Canada wants new oil pipelines to avoid Trump tariffs; nobody wants to build them
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By: Amanda Stephenson, Reuters
The Canadian government would have to play a significant role in any project to build new oil pipelines in Canada to overcome regulatory, financial and political hurdles and activist opposition, industry experts said.
With U.S. President Donald Trump threatening tariffs on Canadian oil exports, several Canadian politicians have called for new pipelines to coastal export terminals to reduce dependency on the U.S. market.
Oil is the most valuable export of Canada, the world’s fourth-largest oil exporter which pumps 4 million barrels per day (bpd) over the border to U.S. refiners. That is about 90 percent of Canada’s oil exports.
Canada’s Liberal Energy Minister, the Conservative opposition leader and several provincial premiers have all called for new pipelines to take crude to Canada’s west, east and north coasts. Yet no private company has expressed recent interest in taking on such a multibillion-dollar project, which experts say could take a decade to complete.
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Two big east-west projects have been canceled in the last decade, and a Canadian company also lost billions when former U.S. President Joe Biden revoked permits for the Keystone XL pipeline project to the U.S. in 2021.
Trump on Monday said he wanted Keystone XL built and pledged easy regulatory approvals. But on the same day, he said tariffs on U.S. imports from Canada and Mexico would proceed in March.
Tariffs would make Canadian crude more expensive for U.S. refiners or cut margins for Canadian producers, hurting demand for the pipeline.
Even without tariffs, building pipelines poses too many risks for Canadian companies, said Dennis McConaghy, a former executive with TransCanada Corp., now TC Energy. He worked on that company’s ill-fated Keystone XL project.
“If I were on the board (of a pipeline company), I would find these risks very difficult to rationalize taking on,” McConaghy said in an interview.
Canada's current option to bypass the U.S. is the Trans Mountain pipeline system, running from the oil-producing province of Alberta to the British Columbia west coast. Crude can then be shipped to overseas markets. An expansion of the line was completed last year by Kinder Morgan, seven years after the company threatened to cancel it due to heavy environmental and Indigenous opposition.
Ottawa bought the Trans Mountain system for C$4.5 billion (US $3.15 billion) in 2018 to finish the expansion. Construction delays and budget overruns pushed its price tag to C$34 billion over four years.
“The fact that the cost overruns were so massive, that's a really strong signal to the private sector,” said Kent Fellows, an energy economist at the University of Calgary's School of Public Policy.
Canada’s energy sector has long complained of lengthy permitting times and regulatory uncertainty slowing projects and scaring potential investors.
Companies would be unwilling to consider a new pipeline proposal unless the federal government quickly amends the Impact Assessment Act, said Martha Hall Findlay, a former Liberal Member of Parliament and Suncor Energy Inc. executive, now director of the University of Calgary's School of Public Policy.
The act, effective in 2019, required social and cultural assessments of pipelines as well as environmental impacts. Since then, only one project — the Cedar LNG project — has successfully completed the process, and that took 3-1/2 years.
“Working collaboratively with the provinces will be key — and will take some serious political leadership,” Hall Findlay said.
Canadian pipeline operator Enbridge would not consider a Canadian pipeline project absent a reversal in Ottawa’s policy toward energy infrastructure, CEO Greg Ebel said on a recent conference call.
He said the country needs permitting reforms, elimination of the proposed cap on emissions from oil and gas production, and expansion of federal and provincial loan guarantee programs allowing Indigenous communities to become equity investors in pipeline projects.
“We would need to see real legislative change at the federal and provincial government level that specifically identifies major infrastructure projects ... as being in the national interest,” Ebel said.
Companies also need confidence that Canada’s oil sands industry could increase output to fill a new pipeline. Oil sands producers took years to ramp up to hit record production last year to fill the Trans Mountain expansion.
A report last year by S&P Global Commodity Insights said Canadian oil sands output rose by 1.3 million barrels per day in the last decade, and could rise an additional half-million bpd by 2030.
Oil sands growth uncertain
Canada has committed to reach net-zero greenhouse gas emissions by 2050, a goal at odds with any dramatic increase in oil output.
A 2023 forecast from the Canada Energy Regulator suggested that to reach the country's net-zero target, oil sands output would likely decline by 30 percent by 2050.
The S&P Global report predicts declines in production beginning as early as 2035.
For now, threatened tariffs have tilted the scales away from climate and toward building pipelines, said Hall Findlay.
“I do think in Canada, this has caused some reflection on whether, perhaps in some areas, we are too dependent on infrastructure in particular that flows only through the United States,” Energy Minister Jonathan Wilkinson said this month at an event in Washington, D.C.
Alberta Premier Danielle Smith has called for federal and provincial governments to build multiple oil and gas pipelines to the “east, west and north coasts of Canada.”
Hall Findlay said if federal and provincial governments were to support a pipeline through a public-private partnership or some form of financial backstop, that might attract private capital.
A change in government could also boost confidence in Canada’s energy sector, said Kevin Birn, chief Canadian oil market analyst for S&P Global.
Opposition leader Pierre Poilievre told reporters this month that a Conservative government would “repeal anti-energy laws” and “build pipelines.”
Even then, there would be no long-term guarantee, Birn said. He noted that the Keystone XL project was rejected by former U.S. President Barack Obama’s administration. It was revived by Trump during his first term before being revoked by Biden and now is being encouraged again by Trump.
“Part of the problem is that the development of infrastructure now has to be thought of in terms of political cycles,” Birn said in an interview.
“If you’re looking to build large infrastructure in North America, you now need to ask, ‘can I get this done in one term of office?’”
