The Athabasca Oil Sands are Alberta’s Briar-Patch

Alberta Needs the Keystone XL Pipeline – But Not for the Reasons You Think!

A friend on Facebook asked a legitimate question.

Why does Canada still buy oil from Saudi Arabia instead of Alberta?

An angry Albertan offered a knee-jerk answer.

That’s easy. Because of Trudeau of course!

Based on the simple-minded conspiracy-based Facebook comments that followed the original post, I have to wonder if Albertans really want to know the answer or if they are happy with asking confirmation bias questions and finding a convenient effigy to burn in protest.

Alberta Venting
Venting Natural Gas

The truth is out there if anyone is willing to do a bit of research, so I decided to tackle this question myself. Armed with a basic knowledge of micro and macroeconomics, political science, sociology, economic history and deductive reasoning (and after 568 google searches), I found and read over 50 relevant online oil industry articles, historical articles, news reports, scientific papers and government statistical reports. After carefully reading, comparing and rereading, I discovered a reasonably sound fact-based consensus on why Canada doesn’t buy all their crude from Alberta. Read on, follow the sources and make up your own mind. Then let me know if it’s all so simple.

My reply,

The closest-to-the-truth free market answer should be “supply and demand.”

But, you say, Albertan oil is cheap. Deep discounted in fact. So, shouldn’t that equal higher demand and ultimately higher sales?

No, because the reality of how supply and demand works is not merely based on “price.” Many other factors come into play when any corporation decides to buy or not buy Albertan oil. To understand the big picture, we must look at the entire world-wide petroleum production process, including what determines pricing for our coveted gasoline that powers the jacked-up four-wheel-drive pickup trucks we love to peel around in.

To start with, although crude is “upstream” of refineries and gasoline is “downstream” of refineries; obviously, the price of crude oil directly affects the price of petrol. In this cost analysis, we are mainly concerned with the different factors that affect the upstream costs of petroleum production. This can be simplified into three major factors. 1. Cost of extraction. 2. Cost of transportation. 3. Cost of refining.

Getting Good Grades

Before we get into costs, however, we must understand how different types of crude are graded. The cost factors are profoundly affected by the specifications or qualities (known as “grades”) of the crude oil. Unfortunately, 145 million years ago, during the Cretaceous period, there were no quality controls. Thus, not all crude oil was created equal.

Although there are literally hundreds of different grades, I find that the simplest way to understand how the cost is affected is to classify crude into three specification grades: heavy, light sweet or light sour. For this simplification exercise bitumen, extra heavy and heavy crude will be grouped under “heavy.” All three of these are also synonymous with “dirty” oil. This is not a slur or a slight on Albertans but rather a qualification based on contaminants and the requirement for upgrading before transporting or refining.

Light (low density/viscosity) crude is considered “high value” because it has a high percentage of light distillates. Heavy (high density/viscosity) crude is considered “low value” because it has a low percentage of light distillates. Light distillates are readily made into high margin automobile gasolines.

Sweet (clean) crude is high value because it is low on contaminants and sulphur. Heavy (dirty) crude leaves behind more low-value residuals after refinement than any other grade of oil. Heavy and sour crudes are less valuable because they have impurities, such as sulphur, which are expensive to separate and add significantly to the environmental costs in both extraction and refinement. Light sour, therefore, is less valuable than light sweet but more valuable than heavy. There is no grade for heavy sweet.

1. Cost of Extraction

The total cost of extraction depends on where the crude oil is found (geography, topography and depth) and the grade (viscosity and quality). Where the oil is located makes it easier or harder to access and less expensive or more expensive to drill and/or extract. Light (low viscosity) oil flows easily, often with moderate assistance, whereas heavy (high viscosity) oil requires expensive methods of heating or diluting to make it flow. The deeper the oil is located usually the more difficult it is to extract, but some shallow crude may be more expensive to extract because the process is labour intensive.

In the “geographic/grade” order of easy-to-difficult, there is Onshore shallow light, Onshore deep light, Offshore shallow light, Offshore deep light, Onshore shallow heavy sour, Onshore shallow heavy and Offshore shallow heavy.

Generally, onshore (land) is easier to access than offshore (ocean), and shallow drilling is less technical and labour intensive than deep drilling. Although several countries have Offshore shallow heavy, no one has figured out how to tap it economically, leaving Onshore shallow heavy, such as found in the Athabascan Oil Sands, as the most expensive to extract. That appears contrary to the concept that onshore and shallow extraction is more accessible, but that is because “easier/harder” can also be transposed with “less expensive/more expensive.”

The reason that the Athabascan Oil Sands are an exception to-the-rule is because of break-even point cost accounting. Although Offshore deep light requires the highest initial investment for developing the oil field infrastructure, the opportunity costs are heavily weighted at the beginning of the production period. Once the high value light sweet crude begins pumping, however, the risk-adjusted return on the initial investment gets paid off quickly to a break-even point after that which the field starts to make a profit. With world price fluctuations, the gains may go up or down, but each new barrel of oil produced will be profitable down to a meagre daily production cost.

Onshore shallow heavy infrastructure and extraction costs of oil sands are spread out over the entire production period, so profits (within the same price spread comparison) depend entirely on day-to-day production and the current market crude prices. Since heavy crude is low value, to begin with, and because of the very high daily production costs, the price can drop below the profitability price spread very quickly. At this profit/loss price point, the Onshore shallow heavy producers would have no economic reason for continuing extraction.

There are many countries exporting crude, but Canadian refineries only buy from a few. Saudi Arabia has Onshore and Offshore shallow light sweet while Nigeria and Angola have both Onshore and Offshore shallow and deep light sweet. The U.K. and Norway have Offshore deep light sweet. Iraq has Onshore shallow light sweet. As a point of interest, Russia has a notorious Onshore shallow heavy sour that emits a noxious sulphur gas (H2S) that will kill the drilling crew within seconds of exposure, making extraction very expensive. Again, this is a simplification based on the most profitable “known reserves” of oil that each country produces.

