Study says 'faulty assumptions' behind case for Trans Mountain pipeline project

Alberta's energy ministeris disputing a report which says the Trans Mountain pipeline expansion project is based on "faulty assumptions," andexpanded pipeline capacity from Alberta to British Columbia is no longer needed.

A peer-reviewed paper published last week by the Canadian Centre for Policy Alternatives and the Parkland Institute casts doubt on the need for expanded pipelines from Alberta to both the East and West coasts of Canada.

"Make no mistake," said Alberta Energy Minister MargaretMcCuaig-Boyd."This pipeline will be built."

The expansion of the Kinder Morgan-owned pipelinewas approved last November by the federal government, which arguedthe project was in the national interest.

The $6.8-billion expansion would triple the pipeline'scapacity to 890,000 barrels of crude perday along the 987-kilometre stretch from Edmonton toBurnaby, B.C.

Author David Hughes concludes in his report"Will the Trans Mountain Pipeline and Tidewater Access Boost Prices and Save Canada's Oil Industry?" that there's no longer a price advantage to selling Canada's oil offshore.

The Alberta and federal governments continue to arguethat expanded pipelines to tidewater will open Asian markets where producers can command a higher price than in the North American market.

But after studying theinternational oil price the Brentbenchmark and the North American price West Texas Intermediate, or WTI for the last 18 months, Hughes found the price gap has all but disappeared.

"The tidewater price doesn't exist," said Hughes in an interview with CBC.

"It did exist when those pipelines were proposed, and that was a result of the rapid rise in shale oil production in the U.S.," he said, addingthe rise in U.S. production caused an oil glut in Oklahoma, where the North American benchmark is set.

'This is a reality'

Hughes said the pricedifferential the differencebetween Canadian and American oil prices went from a high of over $20 a barrel back in 2012, to the current gap of about 82 cents.

"I would disagree the differential is gone," saidMcCuaigBoyd. "It's a pretty volatile price, so I don't think that differential is a constant."

Thedifferential has existed for years, even prompting former premier Alison Redford to coin the term "bitumen bubble."

In January2013, Redford appeared in a televised address to warn of the impending revenue crisis in Alberta due to the province's inability to reach new markets with its oil.

"This bitumen bubble means that the Alberta government will collect about $6 billion less in revenue this year alone," Redford said in the address, adding the Alberta government had a duty to "ensure that our resources, especiallyAlberta oil and gas, get to new markets, at a much fairer price."

It's a familiar argument to the current NDP government, which is championing the same causeand using the same language.

"We know there's a growing demand for our energy," McCuaig-Boyd said."I heard [it] in Houston, I heard it in New Yorkfrom some pretty smart economists [that] tell us this is a reality."

In his study, Hughes points out that since the Trans Mountainapplication was made, pipeline capacity to the United States has increased,and will only get bigger with the Trump administration's approval of the Keystone XL pipeline from Alberta to the Gulf coast.

Aside from that, McCuaig-Boyd points out there's increasing demand from a growing middle class in Asia that will require more energy.

"Things are ticking along," said McCuaig-Boyd, notingthat Kinder Morgan has already signed a steel contract with a company in Saskatchewan, and there is great anticipation of future job opportunities in Alberta and B.C.

According to his report, Hughesencourages the federal government to take a more "holistic" approach to pipeline expansion.