Alberta Premier Danielle Smith and Ontario Premier Doug Ford with a map of the Northern Shield pipeline proposal, Calgary, July 6.Jeff McIntosh/The Canadian Press
Thomas Gunton is the director of the resource and environmental planning program at Simon Fraser University.
Premier Danielle Smith’s announcement of a major pipeline proposal with Premier Doug Ford just five days after her announcement of a different pipeline project with Prime Minister Carney raises serious questions about energy policy in Canada.
The $35- to $44-billion pipeline project announced with Mr. Carney would transport one million barrels a day of oil to the coastal Roberts Bank terminal in Delta, B.C., while the other project would transport up to 800,000 barrels a day to Eastern Canada.
Neither of the pipelines have a private-sector proponent or any commitments from the oil industry to use them. They are instead projects advocated by politicians who are committing public funds to develop them.
So why are governments promoting pipelines at taxpayers’ expense for the highly profitable oil industry that private companies are unwilling to build?
Opinion: It’s good that we’re building pipelines, but not so good that we’re paying for them
The Alberta Premier argues governments need to take the lead because regulatory uncertainty has made the risk of building new pipelines too high, and points to the cancellation of Enbridge’s Northern Gateway as an example.
But what the Premier neglects to say is that Enbridge has completed a major pipeline project since the cancellation of Northern Gateway and, along with other private-sector pipelines such as Keystone XL-Bridger, is embarking on expansions of its pipeline system without any taxpayer support. Also, the Carney government has recently reduced regulatory risk by streamlining the approval process with the Building Canada Act and the Major Projects Office.
While regulatory risk is always an important consideration in investment decisions, regulatory risk does not explain why private proponents have not come forward to build these projects.
The more compelling explanation for the lack of private proponents for these pipelines is the market risk that undermines the project economics.
Private companies know that future demand for oil is highly uncertain. Oil prices are falling rapidly with the ending of the U.S.-Iranian conflict and the International Energy Agency June market analysis forecasts that there will be a significant surplus of oil in 2027, roughly equivalent to Canada’s entire production.
Opinion: An Alberta-Ontario pipeline is a great idea. Let’s get one through Quebec as well
The IEA’s longer-term forecasts anticipate that world oil demand growth will continue to slow and demand may decline altogether over the next several decades, depending on climate policies. Private oil companies such as BP forecast that demand will decline by between about 11 per cent and 68 per cent by 2050 as the transition to electrify the transportation sector accelerates.
The Canadian Energy Regulator’s 2026 outlook similarly projects uncertainty over Western Canadian oil exports, with forecasts ranging from a small decline to an increase of just under 800,000 barrels a day by 2035, with production peaking around 2040 in all scenarios.
The other market risk is expansion of competing pipelines. Enbridge and Trans Mountain are able to expand their existing pipeline systems by just over one million barrels a day at a much lower cost than building a new pipeline. And Keystone XL is considering resurrecting its partly built pipeline with Bridger, an American company, to transport up to 1.1 million barrels per day.
The expansions on the Enbridge and Trans Mountain systems would provide more than enough capacity to meet the highest Western Canadian export forecast of just under 800,000 barrels a day, at a much lower cost than building a new pipeline. These expansions would also ensure that Canadian oil gets the world market price by providing sufficient pipeline capacity to get Alberta’s oil to tidewater locations. And the Keystone XL-Bridger project could add more capacity if needed.
Given the uncertain world demand for oil and competition from these other lower-cost pipelines, it is easy to understand why no private company is motivated to build Alberta’s two proposed pipelines. They are not needed and if they are built, they would not cover their costs of construction without government subsidies.
In this uncertain environment, the logical strategy is to allow the market to work. Expansions on the Enbridge and Trans Mountain systems will meet Alberta’s needs at the lowest cost. Additional pipeline capacity would be added if required.
Unfortunately, this rational strategy is inconsistent with the politically driven, energy-superpower aspirations to expand the oil industry beyond what is economically justified. That is why governments want to build expensive new projects that the private sector will not build.
The risks of trying to force growth are clear and have been well documented in Canadian economic history. Irrational expectations stimulate excess investment that results in significant losses and long periods of retrenchment and recovery.
In the case of oil, the costs are even higher, with the impacts of higher emissions on climate change.
Politicians should recognize the costs of trying to force growth beyond what is economic and avoid building projects we do not need at taxpayers’ expense.