The Athabasca Oil Sands is the only place where oil companies have found methods to make extraction cost-effective for Onshore shallow heavy using both in situ (drilling) and surface excavation (mining) methods.

2. Cost of Transportation

The total cost of transportation depends on if the crude oil can be cost-effectively shipped to a refinery. The heavier (more viscous) the oil, the more difficult and costly it is to ship via either pipelines or tankers. Heavy oil must be upgraded, diluted and/or heated to make it less viscous so it can be pumped through pipes, especially during the cold winters. Plus, heavy crude is corrosive, and so pipelines and transfer (pumping) stations need to be corrosion resistant, adding to build costs.

The second factor is the distance and/or geography. How far does the crude need to be shipped, and what is the geography (topography and inhabitants) along the route? Port-to-port via supertankers is the least expensive, while long-distance trucking or railway tankers over mountains is the most costly. Pipelines are the least expensive (and environmentally safest) means to transport crude over land. Obviously, the further and more complex the transportation, the more expensive the product.

What makes Albertan heavy crude so expensive to transport isn’t just the long distances from high population centers and the complexity of transportation but also in the cost to “prepare” the crude to be transported. Heavy crude extracted from the oil sands must be steamed, heated, made into a slurry, separated from the sands, diluted with a refined distillate such as naphtha and then upgraded to a lighter (less viscous) sweeter crude through an upgrading process. In other words, bitumen heavy crude requires multiple complicated and expensive processing steps to prepare it for transportation.

Upgrading – Prepping for Pipes

As a preparation for transport, at least three-quarters of the Albertan bitumen heavy crude extracted during surface mining is “upgraded” before it can be transported or sold to other refineries. The upgrading refineries remove the highly corrosive sulphur and convert the bitumen, the raw product of oil sands extraction, into separate hydrocarbon products of naphtha, light gas oil, and heavy gas oil. These are recombined or blended into a high-quality light, low sulphur crude oil or, in other words, a light sweet crude. To distinguish it from conventional oil, this purified crude is called synthetic crude oil (SCO) or Syncrude.

The upgrading refineries must be nearby the original source of the bitumen crude to keep the initial transportation cost from being prohibitive. Only after upgrading can the crude be shipped via tanker trucks, railway tankers or pipelines to the refineries that will turn the crude into usable high-value petroleum products.

Another marketable Albertan crude blend called Dilbit is relatively clean bitumen extracted in situ using more traditional in-ground drilling and pumping methods. Dilbit still requires diluting with condensate before it can be transported, but, for the most part, it can be pumped through corrosion-resistant pipelines and processed by corrosion-resistant high-conversion refineries without further upgrading.

Dilbit can be sold and transported to high-conversion refineries “as is.” Additionally, it is often blended with conventional crude, syncrude and non-upgraded bitumen to produce a consistent heavy sour “blended” crude called West Canada Select (WCS).

3. Cost of Refining

The cost of refining also depends on the quality or grade of the crude. Although the refining process is similar for all grades (basically – boiling, distilling and separating the petroleum components), refineries maximize profits by maximizing yields of high-value products such as automobile gasoline. Light sweet crude has less impurities or sulphur, and thus, you can distill naphtha and gasoline very cheaply – a lower boiling point requires less energy and few processing steps. Therefore, high value light sweet crude is more natural and less expensive to refine and produces a higher percentage of high-value gasoline, avgas, jet fuel and lubricants. Simple “topping” refineries that can only process light sweet crude are less expensive to build and operate as long as sweet crude is readily available.

Heavy crude processing requires not only more energy (to reach the boiling point) but also requires the processing steps of hydrotreating (removing corrosive impurities and sulphur), cracking, coking and blending to be able to turn the heavier crude oil fractions (residual industrial fuel) into high value gasolines, jet fuels or diesel. The benefit for the highly specialized “high-conversion” refineries that can process heavy crude is that they can have the flexibility to produce a higher percentage of low-value heating fuel oils, diesel and asphalt to satisfy the market demands. Typically during processing, the final residuum, asphalt base, is reduced to a minimum simply because it is the least valuable product unless, of course, your market needs new roads, then the asphalt base can be maximized.

These high-conversion refineries can also make gasoline, but they have the option to balance out the comparative margins between different grades. Originally, because these highly flexible high-conversion refineries were so expensive to build and operate, there were very few in North America. Over the past 10 years, however, many of the U.S. Gulf Coast and Midwest refineries have been modified. They all need heavy crude to continue operating, and for their needs, Albertan Dilbit and WCS crude fits the bill. 1.

Ok, so what has this got to do with “Canada” buying oil from Saudi Arabia or the price of gas in Red Deer, Richmond or Moncton? Well, everything.  

First, let’s get something straight. The Canadian Federal Government does not buy oil from Saudi Arabia or anyone else. Albertans seem to think federal “taxpayers,” including themselves, are buying the oil, and “others” are reaping the benefits. That is simply nonsense. Private or publicly traded refineries buy crude oil either directly from the producers or through brokers, traders or distributors. Most of the refineries (and upgrading facilities) in Canada are owned and operated by the vertically integrated big oil companies, such as Imperial, Suncor, and Shell. Irving Oil in New Brunswick, for example, buys and refines crude oil overseas to supply gasoline, diesel and heating fuel throughout the maritime provinces and the American north-east.

The Canadian Federal Government negotiates international trade agreements that allow for both importation of overseas crude oil and exportation of Canadian crude oil. Thus, the Feds can control who the refineries buy from, but that is more often determined by external forces such as U.S. embargoes or warzone restrictions.

