Does Canada really need Alberta's new $43-billion pipeline? This analysis says it's a massive risk

The proposed pipeline “is unlikely to be needed to meet capacity needs in the future,” the report states.

“The wider market conditions that would be required to support rapid output growth are far from certain and the global energy transition appears to make them less likely,” reads the group’s report. “Potential benefits of the pipeline are steeped in risk, and other investment priorities may offer more economic resilience as the energy transition moves forward.”

Oil companies pay pipeline operators tolls to ship their product, and the current TMX pipeline, which cost about $34 billion, has higher tolls than most other pipelines. But given the new pipeline’s price tag is estimated to be between $35 and $43 billion, the IEEFA report argues using it could be even harder for companies to justify.   

“The proposed pipeline would likely be the highest-cost pipeline export route by far.” 

By the numbers 

As of the end of last year, Alberta produced 4.8 million barrels per day. In its study, IEEFA used growth estimates from the Canada Energy Regulator which forecast in its most ambitious scenario that Alberta would produce 6.7 million barrels per day. However, Alberta Premier Danielle Smith has said she wants to see the industry produce eight million barrels per day.

The new West Coast pipeline is also not the only potential game in town. There is a proposal to expand the TMX pipeline by 360,000 barrels per day and a proposal from Canadian energy company South Bow and U.S. firm Bridger for a new pipeline that would travel a similar route as the cancelled Keystone XL pipeline and carry 550,000 barrels per day. Enbridge is working on a 150,000-barrel-per-day expansion of its main line and has proposed another 250,000-barrel second phase, but the company hasn’t committed to it because oil producers have not committed to increased production.

Oil prices have soared since the U.S.-Israeli attacks on Iran this year, but IEEFA argues that could actually lead to lower prices for oil in the future as the price shock moves consumers to electric vehicles and countries look for ways to reduce their dependency on oil. 

“The potential for acceleration of the energy transition is likely to limit future long-term oil prices and brings the prospect of structural decline.” 

The federal government has argued that expanding and diversifying access to global markets, particularly in Asia, is a key benefit of the proposed pipeline and could support future Canadian oil-production growth.

The report, however, challenges that logic, noting China has been the main driver of global oil demand growth for the past 20 years but is now “electrifying significantly faster than the rest of the world,” with electric vehicles representing 53 per cent of new car sales there in 2025. The report cites projections that Chinese transport fuel demand has already peaked and that its overall oil demand will peak by 2027 — a shift it argues is “particularly important for a project focusing on supplying the Asian oil market to consider.”

Oilsands cautious

Under its Memorandum of Understanding (MOU) agreement with the Alberta government, Prime Minister Mark Carney’s government has until Oct. 1 to decide whether the project is in the national interest, which would fast-track it through regulatory approvals. The Oilsands Alliance, which is made up of Canadian Natural, Cenovus, ConocoPhillips, Imperial and Suncor, pledged to work with the federal and provincial governments to build the Pathways Carbon Capture Project; the alliance is supposed to come up with a binding commitment to the project by Nov. 15. 

Ottawa and the industry are also supposed to look at ways to reduce regulation so the companies can boost production. 

On a Cenovus earnings call in July, CEO Jon McKenzie still had criticisms for the federal government, even as he said the MOU could help the industry grow. 

“Although the MOU still provides provisions for an uncompetitive carbon tax that uniquely burdens Canadian industry, it creates a framework for governments and industry to work together on production growth, emissions reduction and expanded market access,” he said. 

McKenzie said the changes the Carney government has made could help attract investment, but Cenovus is not going to rush into new projects. 

“We’ll continue to responsibly develop resources, support our communities in which we do business, be disciplined to allocate the use of capital and run our business to the long-term benefit of our shareholders,” the CEO said. 

Rich Kruger, president and CEO of Suncor, said the MOU was a good step, but emphasized the industry hasn’t made any commitments. 

“There’s a lot of work to do to turn this non-binding set of ambitions into definitive agreements,” he said. 

Over decades, the oilsands have consistently grown in production, but in recent years that growth has come largely from improvements to existing projects rather than new or “greenfield” projects. To achieve that kind of growth, the oilsands will need major new projects, which the industry hasn’t even proposed since Teck’s $20-billion Frontier project was pulled from consideration in 2020. 

Charlotte Power, press secretary for federal Energy and Natural Resources Minister Tim Hodgson, said the government isn’t concerned. 

“It is common practice for companies to avoid making public commitments until agreements are finalized, and this is not indicative of a lack of interest,” she said in an email. 

Power said the current TMX pipeline is already at 100 per cent capacity and she added the government is confident the industry will meet demand.

“Over the last decade, Canadian oil production has been constrained by a lack of egress, but we have consistently seen that producers have filled that capacity when given the opportunity to do so.” 

Experts weigh in

Heather Exner-Pirot, a senior fellow at the Macdonald-Laurier Institute, said the industry is likely waiting for the fall federal budget and will be looking for tax breaks letting them write off their capital costs faster. The Nov. 15 deadline will also come after the federal cabinet decides on designating the West Coast pipeline and after Alberta’s separation referendum. 

“They’re not in a hurry to announce greenfield projects ahead of the budget because they’re negotiating to get as sweet of a deal from the federal government in the budget as possible,” she said. 

She said capital-cost tax breaks helped the oilsands expand in the past, and in a global market might be necessary. 

“You have to appreciate, it’s not easy to attract $100 billion of capital into something, so they need to be very competitive financially,” she said. 

Kent Fellows, an associate professor at the University of Calgary, said Canada’s industry has been hit hard in the past and that makes big-spending new projects difficult to approve.

“The 2014-2015 crash is still relatively recent memory and that price crash did a lot of damage to bottom lines,” he said. 

Fellows said despite the Liberal government’s efforts to reduce barriers, the industry is probably still concerned about delays and will want to see results before they commit to new projects. 

“I don’t think anyone wants to be first. I think a lot of people would love to be second.”

George Vegh, senior fellow at the Munk School and former chair of the Canada Energy Regulator, said the new West Coast pipeline is more of a political choice than a commercial one and is operating differently than these projects usually do. 

“You don’t start at the pipeline and then see if you can fill it. There’s a commercial case to building a pipeline that’s driven by an increase in production and a demand for that production so this is a bit backwards,” he said.