Nearly six months after the Trans Mountain pipeline expansion launched, Canada’s oil exports are surging as intended—but questions about who will cover the project’s massive C$34-billion cost overruns are also intensifying.
First proposed by Kinder Morgan Canada in 2012, the Trans Mountain pipeline expansion faced significant environmental and Indigenous opposition, putting the project’s future in jeopardy. In 2018, the federal government bought the pipeline for $4.5 billion to ensure completion, but costs have since skyrocketed, prompting a parliamentary investigation as Canadians could ultimately be on the hook if the government cannot recover these funds.
The costly and contentious pipeline expansion finally opened in May to triple the capacity of the existing line carrying crude from Alberta to the British Columbia coast, writes the Canadian Press. It adds an additional 590,000 barrels per day of shipping capability—enormous for an industry that has long complained about transportation bottlenecks. The pipeline now accounts for 17% of Canada’s total export capacity, according to the Canada Energy Regulator (CER).
The surge in oil from western Canada’s ports is reshaping global markets. Refiners in the United States are increasingly purchasing from sellers in Latin America, while Canada’s oil exports to Asia have grown from nearly zero before the expansion to a monthly average of $325 million since May, according to ATB Financial.
Meanwhile, Canadian production is smashing records, with crude output averaging five million barrels per day as of July—up from 4.8 million in 2023—and set to grow further into 2025.
Yet, the project’s financial viability remains in question. The International Institute for Sustainable Development (IISD) warns that taxpayers could end up paying $18.8 billion to subsidize the pipeline, potentially amounting to about $1,255 per household, writes The Narwhal.
Trans Mountain CEO Mark Maki told a parliamentary committee that the government could recoup its costs if it acted as a “disciplined seller,” urging a strategy that avoids haste and clarifies Indigenous community participation.
Meanwhile, PetroChina Canada, a subsidiary of China’s top oil-producing firm PetroChina, recently announced that it will withdraw as a committed shipper, citing disputes over rising pipeline tolls, reports Reuters. The CER will hold hearings next spring on toll hikes, which are meant to recoup the outsized cost of completing the lengthy project.
“Until a decision is made, the pipeline’s long-term revenues remain uncertain,” writes CBC News.
Oil Profits Surge Alongside Pipeline Costs
The Trans Mountain expansion is the “most expensive infrastructure project in Canadian history,” wrote the Globe and Mail in April, yet economists predict it will significantly boost the GDP of Alberta and the country as a whole.
“It’s really hard to overstate the importance of this pipeline,” said Mark Parsons, chief economist at ATB Financial. “We really consider the Trans Mountain expansion a game-changer.”
It ended transportation bottlenecks that long limited the Canadian oil industry’s growth, CP writes. With additional capacity, companies have ramped up production. Energy analyst Rory Johnston projects year-over-year growth of 100,000 to 300,000 barrels per day through 2025, making Canada one of the largest sources of crude output growth globally.
The expansion is also lifting Canadian oil company profits. Lack of transportation availability has in the past “frequently and chronically” depressed the value of Canadian crude, Johnston said, adding that the addition of Trans Mountain’s new capacity is reducing that discount and lessening the risk of extreme price volatility in the future.
Broader economic impacts are also emerging. The Bank of Canada has estimated that Canada’s total export growth will rise an average 6.25% over the second half of 2024. That increase is being led by oil exports due to the new capacity created by the Trans Mountain expansion, the central bank said. TD suggested increased oil output this year will add between 0.2 and 0.4 percentage points to Canada’s total GDP. Alberta’s real GDP will grow by 1.9% in 2024, trailing only Newfoundland and PEI and coming in higher than the national forecast for GDP growth of 1.1%.
ATB Financial is projecting 2.5% economic growth for Alberta this year, compared to 1.2% nationally. For next year, it is calling for 2.8% growth in Alberta compared to 2.0% nationally.
“One of the main reasons we are expecting the Alberta economy to grow faster than the national economy is the Trans Mountain expansion pipeline,” Parsons said.
Who Will Bear the Cost?
But there are clouds ahead. The Trans Mountain pipeline expansion is now one of the most expensive routes for oil shippers to move their product out of the Western Canadian Sedimentary Basin, due to increases in its tolls.
Higher tolls will be necessary to avoid having taxpayers foot the bill, but oil companies have objected, arguing the amount should be based on the pipeline’s original expected cost. Trans Mountain Corporation says any toll level below what it has applied for “could impact Trans Mountain’s ability to meet its financial obligations,” writes Global News.
Simon Fraser University professor Thomas Gunton, author of a report on the tolling issue, said the industry norm is that oil companies are the ones who cover the operating and capital costs of the pipelines they ship on. If the CER determines the oil industry should not have to pay for the bulk of this government-owned pipeline project’s cost overruns, he said, taxpayers will be left on the hook.