Whereas Canada is a federation of provinces and territories, the federal government also brokers right-of-way for trans-provincial pipelines over Crown lands (including indigenous reservations). More importantly, they can, if necessary, apply eminent domain to gain access to privately owned properties where economic benefits to the country take precedence. There are various ways that the Federal Government can step in to protect the interests of all Canadians, but, historically, the government only steps in during emergencies or bottleneck situations to keep the economy rolling.

In 1956 the Liberal government of Canada forced a bill through parliament contributing finances to build a TransCanada pipeline to connect Alberta natural gas with the highly populated eastern markets of Ontario and Quebec. In 1973, as another example, the Liberal Prime Minister of Canada incorporated a Crown corporation, Petro-Canada, to invest federal tax money into developing the Athabascan Oil Sands. Later the government’s interests in both the pipeline and the national oil company were sold to private interests when the government no longer needed to be involved.

The Feds can also set a higher or lower than the free-market price for domestic crude oil and refined petroleum products. The liberal government temporarily did this in the late 1970s to support Alberta by artificially shoring up the cost of Alberta’s crude, but relaxed this measure in 1980 when Syncrude production increased to the point of being competitive in the world market. Thus, both crude and refined petroleum products are dependant on the international supply and demand market. That takes us back to the Albertan’s question. Why are we buying crude from Saudi Arabia?

There is no doubt that Alberta has the largest crude oil reserves, the most significant oil production and the most productive oil companies in Canada. Alberta has 39% of the conventional oil reserves of Canada, but up to 88% of Alberta’s oil comes from the Athabasca Oil Sands. Conventional oil “flows” and can be “pumped” from the ground and shipped via conventional pipelines making it cheap to extract and transport. It also makes it easy to refine. The oil sands crude, however, is a different story.

Tar Baby and the Tar Sands

The Athabascan Oil Sands was initially known as the “tar” sands, but since tar is a man-made product, that term was technically incorrect. The word “tar” also has negative associations with racism and hatred, such as when the Americans “tarred and feathered” fellow Americans who they accused of being British Patriots during the American War of Independence.  When thinking of Alberta, however, I think of the term “tar baby,” which can be a racial slur but originally meant getting involved in “a problematic situation that is only aggravated by additional involvement with it.” The angrier Br’er Rabbit got with the non-responsive tar “baby” effigy, the more he punched and kicked it, and the worse the problem got.

To be politically correct, Alberta decided to officially name their massive deposits, “Athabascan Oil Sands.” That was not technically correct either because the sands are saturated with bitumen and not oil.

In the simplest terms, bitumen is another name for asphalt. Try putting that into your gas tank and see how far you get. Again, why is Alberta bitumen priced so low? Because it is so expensive to transport and refine and because it produces a smaller percentage of the precious products such as gasoline and jet fuel. The U.S., however, loves Alberta “bitumen” because, for one reason, they have over 4,310,000 km of paved roads as well as 2,000,000,000 paved parking spots to maintain. That takes a lot of asphalt! The main reason the U.S. buys Alberta crude oil is that it is cheap but also because they can sell the residual asphalt to pave U.S Interstate highways and Walmart parking lots. So to specific markets, Alberta’s bitumen has value.

In the examples I gave for determining the value of crude oil, I listed three main factors: cost of extraction, cost of transportation and cost of refining. As I mentioned earlier, there are several other factors. The overall production rate and marketability of the crude also affect the pricing in competition with other available crude oil being offered for sale around the world. This is not the supply and demand I mentioned earlier but rather a price-determining method called “benchmarking.”

Benchmarking

Benchmarking is a way for markets to determine world prices for crude oil from different countries and/or producers. West Canada Select, Alberta’s blended heavy crude, is benchmarked head-to-head with West Texas Intermediate (a light sweet) from the U.S. midwest. WTI is, in turn, benchmarked head-to-head with North Seas Brent (a light sweet) including oil from the U.K. and Norway but can also include similar grades of oil from countries such as Nigeria and Algeria.

The benchmarking comparison is based on several factors. WTI and Brent’s price spread is a derivative of geography, whereas Brent oil producers have easy access to shipping ports while WTI is mostly landlocked within the central continental U.S.

WCS, on the other hand, is “discounted” in comparison with West Texas Intermediate. Considering that WTI is NOT sold internationally, the pricing benchmark is only relevant because the U.S. buys WCS from Alberta. In fact, the U.S buys 98% of all the crude oil that Canada exports making Canada their largest supplier. Thus, to an American buyer, when comparing WTI and WCS head-to-head, WTI is a high value (light sweet) being cheap to refine, and WCS is a low value being expensive to refine while producing a lot less of the high-value products per barrel.

The benchmarked price of WCS also includes a deduction for transportation, including the cost of adding the diluent to make the heavy crude flow in the pipeline, and the service cost of using pipelines. The final benchmark price is called the “bitumen netback.” Thus, the benchmarked price spread between Brent and WTI is significant because of access to markets making Brent more valued while the price spread, called a “discount”, between WTI and WCS is even more significant because of refining and transportation costs making WCS heavy crude more expensive for the buyer. In other words, West Canada Select is being sold into the U.S. market at a deep discount for an excellent reason.

Thus, benchmarking considers marketability determined by fixed or uncontrollable factors such as the quality of the crude and proximity to markets. Unfortunately, Alberta’s oil, formed during the tropical Cretaceous period over 100 million years ago, migrated out from under protective layers of sandstone or shale and was left exposed to the atmosphere for millions of years. Consequently, the most valuable distillates evaporated or were biodegraded by bacteria leaving behind a thick viscous bitumen. The oil sands basin is also domestically landlocked with four thousand eight hundred kilometres in one direction, and extensive sets of mountains ranges in the other direction between the fields and the export ports. That is what modern Alberta inherited, and there is nothing they can do about it.

