Trans Mountain pipeline expansion will lead to $11.9B in losses for Canada, study says

A new study from researchers in B.C. estimates that Canada will lose $11.9 billion because of the Trans Mountain pipeline expansion project, but some industry experts question that conclusion.

The paper from a team at Simon Fraser University's School of Resource and Environmental Management released on Wednesday argues there is no likely scenario in which the project would lead to a net benefit.

"The $11.9 billion loss to Canada is primarily due to a more than doubling of the Trans Mountain construction costs from the original $5.4 billion to $12.6 billion, combined with new climate policies just confirmed by the Supreme Court that will reduce the demand for oil," lead author and SFU professor Thomas Gunton said in a press release.

The Canadian government bought the Trans Mountain pipeline from energy giant Kinder Morgan in 2018 for $4.5 billion. The SFU study points out that Ottawa has not provided the public with an evaluation of the costs and benefits that led to that decision.

The researchers suggest the government would be better off shelving the project entirely and using the funds to invest in alternative energy projects.

"Private sector companies such as BP and Shell are responding to declining demand by shifting investments from oil to green energy and the federal government should follow their lead," Gunton said.

The government and an industry expert dispute those arguments. The government said the pipeline will eventually be sold to private investors, while anindustry expert noted thatdemand for oil is nearly back to pre-pandemic levels.

The expansion project involves twinning the existing 1,150-kilometre pipeline between Strathcona County, Alta., and Burnaby, B.C. It will add 980 kilometres of new pipeline and increase capacity from 300,000 barrels a day to 890,000 barrels a day.

The project is expected to be finished by December 2022, and is currently about 20 per cent complete, according to Trans Mountain.

'Responsible investment'

In a written statement, the federal government said it's confident that the Trans Mountain project is a "responsible investment" for Canadians, and it will invest anything earned from it into clean energy projects.

"The government does not intend to be the long-term owner of Trans Mountain Corporation. It intends to launch a divestment process after the expansion project is further de-risked and after engagement with Indigenous groups has concluded," said theOffice of the Deputy Prime Minister and Minister of Finance in an email.

Richard Masson,an executive fellow at the University of Calgary School of Public Policy and formerCEO of the Alberta Petroleum Marketing Commission, questionedthe study's conclusion.

"I think some of the assumptions that they made would be strongly challenged by industry," Masson said.

For example, he said, Canadian oil "production hasn't grown as much as we would like it to because we've been constrained on having a lack of pipeline capacity."

• With Keystone XL back on the shelf, oilpatch pressure mounts on Trudeau and Trans Mountain

The existing Trans Mountain pipeline is operating atmaximumcapacity.

The latestmodellingby the Canada Energy Regulatorshowsthe capacity needed in the future is uncertain depending in part on what happens with climate policies.

The regulator's Energy Futures Report shows a need for Keystone XL, the Trans Mountain expansion, and Enbridge's Line 3 pipeline under its reference scenario, whichassumes"a lack of future domestic and global climate policy action."

However, under what the regulator calls itsevolving scenario, Canada brings in new greenhouse gas reducing measures to meet itsstated climate targets. Canadian oil and gas production declines, andthere could be enough export capacity with either Enbridge's Line 3 or the Trans Mountain expansion.

The energy regulator doesn't make a case for or against any pipeline in its scenarios, but notes "the evolving scenario does project that, in some years, crude oil available for export is significantly lower than total pipeline capacity."

Although demand for oil slowed down in 2020, Masson said, it is close to reaching pre-pandemic levels and some people in the industry expect that demand to grow,despite countries trying to simultaneously meet the goals set in the Paris climate agreement.

• Global oil demand rebound from pandemic's lows prompts price spike forecasts

Benefit-cost analysis

The SFU team saidtheydecided to perform thebenefit-cost analysis of the project because of the sheer magnitude of Canada's investment and significant changes that have happened since it was approved.

Their studyattempts to estimate how changing economic and political conditions could affect the profitability of the project.

Those conditions include an increase in construction costs, the cancellation of the Keystone XL pipeline to the U.S., stronger federal policies to address climate change and a weaker market for oil.

None of those factors were taken into account when the National Energy Board recommended the approval of the expansion project in 2016 and then again in 2019.

The study suggests that the pipeline expansion will create excess capacity that isn't needed and will increase the risk of environmental damage.

The ballooning price tag for construction means that the tolls charged to shippers for using the pipelines, which were agreed upon in 2017, will not come close to covering the capital costs. The tolls were set to cover $7.4 billion in costs or about 59 per cent of the current estimate for construction.