Trans Mountain expansion may not be economically viable, says think tank report
A new report says competing pipelines and a reduced energy demand outlook raise viability questions
The future of the Trans Mountain pipeline expansion project is once again being called into question — this time by a new report that argues the mix of competing pipelines, changes in energy demand and shifts in international prices could wreak havoc on the project's business case.
The Canadian Centre for Policy Alternatives, a left-leaning think-tank, warns in an assessment released this morning that the federal government may need to rethink its commitment to expanding the pipeline.
The report, titled Reassessment of Need for the Trans Mountain Pipeline Expansion Project, says the COVID-19 pandemic has caused a short-term drop in oil demand. The impact of COVID-19 on demand also has been noted by the International Energy Agency, which revised its own outlook.
The report concludes optimizations and expansions of five existing pipelines, plus the completion of the Line 3 project in 2021, will leave Canada with enough pipeline capacity through to 2040 without the Trans Mountain expansion and Keystone XL.
"The existing (Trans Mountain) pipeline is not at all a waste," said Hughes, a geologist who works in the field of oil and gas. "But what we are talking about is tripling the capacity to make a lot of money in Asia. And you really have to look at the facts."
After purchasing the Trans Mountain Pipeline and plans for its expansion, the government has touted its benefits to taxpayers. Figures from the federal government indicate that more than 2,000 workers have been hired and the project is expected to employ 5,500 people during peak construction.
Before its completion and over the next 20 years, the pipeline is expected to generate $46 billion for the government and $73 billion for producers.
WATCH: Former Finance Minster Bill Morneau defends the pipeline's expansion
Lucrative global markets?
One of the main arguments for the Trans Mountain expansion has always been the need to get more western oil to tidewater so it can find new markets outside of the U.S.. Before the pandemic, the Alberta government said that — without the Trans Mountain expansion — Canada would continue to sell its oil abroad at a steep discount, costing the Canadian economy $16 billion a year.
The federal government says at least 500,000 barrels a day will be available for export to global markets once the expansion is complete.
But the new report casts doubt on that argument. Canadian producers could be worse off, it says, because Asian markets have been paying less for heavy/sour oil, which is comparable to Western Canadian crude. Depending on market conditions and higher transportation costs, the report notes, producers could lose $4 to $6 per barrel.
Trans Mountain expansion still gives Canada leverage
But one organization that promotes the sustainable use of petroleum resources still sees value in expanding Trans Mountain. Richard Masson, chair of the World Petroleum Council, said Thursday afternoon that Canada has no guarantee that the pipelines the report mentions — including Keystone XL — will ever see the light of day.
The Trans Mountain expansion, Masson said, gives Canada more leverage in the market.
"Going to Asia, yes, you would probably end up getting less money than if you can get to the U.S.," Masson said. "But the fact that you have the option helps make sure U.S. refiners are going to pay you full value.
"When you don't have an option, you are at the mercy of your customers."
Masson acknowledges the pipeline's rising costs due to delays and court action means its returns will be lower than originally promised, but that hasn't changed the industry's interest in the Trans Mountain expansion.
Trans Mountain stated in June that shippers have already signed contracts for the new pipeline and it has commitments for roughly 80 per cent of its capacity.
The Canadian Association of Petroleum Producers also cited the opportunities to access new markets in a statement Thursday.
"With relatively short transportation routes to important growing markets for heavy oil in China and India compared to other producers and a stable supply of responsibly produced resources, Canada has a distinct advantage to capture and grow our share of the global market," said Jay Averill, CAPP's media relations manager.
When it's finished, the Trans Mountain expansion project will twin the existing Alberta-to-British Columbia line and boost the pipeline's capacity from about 300,000 to 890,000 barrels per day.
In February, Trans Mountain estimated the cost of the expansion at $12.6 billion, with service expected to start at the end of 2022. This is in addition to the $4.5 billion the government spent to purchase it from Kinder Morgan. The expanded pipeline will directly produce 400,000 tonnes of greenhouse gas emissions annually, which has been factored into Canada's emission targets.
Although it's difficult to account for indirect emissions, Environment and Climate Change Canada estimates the upstream emissions add 21 and 26 megatonnes of carbon dioxide per year, based on 2015 calculations. Those numbers don't account for land use changes and electricity or other fuels used elsewhere.
- This story has been edited from a previous version that misstated the purchase price of the Trans Mountain Pipeline and its expansion project. In fact, the federal government paid $4.5 billion. The story has also been edited to clarify that the CCPA study referred to independent forecasts stating that Canada is expected to have enough pipeline capacity through to 2040 without the Trans Mountain expansion.Oct 29, 2020 2:32 PM ET