Production and World Markets

Production rates, however, add in a somewhat controllable variable. Oil producers, such as Saudi Arabia, with vast reserves and a high production capacity, can raise or lower their output at will, thereby increasing or decreasing supply in an attempt to win or control markets. But because so many non-producing countries depend on Saudi Arabian exports, their production rate has a strong effect on oil crude pricing. Canada has the third-largest reserves in the world and the fifth-largest producer, but because they only export to the U.S., their production has little impact on the world crude prices.

The final market price of any shipment of crude oil, therefore, is heavily dependant on both the current day-to-day demand and the world supply variances. In other words, if a distributor or refinery needs crude, they will buy from whoever can supply what they need at the lowest prices. If a West African or Arab Spring coup disrupts a refiner’s supply, they will switch. Alternatively, if prices drop drastically, they don’t want to be locked into any long-term contract. Thus, the crude oil buyers, specifically the refineries, are always watching the markets and trading on futures markets, spot markets and in-route trading where, for example, you can buy a shipload of crude that is already loaded and on route to somewhere. If you are willing to pay the price, the ship will be rerouted to your port. In other words, refineries need to be flexible. That includes those who could possibly make use of WCS heavy crude.

East Coast Flexibility

What this means is that a refinery located on the east coast of Canada with easy access, via supertankers, to a multitude of different high-value sweet crude oil producers, particularly those along the West Africa coast, the North Africa and Mediterranean coasts, and those along the Red Sea with access to the Suez Canal, will have purchasing flexibility. Additionally, an east coast refinery would have marketing and distribution access to the entire eastern seaboard of Canada and the northeastern states of American without a lot of competition. Any such refinery would have the ability to take advantage of world prices on the swing.

Irving Oil, an exclusively Canadian company, has established itself in this enviable position building and operating the largest oil refinery in Canada. The Irving Oil refinery, however, started business in the 1960s when Albertan crude was not an option. They had access to light sweet crude from multiple different sources and built their refinery to make the best use of the world’s best oils. Saudi Arabia, for example, has no shortage of light sweet, and it is relatively cheap. Irving had no reason to spend billions on building a plant to refine heavy crude when light sweet was abundant, easy to access and transport and profitable to refine. Although the refinery now has a limited capability to refine heavy crude (after all, everyone needs asphalt and heating fuels), the refinery needs light sweet to stay in business.

Initially built in 1960 and continuously upgraded, Irving Oil Refinery has a production crude capacity of 320,000 barrels per day. To stay productive, the refinery is supplied by over 100 supertankers a year to their own deep-water terminal facility in St John as well as regular rail tanker deliveries to their back door. Irving additionally ensures their access to downstream world markets by chartering and operating their private flagship petroleum tankers, thus keeping handling, transportation and shipping costs and delays to a minimum.

Quebec and Ontario Markets

Quebec and Ontario refineries are in a slightly different category based on geography, specifically, proximity to large population centers (markets) and existing pipelines. The refineries in these provinces also started by refining cheap Arab oil in the 1970s, so their original refineries were built for light sweet crude that they could quickly get through to the St. Lawrence ports. With the Arab Oil embargo of 1973, however, the political winds forced changes in both the U.S and Canadian markets.

In 1975, to address this problem, the Canadian government pushed through a pipeline, to supplement the existing railway tankers, to supply oil to the Ontario and Quebec refineries from Alberta to make Canada less dependant on foreign oil. This pipeline was routed through the U.S., partially because a southern route around the Great Lakes was less expensive to build, but mostly because the pipeline also gave oil producers easy and direct access to the very lucrative U.S. markets.

Since the pipeline was built, however, Albertan oil has not always been flowing north through those pipelines. For a lot of different reasons, mostly to do with supply and demand of the world oil markets, the pipeline flow has been reversed to either serve Canada or the U.S. For example, during the current fracking boom, the U.S. is awash with tight (shale) oil. This resulted in the oil producers and pipeline owners reversing the flow, allowing the Canadian refineries access to the price advantaged (read “discounted”) WCS crude, but only because the U.S. refineries already had enough of what they needed.

Since the reversal of the Enbridge Line 9 pipeline, both Ontario and Quebec (and New Brunswick via small tanker ships and railway tankers) have been refining cost-advantaged North American (meaning both U.S. and Albertan) crude oil but that ability is still somewhat limited by the existing technology of the refinery and the smaller (in comparison to the U.S.) local market requirements. Ontario and Quebec, for example, have lots of roads and shopping parking lots to pave and maintain. So heavy crude works for them to an extent. Still, the ability to stay flexible and maintain refinery profitability margins demands that they continue to have access to light sweet when it is cheap and abundantly available.

In summary, Atlantic Canada does not have pipeline access to the western crude. It meets all their transport requirements through less expensive and timely oil supertankers. At the same time, Ontario and Quebec had relatively easy access to an existing pipeline carrying WCS to the U.S. market. Cancelling the TransCanada Energy East pipeline was blamed on many different things, but the real reason was economics. It wasn’t cost-effective when oil prices were high, and it would be less profitable when prices are low, but either way, it certainly wasn’t intended to make Canada self-sufficient. Irving wanted to refine WCS to sell to the market south of the border. Irving currently exports 80% of its products to the U.S.

Critical Pipelines

The good news is that both the southbound Enbridge Line 3 replacement and the Keystone XL lines have been approved. In fact, the Enbridge Line 3 Replacement pipeline with a 760,000 barrels per day southbound capacity has, at least on the Canadian side, has been fully completed on schedule. Albertans should realize that the Canadian team finished their side, although the U.S side has not. Find a way to blame the Canadian Federal Government for that.

