It’s hard to imagine anything that could knock Saskatchewan off its perch as a “have” province, but this could be it.

In February, the Canada West Foundation (CWF), a Calgary-based think-tank, released a report warning that Saskatchewan and Alberta could lose their status as economic growth leaders.

The report, entitled Pipe or Perish: Saving an Oil Industry at Risk, paints a bleak picture of the economic consequences if several major pipeline projects aren’t given the go-ahead.

According to the study’s author, Michael Holden: “If pipeline project proposals, [such as] Trans Mountain, Keystone XL and Northern Gateway, don’t move forward, Canada will be forgoing $1.3 trillion in economic output, 7.4 million person-years of employment and $281 billion in tax revenue between now and 2035.”

Why is Western Canada oil being sold at a discount? Because of capacity constraints or bottlenecks in pipelines that deliver the oil to the U.S. Midwest. That’s what happens when Canada’s oil production – 75% of which is exported, with 99% of that to the U.S. – is too dependent on one market. And 60% of that production is from the oilsands, with another 22% coming from conventional production in Alberta.

Saskatchewan Premier Brad Wall, whose government commissioned the CWF study, says the consequences for Saskatchewan, with 16% of the country’s oil production, are serious: “We have a pipeline capacity issue in western North America, and it’s costing Saskatchewan people a lot of money.” Based on estimated losses of 20% due to depressed prices, he adds, “that’s $300 million at minimum [in royalties] and $2 billion to the economy.”

The problem is exacerbated by the fact that the U.S. is becoming more self-sufficient in energy. According to the International Energy Agency, the U.S. could require 64% less imported oil by 2035, due to increased domestic production (largely from hydraulic fracturing – a.k.a. “fracking” – of shale oil deposits) and reduced consumption of up to 45%.

During the same period, demand from China will increase by 153% and by 132% from other Asian markets. According to the CWF report: “By 2035, China will need to import more than three times as much oil as Western Canada currently produces (about 2.7 million BOPD [barrels of oil per day]), but the West has very little physical access to that market.”

The answer? Build new pipelines to the west coast, such as the Northern Gateway, or expand Kinder Morgan Energy Partners LP’s Trans Mountain pipeline to serve Asian markets. Another solution is building Keystone XL to the U.S. Gulf Coast, where more than half of the refining capacity in the U.S. is located. Expanding TransCanada Pipelines Ltd.’s main line and reversing the flow in Enbridge Inc.’s Line 9 pipeline to Eastern Canada are other ideas.

The CWF report says increasing Western Canada’s oil production will absorb existing pipeline capacity by 2016, if not sooner. Proposed pipeline projects could add between 2.7 million and 3.4 million BOPD of capacity to Western Canada’s export pipeline network. Adds the report: “The challenge is getting these projects approved and completed in a timely manner.”

Given the daunting task of getting the Keystone XL and North Gateway projects approved and built in the face of stiff opposition in the U.S. and Canada, that’s probably the understatement of the year.

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