The Canadian government would have to play a significant role in any project to build new pipelines in its territory in order to overcome regulatory, financial and political obstacles, as well as the opposition of activists, according to industry experts.
With President Trump threatening to impose tariffs on Canadian oil exports, Canadian politicians have asked for the construction of new pipelines to export terminals on the coasts to reduce the dependence of the US market.
Oil is the most valuable export in Canada, which is the world’s fourth largest oil exporter, sending 4 million barrels per day (BPD) to US refineries. That equals approximately 90% of Canadian oil exports.
The Canada Energy Minister of the Liberal Party, the leader of the conservative opposition and provincial prime ministers have affirmed that Canada must diversify their oil exports.
Some politicians have requested the construction of new pipelines to transport crude to the West, East and Northern Canada coast. However, no private company has recently expressed interest in assuming a project of several billions of dollars, which according to experts could take a decade to complete.
Two major oil pipeline projects have been canceled in the last decade, and a Canadian company also lost billions of dollars when the former president of the US, Joe Biden, revoked in 2021 the permits for the Keystone XL pipeline.
On Monday, Trump said he wanted Keystone XL to be built and promised easy regulatory approvals. But that same day, he said that tariffs on US imports from Canada and Mexico would take effect in March.
Tariffs would make the Canadian crude for US refineries or reduce the margins of Canadian producers, which would affect the demand of the pipeline.
Even without the tariffs, the construction of pipelines presents too many risks for Canadian companies, said Dennis McConaghy, exejecutive of Transcanada Corp., now TC Energy. McConaghy worked on the failed Keystone XL project of the company.
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“If I were on the Board of Directors (from a pipeline company), I would find these risks very difficult to justify,” McConaghy said in an interview.
The current Canada option to avoid the US market is the Trans Mountain pipeline system, which goes from the Alberta oil producing province to the west coast of British Columbia. From there, oil can be sent to international markets.
The expansion of this line was completed last year, seven years after Kinder Morgan threatened to cancel it due to the strong environmental and indigenous opposition.
Ottawa bought the Trans Mountain system for 4,500 million Canadian dollars (US $ 3,150 million) in 2018 to finish the expansion. Construction delays and cost overruns caused the price to shoot at 34,000 million Canadian dollars in four years.
“The fact that the cost overruns were so massive is a very strong signal for the private sector,” said Kent Fellows, an energy economist at the School of Public Policies of the University of Calgary.
Canada’s energy sector has long complained about the prolonged times of obtaining permits and regulatory uncertainty that delays projects and drives out the possible investors.
Companies would not consider a new proposal of pipeline unless the federal government quickly modifies the impact evaluation law, said Martha Hall Findlay, former member of Parliament by the Liberal and Executive Party of Suncor Energy Inc., now director of the School of Public Policies of the University of Calgary.
The law, in force since 2019, demands social and cultural evaluations of the pipelines, in addition to their environmental impacts. Since then, only a project – the Cedar LNG Natural Gas Project – has successfully completed the process, and took three and a half years to do so.
“Working in collaboration with the provinces will be key, and will require serious political leadership,” said Hall Findlay.
The Canadian pipeline operator in Bridge would not consider a pipeline project in Canada without a change in Ottawa’s policy about energy infrastructure, said CEO Greg Ebel at a recent telephone conference.
Ebel pointed out that the country needs reforms in the permissions process, the elimination of the proposed top for the emissions of oil and gas production, and the expansion of federal and provincial programs of loans guarantees that allow indigenous communities to become investor in pipeline projects.
“We would need to see a real legislative change at the federal and provincial level that specifically identifies the large infrastructure projects … as of national interest,” said Ebel.
Companies also need confidence that the Canadian Bituminous sand industry could increase production to fill a new pipeline. Bituminous sand producers took years to increase production until reaching a record level last year to fill the expansion of Trans Mountain.
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A report last year of S&P Global Commodity Insights indicated that the production of bituminous sands in Canada increased by 1.3 million barrels per day in the last decade and could grow in half a million additional BPDs by 2030.
Uncertain growth of bituminous sands
Canada has pledged to reach net greenhouse gas emissions in 2050, an objective that clashes with any drastic increase in oil production.
A 2023 prognosis of the Canada Energy Regulator suggested that, in order to reach the zero net emissions goal, the production of bituminous sands would probably decrease by 30% by 2050.
The Global S&P report expects production to begin to reduce as soon as in 2035.
For now, the threat of tariffs has inclined the balance away from the climatic issue and more towards the construction of pipelines, said Hall Findlay.
“I think in Canada this has led to itself, in some areas, we depend too much on the infrastructure that flows exclusively through the United States,” said Energy Minister Jonathan Wilkinson, this month in an event in Washington, DC
Wilkinson has not asked for new pipelines, said a representative on Wednesday. He pointed out that other people have drawn the issue to discussion, the representative added.
Alberta Prime Minister Danielle Smith, has requested that federal and provincial governments build multiple oil and gas pipelines to the east, west and northern coast of Canada.
Hall Findlay said that if the federal and provincial governments support a pipeline through a public-private association or some kind of financial support, that could attract private capital.
A change of government could also increase confidence in Canada’s energy sector, said Kevin Birn, main analyst of the Canadian oil market in Global S&P.
The opposition leader Pierre Poilievre told journalists this month that a conservative government “would revoke the anti-energy laws” and “would build pipelines.”
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Even so, there would be no long -term guarantee, Birn said. He pointed out that the Keystone XL project was rejected by the administration of former president Barack Obama. He was revived by Trump during his first term before being revoked by Biden, and is now promoted by Trump.
“Part of the problem is that the development of infrastructure should now be thought based on political cycles,” Birn said in an interview.
“If you are looking to build a great infrastructure in North America, you should now ask yourself: ‘Can I achieve this in a single government mandate?'”
With Reuters information
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