That is a similar situation for the building of the Keystone XL pipeline to the American refineries in Illinois, Oklahoma and Houston. Their refineries already have world-class heavy crude high-conversion refinery capabilities and ready and willing markets for the entire gamut of products that the Albertan bitumen crude can provide. The project is well-financed on the American side and fully supported by the Canadian Federal Government. But why do Albertans expect the rest of Canada to finance their projects? The provinces have total control, enshrined in the constitution, over their resources, including full financial responsibly as well. Alberta is busy blaming Manitobans and Newfoundlanders for their financial problems, but the ball is in their court.

Presently, the U.S. 2020 markets are saturated with light sweet tight oil from fracking, biofuels from corn and light sweet crude from the Gulf of Mexico, Mexico and Saudi Arabia and, therefore, can quickly meet their immediate demands for high-value petroleum products such as automobile gasolines.  Their preference for Albertan crude is more to do with the fact that it is of low value for the rest of the world. The U.S. refineries can buy WCS at a deep discount and convert a higher percentage of it into diesel or asphalt while retaining the profit margins. In other words, Albertans should forget about making Canada self-sufficient and be intent on continuing to supply a ready and appreciative market: the refineries of Chicago and Houston. To do this, the industry needs more pipeline capacity to allow the U.S. refineries access to Canada’s heavy crude.

My point is that Albertans should learn a bit more about the reality of the global petroleum industry before blaming the rest of Canada for their perceived grievances. There is no doubt that, without considering the cost of transportation and refineries, Canada could be totally self-sufficient by getting their oil domestically rather than internationally. Additionally, we have the upgrading and refining capability to meet our essential domestic gasoline and diesel needs.  But at what costs?

Who is Supposed to Pay?

Canadian oil is expensive to extract, transport and refine compared to Arabian light sweet. Who is going to pay for building the additional pipelines, upgrading the Ontario, Quebec and New Brunswick refineries? Who is going to pay for the price difference between competitive world oil prices and our at-home-solution gasoline pump prices when it jumps up according to increased production and transportation costs? Alberta? Why should all of Canada pay just to meet misplaced national or provincial pride when there is an apparent next-door-neighbour solution?

Once Albertans get past the misleading belief that they are the “rich kids on the block,” that their tax dollars are god forbid helping other Canadians, that climate change advocates are the “spooky monster-under-our beds” and that the inability to sell their low value crude to markets that just don’t need them is the fault of the Federal Government, they might come to the understanding that they need to consider their children’s future instead of dwelling on their immediate entitled desires.

That means paying their share of provincial personal and business taxes, provincial sales taxes and gas prices equal to the rest of us in Canada. Considering that the profit margins from Albertan heavy crude are most likely the lowest of any crude oil produced in the world, the Alberta Heritage Savings Trust Fund could not be expected to pay for all their spending. As of 2019 Alberta’s debt is over 86 billion dollars when the heritage fund is only worth 18 billion. When oil prices were high, and they were all working, they should have been willing to spend money to make money instead of expecting the rest of Canada to fund their live-for-today lifestyle. In truth, it is most likely Alberta that will drag the rest of Canada down with it.

The MacKinnon Panel report is clear that years of rapid growth in operating budgets means the Alberta government now spends 20 per cent more per person than other provinces. In fact, had Alberta simply matched the average spending of Canada’s three largest provinces (Ontario, Quebec and B.C.), expenditures would be $10 billion less, and there would now be a $3-billion surplus instead of a $7-billion deficit.

Alberta’s capital spending has also been higher than the rest of the country. Despite all the complaining from some local politicians, municipalities in Alberta have had a sweeter deal than anywhere else in Canada, with capital grants at least 20 per cent higher than the national average.

https://calgaryherald.com/opinion/columnists/opinion-alberta-budget-is-tough-but-much-needed-medicine/

Albertans should be spending their combined provincial tax earnings and oil on either building or subsidizing or financing pipelines to supply the southern markets that need their heavy crude. The Keystone XL pipeline, in that light, is critical and relevant to all Albertans as well as all Canadians. The American tight oil boom is coming to an end, and Alberta should be ready for it. Until they are willing to put their money where their mouth is, Albertans should quit feeling so sorry for themselves and stop blaming the rest of Canada for their unfortunate situation of holding the third largest reserve of crude oil in the entire world.

March 31st, 2020 Keystone XL Pipeline Update

CALGARY, Alberta and HOUSTON, March 31, 2020 (GLOBE NEWSWIRE) – News Release – TC Energy Corporation (TSX, NYSE: TRP) (TC Energy or the Company) today announced that it will proceed with construction of the Keystone XL Pipeline Project (the Project), resulting in an investment of approximately US$8.0 billion into the North American economy.

As part of the funding plan, the Government of Alberta has agreed to invest approximately US$1.1 billion as equity in the Project, which substantially covers planned construction costs through the end of 2020. The remaining capital investment of approximately US$6.9 billion is expected to be largely made in 2021 and 2022 and funded through the combination of a US$4.2 billion project level credit facility to be fully guaranteed by the Government of Alberta and a US$2.7 billion investment by TC Energy.4

Stepping Up

Congratulations to Alberta for stepping up. Albertans have been busy blaming the Federal Government for everything that they won’t do themselves, so this commitment changes some of that. Having the oil flowing south, however, will not fully resolve Alberta’s financial problems or pay off their enormous self-imposed provincial debt if they don’t get their house in order.

Albertans need to realize that as Canadians, we all have responsibilities, and as this COVID-19 pandemic reveals, we are all in this together. To have a stable and sustainable economy with publicly funded health care and education, we each need to do our share. So, if you were not born in Alberta or, more specifically, if your little pink bottom wasn’t waddling within the boundaries of the McMurray Formation when you were growing up, then what right do you have to be so entitled? The third-largest oil patch in the world may be located within Alberta’s provincial boundary, but living in a briar patch doesn’t mean you are self-sufficient or independent. In fact, the truth is just the opposite. This may be Alberta’s last chance to stop punching the Tar-Baby and rejoin the rest of us as Canadians first and foremost.

