issue:

The Board notes that certain interveners sought more detailed information on the products to be shipped and the specific end-uses of market demand. The Board is of the view that this detailed information is not necessary for its decision making. The Board is satisfied that the Keystone pipeline is flexible enough to meet a range of market requirements, including the possibility of transporting upgraded products. This flexibility should contribute to efficiency of the market and improved economic outcomes for Canadians.

This allows the Board to sidestep our assertion that the evidence clearly indicates that the Keystone Pipeline will predominantly be used to export blended heavy crude oil (diluted bitumen in the form of dilbit and synbit) to export markets. Nothing in the Board’s decision refutes our contention. Nevertheless, the flexibility argument sets up the Board’s penultimate conclusion: Based on the evidence in this proceeding, the Board does not accept that approval of the application will have an adverse impact on Canadians. The existence of adequate pipeline capacity would enable the operation of the market and could stimulate investment, including investment by participants seeking to develop domestic upgrading and refining facilities. In the circumstances of this case, the Board does not believe that denying the Project strictly for the purpose of restricting bitumen exports to make them available as feedstock for potential domestic upgrading projects, that may or may not be realized, would serve the Canadian public interest. Such regulatory intervention would likely introduce uncertainty in the market that could negatively impact investment decisions and the availability of bitumen for both domestic and export markets. The Board concludes that there is no compelling reason in this case to interfere in what the Board believes to be a well functioning market by denying or delaying the Keystone application.

In effect the Board has abdicated its authority to the market. Only where “compelling reasons” exist, will it intervene to second guess the ‘wisdom’ of the markets.

Other Pipeline Approvals

The Board also addresses our complaint about the first-come, first-served approach to pipeline approvals that the Board has adopted:

It was suggested by the CEP in final argument that the Board should consider the public interest broadly enough to review this application in comparison or conjunction with other proposed projects. The Board does not however have a practice of hearing facilities

applications on a comparative basis and has, in the case of Sable1, determined that it is not under a statutory obligation to hold comparative hearings. In the Board’s view, it has an obligation to hear all views in order to determine whether the Project is in the “present and future public convenience and necessity”. The Board finds that the circumstances of this case do not warrant a comparative hearing. The Board is therefore of the view that it would be inappropriate to delay its decision on this application.

NAFTA

On the question of energy security and NAFTA the Board acknowledges our point that it is unlikely that any export application will be made with respect to oil that will flow through the Keystone pipeline. This will deny the Board any opportunity to ascertain whether such exports might be needed by Canadian consumers, including upgraders. Yet the Board is unconcerned about this prospects, and concludes, without the benefit of any meaningful evidence, that:

…. The Board is not persuaded by arguments that the Project should be denied because of the effect NAFTA may have or because shippers are not required to apply for long-term oil export licenses. The Board is bound by legislation. Part VI of the NEB Act sets out the framework for export approvals and requires the Board to give effect to NAFTA. The Board is of the view that the approval of the pipeline and the consequent exports it will facilitate will not put Canadian security of supply at risk.

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