Strong demand and policy shifts fail to lure a private backer for Canada’s next oil pipeline
Canada’s latest “grand bargain” on energy still has one glaring gap: no pipeline company wants the job.
According to the Financial Post, major operators such as Enbridge Inc., South Bow Corp. and TC Energy Corp. continue to favour quicker, lower-risk brownfield expansions over a long, highly regulated West Coast megaproject.
TD Cowen director and equity analyst Aaron MacNeil said “these are very tough projects to get built and today, there’s no private proponent.” He asked why a company like Enbridge “would…take on a long, high-regulatory-risk build” and what would be in it for the pipeline company.
The political backdrop has shifted sharply.
According to The New York Times, Prime Minister Mark Carney and Alberta Premier Danielle Smith signed an agreement that lifts the cap on emissions from Alberta’s oil and gas sector.
The deal also exempts the province from federal rules to phase out fossil fuels in power generation and delays methane reduction deadlines, in exchange for tougher carbon pricing and a commitment to build a large carbon-capture system for the oil sands.
Bloomberg reports that the memorandum of understanding pledges federal support for one or more new oil pipelines with Indigenous ownership that would move “at least one million barrels a day of low emission Alberta bitumen” on routes that improve access to Asian markets, and confirms Ottawa will not implement an oil and gas emissions cap.
The scar tissue from Trans Mountain remains front and centre for investors.
The Financial Post reports that the Trans Mountain expansion’s cost jumped from $7.4bn to more than $34bn, and Kinder Morgan Inc. ultimately sold the project to Ottawa after prolonged battles with the British Columbia government and local authorities.
“If Kinder Morgan had remained behind TMX and the costs ballooned to $34bn, they would’ve went bankrupt,” said Randy Ollenberger, managing director of oil and gas equity research at BMO Capital Markets, in the Financial Post.
He added that Enbridge, Trans Mountain Corp., TC or South Bow will not “step up and build anything unless they know what the cost is going to be,” and that “there’s no publicly traded pipeline company that’s going to step up and say, ‘I’ve got a blank cheque.’”
From a fundamentals angle, analysts still see a strong economic case.
According to the Financial Post, Ollenberger said Canada’s heavy crude sits at the low end of global supply costs and argued that oil in the US$60–US$65 per barrel range could justify new investment in pipeline capacity.
He said Western Canada’s oil output could grow by as much as 500,000 barrels a day — and potentially triple under the right conditions — but only if transportation costs remain competitive.
If construction costs balloon again, analysts warn higher tolls would “collapse the business case for a new line.”
Energy economist Peter Tertzakian told the Financial Post there has been no new pipeline proponent “not because there isn’t a market for this stuff, but because these are still viewed as tremendously risky.”
Market access to Asia remains the prize.
Tertzakian said that, at competitive construction costs, a new pipeline would let Canada reach complex refineries in China and Southeast Asia built to run heavy crude, and that “this stuff is actually in quite a bit of demand in Southeast Asia, and they’re willing to pay world prices for it”.
On the ground, key stakeholders are pushing back.
As per The New York Times, Gaagwiis Jason Alsop, president of the Council of Haida Nation, said, “There is no support, there is no project, there’s no interest in being a part of any oil pipeline,” and called it “a non-starter,” pledging to assert territorial rights in court.
The New York Times also reports that BC Premier David Eby warned a pipeline with no private-sector backer risked becoming an “energy vampire” that distracts from other projects.
Despite the political deal, there is still no concrete proposal.
Bloomberg notes there is no formal pipeline application before Ottawa and that Smith has tasked her government with drafting a detailed project pitch by July, until the private sector is willing to take over.
According to The New York Times, both Carney and Smith have acknowledged there is no current proponent and no identified Asian buyers for Alberta’s heavy oil.