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Recognizing Your Inner Godfather – 7 Traits of a Natural Leader

At the 2018 CHC Safety & Quality Summit in Dallas I attended a plenary session titled “Creating a Culture of Behavioral Reliability and High Performance”.  At one point the presenter asked us “who in our lives would we regard as a natural leader – someone who inspired us?” I quickly thought of several cool “bosses” I have been lucky enough to work for but the most important person in my life eventually came to mind. Stan Shilson, my godfather, was important to me because he taught me the value of hard work and the serenity of natural leadership.

A natural leader is inspiring to those who wish to contribute but don’t know how or don’t know they have it in them. A natural leader inspires others with their drive and energy. A natural leader speaks and listens from the heart, radiating both kindness and generosity. A natural leader encourages rather than dictates. A natural leader enables rather than controls. A natural leader does not dwell on problems but rather enables those around him/her to find solutions. A natural leader is calm and not critical.

Stan had worked for the Winnipeg Free Press since returning from the Second World War. During his holidays and after retirement he helped to harvest wild rice with my family each fall. Plus I worked for his “office cleaning and management” business in the city during the evenings and weekends when I was attending university. 

The most important lesson Stan passed onto me was that as long as I could find it in myself to do a job well I too could inspire others to do the same. Stan “pushed” me in some ways: preparing for the next days work, getting up earlier than anyone else, keeping my breaks down to a minimum, finishing the job properly even if it took several tries – the kind of things I imagine a Staff Sergeant might expect from his troops. But when it came time to decide on “how” to do a job he would stop everything, direct me over to the nearest rock or log to sit down, chuckle a little to himself and then ask me “how do you think we should get this done?”

The problem to finding your own inspirational leader is for you to recognize the opportunity. When Stan asked me to find a solution to a work problem he also recognized my ability to do the job. He knew, even if I doubted it myself, I was ready. Even when I failed to meet my goals he encouraged me to go out again and never give up. In all cases, I recognized that he was leading from within. It was never about him and always about encouraging me to recognize a positive outcome. Even at the time (I am talking about when I was 14 to 20 years old) I recognized that he never acted as my boss but always as my godfather.

If you cannot think of a single inspirational boss then think about a friend or a relative or a sergeant or, if you are lucky, a godfather and dig deep inside your memories to find an act or a moment where they inspired you to do something – anything. If you were encouraged to find a solution on your own and not told “how to do it”: if you were enabled and not constrained with “what to do”: if you were empowered and not pushed to “get the job done”: if you were encouraged to do your best and not criticized because it wasn’t “done their way”, then it was because you were inspired by the kindness and generosity of a natural leader.

If you can find that experience inside of you then there is a good chance you too can become a leader and learn to inspire others. If you are a natural leader than maybe this exercise of perspective will help you recognize your inner godfather. 

For our Canadian Remembrance Day November 11th, 2018 I wrote this tribute to my friend and godfather who passed away at the age of 88.

Lest we Forget:

Stanley Victor Shilson was a good friend of the family and my godfather. Stan served in the Royal Canadian Artillery with my uncle, Ron Wesley Goulet, and befriended my father, Lorne Alfred Goulet, who was in the infantry. The insignia on his jacket (three downward pointing chevrons) signifies that Stan was a non-commissioned officer or specifically a Staff Sergeant.

All three enlisted in the war and shipped off to England and Europe to fight for the liberation of France, Belgium and Holland and continued through the fierce fighting of the Black Forest into Germany. All three made it home safely to raise their own families. 

As I was growing up in the ’60’s and ’70’s Stan was an early-to-rise, hard working, kind and fun-loving godfather who never told me what to do but rather asked me what I thought, helped me through the decision making process and then encouraged me to do carry out the decision myself. I miss him greatly. Stan’s contribution to our country, along with my uncle’s and father’s, is immeasurable and should never be forgotten.

Stanley Victor Shilson (my godfather) and Ronald Wesley Goulet (my uncle)                                 
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Pictures of David – Inspiring Genius


On the day of our 40th Wedding Anniversary Holly and I revisited the city we enjoyed so much on our European honeymoon. The first time, I don’t remember why, we were not able to visit the original statue of David by Michelangelo.

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“David the Replica” at the Piazza della Signoria in Florence Italy

Instead we settled for the replica placed outside Florence’s Town Hall (Palazzo Vecchio) in the Town Hall Square (Piazza della Signoria.) In our walk around Florence I decided to go there first to see if I could rekindle old memories. All the statues were still there as they had been for 100’s of years.

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Palazzo Vecchio Florence Italy

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Piazza della Signoria Florence Italy

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Piazza della Signoria Florence Italy

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Medici Lion over looking the Piazza della Signoria Florence Italy

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Perseus With the Head of Medusa

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Hercules and Cacus with Loggia dei Lanzi in the background

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Tourists and locals gather at the Piazza della Signoria Florence

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The original Medici Lion was carved in 1598. Since 1789 the two Medici Lions have been located at the Loggia dei Lanzi, Piazza della Signoria, Florence in case you wanted to send them a post card.

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Hercules and Nessus 1599 Florence Italy

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Loggia dei Lanzi was built between 1376 and 1382 as stage for public ceremonies

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The gallery of statues in the Loggia dei Lanzi

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Menelaus supporting the body of Patroclus

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Medici Lion Florence

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Rape of the Sabine Women

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Replica statue of David at the Piazza della Signoria Florence

The Plaza was great but a replica is a replica and plus this David was covered in pigeon poop. This time we decided to visit the real-deal David in his protected home at the Galleria dell’Accademia.

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So on the morning of our 40th wedding anniversary we hiked down the street from our hotel to find the Gallery.

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Even before the gallery opened tour buses spilled out multitudes of tourists onto the street and the line-ups grew quickly.