“The tolls that are set now cover less than half of the capital costs of this pipeline,” Gunton said. And “it would be unique in the world, and represent a significant fossil fuel subsidy, to have the taxpayer covering a sizable proportion of the cost of shipping oil for the oil industry.”
Gunton suggested a levy should be applied on all barrels of oil shipped out of Western Canada until the full cost of the Trans Mountain expansion project is recovered.
“There is no justification for providing a taxpayer subsidy to a private pipeline, even if it results in improvements to the Canadian economy.”
I like how the people protesting the pipeline promised to make it uneconomical. Then caused massive cost over runs and were never held responsible. Yes tax payers will be on the hook. Enjoy!
That’s a very incomplete assessment! Trans Mountain was delayed for a very long list of reasons, many of them related to the size and complexity of the project, poor planning along the route, the COVID-19 pandemic, and the very real possibility that it was simply too big to succeed, as megaprojects very often are. Author Bent Flyvbjerg calls that an “iron law”. https://energymixweekender.substack.com/p/heres-why-fossil-fuel-projects-are
So, yes, lawsuits and massive local protests that were appropriate in a democracy and absolutely necessary in a climate emergency were one part of the picture. But it’s interesting that you blame the entire cost overrun on the one factor that could and should have been taken as an early warning. Decades ago, in a subject area quite distant from fossil fuels and climate change but pretty much as heavily contested, I helped document a public participation workshop where some of the discussion turned on how project developers should listen to and incorporate public input. I remember two participants, in particular, whose approach (in their own words, more or less) was to go in with their backs to the wall and their elbows up, to win their battle and make sure they were the last ones standing. One of the moderators asked them why they would spend so lavishly on public affairs and litigation when they could simply make the right go/no-go decision, stop that contentious project before it started, and invest instead in something communities actually liked and wanted.
Others have pointed out how many heat pumps, solar microgrids, or whole-building deep energy retrofits the Trans Mountain budget could have bought, how many years of transit operating funds it could have covered. Not to mention the millions of hours of effort, both building and trying to stop the pipeline, that could have been put to productive use. Spending those dollars as if they mattered, and as if communities mattered, would have held out zero profit potential for a pipeline company in Houston that was a stepchild of the Enron empire, or for mostly foreign-funded oil companies operating in Alberta — and now, as you point out, would have saved Canadian taxpayers billions of dollars. The benefits would have flowed to the rest of us instead, almost certainly including you.
This goes to show the government mismanagement of funds. If tax payers end up on the hook for 18.8 billion this could have gone a long way in other areas such as Arctic security, LNG development, business investment, social development etc.
I totally agree with the cost to Canadians for the pipeline be recovered by including a fee on every bit of oil loaded on tankers for shipment to offshore buyers.
I questioned why we have to pay for the pipeline when Kinder Morgan was supposed to complete the pipeline ?
Why did our federal government have to pay Kinder Morgan for the completed portion and then accept the total cost to complete it.
Damn poor management by our federal government has caused this huge cost to the Canadian Taxpayers.
Who will profit by the completion of the pipeline ?
Alberta, Oil Companies, Original pipeline contractors ie Kinder Morgan should they not also pay for costs ?
I am very curious where the money got spent. Was it actual labor and materials or was it going to the financial wizards for “interest” payments. I hope we get an audit on that whole project. And, indeed, I would like to have seen that money spent on validated renewables like wind/solar/batteries (not LNG or hydrogen, which are Canada’s next stranded assets).
This is an excellent suggestion to use a fee levied on all pipeline oil exports in order to pay some of the costs of the trans mountain pipeline. The Americans would like Canada to lower its trade surplus so the best way would be raise the cost of Alberta oil. In the meantime Canada could establish some clientele that will pay the world price for the oil.
Government managed to complete something the private sector failed to do and we still complain!
TM makes all Canadians more independent from USA. Gives us more options. Will pay itself off even if it will take a long time.
What more do we want seriously?
For once let’s just say job well done and move on shall we? Time to set our eyes on the next big thing to inspire the next generation and the next problems to overcome.
How do you expect Trans Mountain to pay for itself when oil demand is set to peak before the end of this decade before going into permanent decline? In that kind of market, the most expensive, dirtiest, most difficult to process versions of a product get dropped first, and the oil sands tick all three boxes.
But, please, don’t take my word for it. For international markets, just look at what major oil companies have been saying and doing. https://www.theenergymix.com/oil-companies-investors-talk-down-trumps-drill-baby-drill-as-prices-stay-low-exploration-budgets-shrink/ For the future prospects of the oil sands — with all the lavish subsidies already available to them, why do you think the six members of the Pathways Alliance aren’t investing their own massive profits in the carbon capture venture they say they need and want?
Strong agreement here that governments can and should invest in things that work, and we should say job well done when they do. Can you imagine how many heat pumps, deep energy retrofits, and solar/battery microgrids we could have been celebrating if the money going down the drain on Trans Mountain had been invested in something worthwhile?