We still need the Trans Mountain Pipeline Expansion

Red tape, blockades and delays have cost the Trans Mountain Expansion Project billions. Now, TMX is almost ready to begin paying back Canadians.

The Trans Mountain Expansion Project is now “in the ninth inning,” with completion expected next March — more than 10 years after the first application on December 16, 2013.

Those 10 years have been filled with regulatory and legal red tape, politics and delays due to the COVID pandemic and global supply-chain issues, protection of culturally significant sites for Indigenous Peoples, unexpected archaeological discoveries, challenging terrain, issues around building in densely populated areas, worker shortages, floods, inflation, interest-rate increases, the rising cost of steel, opposition petitions, protests and even blockades.

It's been a long (and expensive) journey to get this critical infrastructure project built.

Those ten years were filled with rising costs. The latest estimate for the project's cost was around $30.9 billion, getting on for six times the initial estimate of $5.4 billion.

But the Trans Mountain expansion project, short-handed as “TMX,” is a must for Canada’s oil business and, by extension, its entire economy. It will almost triple the capacity of the current pipeline to 890,000 barrels per day, finally allowing Canada the ability to export its first overseas barrel of oil in recent memory.

TMX will open new Asian and Indian markets for Alberta’s oil; China, for one, has been importing Alberta oil that has first been sent south to the US Gulf Coast. Alberta can also expect sales to US Pacific Coast refineries that now import some of their oil from Saudi Arabia, Iraq or Latin American suppliers.

Ten Canadian shippers have already signed long-term contracts that will take up about 80 percent of the new line’s capacity, signalling a demand from Canadian producers for the pipeline.

Despite all the talk of “peak oil” and energy transition, world oil demand is also expected to stay strong long into the future.

On the world’s current trajectory, the?International Energy Agency (IEA) projects?that oil demand, which was 94.5 million barrels per day in 2021, will be 102 million barrels per day in 2030, and still be 102 million barrels per day in 2050.

As long as the world needs oil, a good case can be made that it should benefit Canada, where it is produced responsibly and with a declining environmental impact, not countries like Saudi Arabia, which show little regard for the climate or human rights.

Analysis from the Canadian Association of Petroleum Producers (CAPP) shows that between 2012 and 2021, conventional oil production in Canada remained relatively flat (down 9 percent), with CO2e emissions from production dropping by 27 percent, demonstrating the work producers have done to lower their emissions intensity.

Meanwhile, methane emissions from total natural gas and oil production have fallen by 34 percent, with a remarkable decline in methane emissions intensity of 46 percent.

“This track record of lowering emissions while growing production is a demonstration of why Canadian oil and natural gas should be the barrels of choice for the world's energy needs,” said Lisa A. Baiton, MBA, ICD.D , CAPP President and CEO. “As long as the world needs oil and natural gas, Canada's barrels should be a part of that supply."

The TMX expansion “twins” the original Trans Mountain line that went into operation in 1953 and became the only pipeline system moving oil from Alberta to the West Coast.

The federal government bought the pipeline from its previous owner, Kinder Morgan Canada, in 2018 for $4.4 billion of taxpayer money after it appeared Kinder Morgan was about to call it quits due to soaring costs and timelines imposed by the government.

Prime Minister Trudeau said the project was needed to alleviate oil transportation bottlenecks that were costing Canadian oil producers billions in lost export revenue.

Dawn Farrell , Trans Mountain’s CEO, says the pipeline expansion will generate about $40 billion over two decades of new royalties and taxes to Alberta, and $12 billion in additional taxes to the federal government.

An Ernst and Young report published in March this year included these numbers: “Total capital investment in [TMX] is expected to contribute $26.3 billion in gross domestic product (GDP), 67,423 person-year full-time equivalent jobs (FTEs), and $2.9 billion in taxes to the Canadian economy during its construction from 2018 to 2023. [TMX] operations are estimated to contribute $9.2 billion in GDP, 36,066 person-year FTEs, and $2.8 billion in taxes over 20 years from 2024 to 2043.”

The report adds that the project “awarded $4.86 billion in Indigenous contracts and $657 million earmarked as part of Mutual Benefit Agreements (MBAs) with Indigenous communities.” And it “invested $1.2 million in various skills training for 422 Indigenous persons, with an estimated potential annual wage impact of $24.3 million.”

Farrell says the TMX project now has only 16 kilometres of pipeline still to put in the ground and is on track to begin commercial operations by the end of March 2024. While far from the initial hope of 2019, Canadian taxpayers can be heard offering a collective sigh of relief.

“We’re aiming to have first oil to [the Westridge Marine Terminal in Burnaby] by the end of the first quarter of 2024,” says Farrell. “As long as we don’t run into sort of geological risks, I feel very confident that we’re in that time frame.

“The biggest pressure on this project right now is the timing, for sure. So, every month of delay is $200 million that accrues to the project.”

Meanwhile, the Canada Energy Regulator (CER) has approved a requested route deviation for the project of 1.3 kilometres. The CER said that without the change, completion of the pipeline could be delayed by at least 10 months and cost Trans Mountain $2 billion.

The federal government is set to sell the pipeline at some point, and, while some Indigenous Nations opposed the expansion, a number of Indigenous groups are interested in buying equity in TMX. Ottawa has been holding preliminary talks with Indigenous parties representing 120 Indigenous communities.

The federal government said in August that it would support Indigenous communities with access to capital, meaning communities would not need to risk or use any of their own money to participate. This promise came as Ottawa is under pressure to establish a loan-guarantee program to help Indigenous Peoples buy into natural resource projects on their territories, the surest path to prosperity for many Nations.

However, Indigenous groups have also heard that Ottawa is considering excluding oil and gas projects from the loan program. Four groups have since told Prime Minister Trudeau that oil and gas should be included.

“This program cannot be driven by an ‘Ottawa-knows-best’ policy approach — the judgment of Indigenous Nations about projects to pursue must?be?respected,” they said.

Farrell told reporter Chris Varcoe of The Calgary Herald: “This is a $30-plus-billion-dollar sale. This will be one of the biggest sales, if not the biggest sale, that’s ever occurred in the country.

“To the extent that we get everything ready to go for next spring, that gives us the time then through the spring and the fall to engage potential buyers and potential opportunities.

“So, I would put having a conclusion on that until late in 2024, potentially early ’25.”