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So I bought VIP express passes to be the first two people into the museum in the morning.

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For about 10 minutes we had David all to ourselves.

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To be alone with David in the silence left me awestruck. The lighting, the architecture, the ambiance and, of course, Michelangelo’s amazing statue of David, to me, defines human perfection. “All else” shall be judged and measured using David as the standard but only whereas David, the manifestation of Michelangelo’s vision or idea, represents us as being “only human” in our imperfect form. In other words, yes we see flaws and inconsistencies in the form, but in the end it, Michelangelo’s work, is perfect in it’s realization.

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The Original

I haven’t felt this way since I first stood in front of Rembrandt’s Mona Lisa in Paris or Vincent van Gogh’s Wheatfield with Crows in Amsterdam. Shortly after seeing the psychedelic impressions of Wheatfield with Crows I wrote my book of poetry Woodsmoke & Perfume. It took me roughly as long to compose my chapbook of poetry as did Michelangelo to carve out David from a block of marble but in the end my book, like this statue, become something tangible and lasting.

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Pictures of Michelangelo’s David

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Pictures of Michelangelo’s David

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Pictures of Michelangelo’s David

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Admiring Michelangelo’s David

When all was finished, it cannot be denied that this work has carried off the palm from all other statues, modern or ancient, Greek or Latin; no other artwork is equal to it in any respect, with such just proportion, beauty and excellence did Michelangelo finish it” was how Renaissance art historian Giorgio Vasari introduced in a few words the marvel of one of the greatest masterpieces ever created by mankind.

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Admiring Michelangelo’s David

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Admiring Michelangelo’s David

To visit David is an opportunity to be inspired but in what mysterious ways does inspiration work? What inspired Michelangelo and Leonardo to create their masterpieces, ironically, was a commission. They were paid to produce their art. But, at the same time, they did so with game changing creativity that cannot be explain in any other way than pure genius. When you browse the museum you also come across the names of other familiar geniuses: Stradivari, Bartolini, Botticelli, as well as Rembrandt and Leonardo da Vinci.

What struck me was the familiarity of those names but if someone asked me to name a living genius of our time only Stephen Hawkins would immediately come to mind. After that I would stall out.

In my opinion, genius is the manifestation of one’s ability to recognize and take advantage of one’s time and place. To be classified as a genius, you have to achieve something notable and to do that you have to have intelligence and luck. Why luck? Well none of the Renaissance geniuses would have been known today if Europe had not flourished with the rich patrons that commissioned statues, violins, pianos, and paintings.  They were in the right place at the right time. So does that help us define the geniuses of today?

Somewhat.

How about Bill Gates, Paul Allen, Steve Wozniak, Steve Jobs, Jimmy Wales, Mark Zuckerburg, Jeff Bezos, Larry Ellison, Sergy Brin or Larry Page? Are they in the living genius category? Well each of them built their genius status on creatively making use of recently made available inventions. If they have been born 10 years earlier or 10 years later someone else would have done that they did.

How about Sam Walton, George Soros,  Warren Buffet, Larry Ellison, Michael Bloomberg, Elon Musk or Richard Branson? Does figuring out how to make lots of money make you a genius? Are they creative or merely opportunistic?

How about Stephen Hawkins, Alain Aspect, Frederick Sanger, Albert Hoffman, Timothy Berners-Lee, Roger Penrose, Edward Wilson, Edward Witten, James Watson, Andrew H. Knoll, David Baltimore, Charles K. Kao, Gordon Moore, Craig Venter and George M. Whitesides.  Certainly inventive or innovative scientists must fall into this category as did Newton, Edison or Einstein before them?

Let’s try Richard Dawkins, Bill Nye, Neil deGrasse Tyson, Fareed Zakaria, Bill Maher, Michael Moore, Steven Pinker, Steven Weinberg, Philip Pullman and Christopher Hitchens? Does recognizing the fallacy of man’s religious and political beliefs make these candidates special or catapult them into the genius category? I believe these candidate’s genius is defined by their ability to follow intellectual lines of reasoning and to communicate this clarity of thought to the public. Smart and logical, no doubt, but does that give them the genius cookie?

What about the proliferation of today’s writers, musicians or artists? Who of them are geniuses?

The one category I am sure contains no geniuses is politicians. Watching the American elections and listening to the banality, hypocrisy and absurdity of Trump’s rhetoric assures me that political geniuses are far and few between.

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I am not sure of who we should, in our day and age, call a genius. There is so much more to our new age world than what was available during the classical or the renaissance ages. But by standing at the feet of David and admiring the perfection of his art I recognized that genius is also the result of hard work and perseverance. After carving out David Michelangelo went on to paint the Sistine Chapel. Thomas Edison summed it up by saying:

None of my inventions came by accident. I see a worthwhile need to be met and I make trial after trial until it comes. What it boils down to is one per cent inspiration and ninety-nine per cent perspiration.

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To my muse, my Mona Lisa, on our 40th wedding anniversary.

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Happy Anniversary sweetheart! I hope you remember this day as I will.

 

 

 

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C208B Seaplane Crash in China

FIVE people died after a seaplane, owned by Joy General Aviation, crashed into a bridge during a trial flight of the service in Shanghai’s Jinshan District today.

Source: Five killed after seaplane hits bridge on maiden flight in Jinshan District | Shanghai Daily

You have to wonder how much training and experience this pilot had before being given this responsibility? What he did shows a total lack of situation awareness which is always a symptom of the lack of both – training and experience.

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Bragging Rights


At the beginning of the year I had planned to exercise my “bragging rights” to look back and highlight my last year’s accomplishments. Then I lost my laptop in Tokyo, WordPress come out with a new update that made blogging harder instead of easier and Google killed Picasa making it nearly impossible for me to post images into my blog. That combination of “failure to blog” setbacks washed over me like a tropical storm. Although I have not yet fully recovered I am ready to start writing again.

