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.”
The article states that “PetroChina, recently announced that it will withdraw as a committed shipper, citing disputes over rising pipeline tolls”. The Trudeau government told us that TMX would be profitable because it had firm commitments from 5 companies to pay for 80% of pipeline capacity. If Petro China Can withdraw then TMX never had firm commitments, and we were misled by oil industry supporters.