To claim my bragging rights, however, I will re-post an article, called The Fly Boys, published by a men’s travel, adventure and lifestyle magazine called Grid. They did the “bragging” on my behalf and in a few paragraphs managed to explain one of the things I have accomplished in the past year.

11

PEOPLE WHO ARE CHANGING THE WAY WE TRAVEL

The way we travel is fundamentally changing in ways that we would’ve scarcely imagined just a few years ago. Grid put together a list of 11 people leading the way.

During a television interview about this article Grid Magazine Photographer Paco Guerrero was asked:

Why did you choose these people for your list? What is the significance of what they do?

His answer was Skills.

The people on this list give us skills and the means we can use to travel the country in more ways, in different ways, in arguable better ways.

Moreover, the people in this list have skills that enable unique business and travel opportunities for both locals and tourist to visit their country like never before. Tourism, more so than forestry, fishing or mining is sustainable and ecologically friendly. Where there are tourists the reef dynamiting and fish poisoning stops, the trees are protected and left intact, the oceans are kept clean and the reefs thrive. Palawan, for example, has had most of its natural forest cut down by greedy lumber barons, the reefs bombed and poisoned to catch the local fish and huge patches of hillsides devastated by uncontrolled mining practices that allow the tailings to run off into the sea.

But in areas with developed tourism this all stops and the easier it is for tourists and local alike to travel into the remote regions of Palawan the less likely it is that these unsustainable practices will continue.

The (Off The) Grid list includes tour expedition leaders, divers, restaurateurs, innkeepers, celebrity chefs, hoteliers, instagrammers, luxury resort developers and not last and not least the seaplane expert who has changed fundamentally how one can travel to visit all the others on the list spread out on the 7107 islands of the Philippine Archipelago.

THE FLY BOYS

Capt John Goulet, Director for Seaplane Operations for Air Juan.

Living in an archipelago also means having to deal with the challenges of interisland travel. Going off to any other region means having to take land, air, and sea transport — sometimes all three in one trip. In many ways, a seaplane provides the perfect transport solution for our kind of geography.

It’s more than just another luxury option for the well-heeled. By providing ready access to our more remote islands, seaplane transport might be the great equalizer that infrastructure-challenged regions might be waiting for.

As it stands getting to your chosen destination is so difficult that the remotely located resorts and hotels outside of Manila and Cebu have taken to out-and-out lying to get you to visit them. Resorts in Busuanga and Coron will tell you that it is only a quick and easy 45-minute flight from Manila to their airport where they will whisk you away to your beautiful resort on a scenic boat ride. What they don’t tell you is that you have to arrive at least 2 hours before your departure time at a crowded domestic airport and line up with backpackers and crying children to board a hot and cramped commuter airliner and then wait another 30-60 minutes before takeoff. Often the flights are cancelled or rescheduled with no explanation given and you have no choice but to wait.

Then, once airborne, the flight is a merciful 50 minutes, not 45, to the closest local airport. After getting through the terminal and waiting for the others to attend the toilet you will board a small bus or van to drive 45-60 minutes to the harbour where you will wait another 30 minutes for your boat to leave. The boat ride will take another 45-60 minutes across rough waters to finally reach your resort sometime after lunch on a good day but on most days at about 3 pm. The first day of your holiday is spent and so are you.

By seaplane, however, you arrive at the harbour 20 minutes before your departure and arrive directly to your resort 1:10 min later in time for an early breakfast. After check-in you can snorkel along the colorful corals off the beach and enjoy the cool blue-green waters of the sandy lagoon. Then spread out with a good book on a beach chair and enjoy the late morning sun. Later, after a seafood lunch on the deck while you contemplate retiring to your room for a mid-day nap, you might, on a good day, witness the domestic flight passengers arriving to the resort but often they won’t show up until late afternoon. They have lost an entire day of their holiday in hot crowded waiting rooms and commuter airliners while you have spent your entire first day relaxing. There is no comparison.

A beautiful Filipino lady, dressed in a poppy red-flowered dress and draped with jangling jewelry, told me, when she boarded our flight at Two Season’s Resort in Coron, that the best part of her holiday was the seaplane flight home. She used to dread the last day having to ride a boat across rough seas to Coron, ride for another hour on the winding road and wait hours in the cramped domestic terminal for airline delays after delays. She was more stressed after getting home than before she left several days before. Now she reads a book on the resort deck while waiting for the seaplane arrival and then leisurely strolls down to the seaplane jetty to board. Within minutes she is airborne to enjoy a smooth ride to Manila where she is in the car on the way home in less then one hour and 20 minutes after departing the resort. No more stress.

In the Maldives, before the seaplane, there were about 40 developed islands that were easily accessible by boat without torturing their guests on the rough seas. Now, after the seaplane, there are an extra 70+ resorts on remote islands that are easily reached via the seaplane being able to land on the nearby beautiful blue/green lagoons. The Philippines can develop in much the same way. In my travels have seen many uninhabited and stunning beautiful golden sand beach ringed islands that are too remote for boats but are within a perfect flight distance for the seaplane.

Recently I have had interesting meetings with developers who wish to buy an island, build a resort and fly their guests in exclusively by seaplane. These are the business entrepreneurs, like Six Senses in the Maldives and the AmanResorts in Indonesia, with the vision to see past the crowded airports toward a greener sustainable future. The resort lagoons of the Maldives host 100’s of sea landings a week and are as picture perfect as the day the resorts were built. No runways, no terminals, no reef dynamiting, no spear fishing and no oil spills. Just nature at it’s best.

So if you are looking for an island don’t waste time. The hunt is on.

Coron Island Philippines

Ariara Island Philippines

Flower Island in TayTay Bay Palawan Philippines

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