The February 10 edition of the Financial Post ran a story headlined “West-East pipeline sentiment shifts as Trump says desire to absorb Canada is ‘real’”. As François-Philippe Champagne, the Liberal government’s Minister of Innovation, Science and Industry, noted in response to the looming U.S. threats, “That may mean you need pipelines that go west-east.”
What an insightful revelation! Throughout the Justin Trudeau era, Ottawa has stymied pipelines to both the east and west coasts, forcing Canada’s crude oil producers to sell essentially all of the nation’s exported oil to U.S. refiners at huge captive-market discounts. “Sentiment” in the oil-producing provinces has always been in favour of more pipelines; the “shift” has come from the very people who spent the past decade blocking them and the panicking voters who put them in office.
In 2010 Enbridge Inc., Canada’s largest oil pipeline operator, filed regulatory application for the Northern Gateway Pipeline from Alberta to Kitimat, B.C. The innovative project would carry 525,000 barrels per day of oil sands bitumen (diluted sufficiently with an ultra-light oil known as “condensate” to enable it to flow through the pipeline) from the small town of Bruderheim near Edmonton approximately 1,200 km to the Pacific Coast seaport. There, the condensate would be removed and pumped back to Alberta to dilute more heavy crude, while the bitumen would be loaded aboard supertankers for shipment to global markets where it would receive global pricing.
Throughout my decades-long career in the oil and natural gas industry, I had watched with frustration as Canada’s exports were sold at avoidable discounts; here at last was a project to burst out of that straitjacket. And after four arduous years of environmental reviews, hearings and stakeholder consultation, Conservative Prime Minister Stephen Harper’s Cabinet approved the $7.9 billion project. But in 2016, the Federal Court of Appeal agreed with First Nations claiming that Enbridge’s painstaking consultations had been insufficient, sending the project back to the federal Cabinet for further consideration. Also that year, B.C.’s Liberal government under Premier Christy Clark designated a large protected area lying between Kitimat and the open ocean as the “Great Bear Rainforest”, further complicating matters.
Why was the Northern Gateway pipeline cancelled?
The $7.9 billion Northern Gateway pipeline, which would have transported Alberta crude oil to the Pacific Coast for global exports, was officially canceled in late 2016 by Justin Trudeau, Canada’s Liberal Prime Minister. Despite years of environmental assessments, regulatory review, Indigenous consultations and initial federal approval by the Conservative government of Stephen Harper, Trudeau began vowing to kill the pipeline more than a year before his election in 2015. Canada thus remained completely dependent on just one customer for its oil exports: the U.S.
But make no mistake: it was Trudeau who killed Northern Gateway. Already in 2014, over a year before he became Prime Minister, he had vowed to block the pipeline. He repeated that promise in January 2016, five months before the Federal Court of Appeal ruling and Clark’s move with the Great Bear Rainforest. He didn’t reconsider when the project was put back before Cabinet the same year. And that November, Trudeau officially quashed Northern Gateway. After six years and a vast expenditure of money and effort, a pipeline that, by now, could have been onstream and generating revenue and taxes for nearly a decade was all-but dead. Trudeau drove the final nail in the pipeline’s coffin in 2019 with the Oil Tanker Moratorium Act, which prohibits tankers from docking along B.C.’s northern coast.
In 2014 TransCanada Corp., Canada’s largest natural gas pipeline operator, filed regulatory application to convert into crude oil service a no-longer-used, 3,000-km-long natural gas pipeline running from Alberta across the Prairies and north of the Great Lakes to east of Ottawa. A newly constructed pipeline would then transport the oil to refineries in Montreal before continuing another 1,600 km past Quebec City to the Irving Oil Corporation refinery in St. John, New Brunswick, where a new tanker-loading facility would also be constructed. Known as Energy East, the $12 billion project would have carried an impressive one million barrels per day, part of it used to meet Quebec’s domestic needs, the rest exported from New Brunswick.
It is hard to envision a more economically beneficial and environmentally benign project than Energy East. Rather than all-new construction, an unused pipeline would be employed for nearly two-thirds of the distance. Quebec would get Canadian oil, removing the hazard of tankers travelling up the St. Lawrence River carrying imported foreign oil from Algeria, Saudi Arabia and Angola, all of which have authoritarian governments with poor environmental and human rights records.
Why does Canada import oil from Saudi Arabia, Algeria and Angola?
Despite having vast oil reserves, the lack of west-east pipelines means that eastern Canada imports foreign oil from countries with poor environmental and human rights records. This problem could have been eliminated through construction of the $12 billion Energy East pipeline project, but Quebec’s government was fiercely opposed to the project and Justin Trudeau, Canada’s Liberal Prime Minister, refused to try to overrule Quebec. Energy East’s owner, TransCanada Corp., gave up on the project in 2017. As a result, eastern Canada’s oil refineries remain dependent on overseas suppliers, and oil tankers continue to sail up the environmentally sensitive St. Lawrence River bringing in foreign oil.
Canada with its steadily growing oil production would not only eliminate the absurdity of importing some of its crude oil from halfway around the world, it would finally get its first access to European, Latin American and African consuming markets. Outrageously, this superb project was cancelled in 2017 for political reasons after Quebec’s government vowed to block “Alberta’s dirty oil”, as Premier François Legault termed it. Trudeau showed no stomach for doing the right thing and taking on his home province’s unconstitutional threats.
President Donald Trump’s tariff announcements and repeated musings about having Canada become the 51st state seem to have shifted views on east-west pipelines in formerly dubious provinces. A recent poll suggests that even 59 percent of Quebecers would support an Energy East-type project. Meanwhile, there’s talk of further augmenting the recently completed Trans Mountain Expansion project. As well, existing domestic pipelines are to be “de-bottlenecked” to increase their capacity. Some sources are even mooting a revival of Northern Gateway or perhaps adding a “northern leg” to the Trans Mountain line that would run to Kitimat.
It’s highly unlikely any pipeline company would now wade into Canada’s treacherous waters. And indeed, with pipeline opponents in Quebec again railing about Alberta’s ‘dirty energy’, Legault has already warned that any Energy East revival would first need to earn ‘social acceptability.’
But the adage “once burned, twice shy” comes to mind. It’s highly unlikely any pipeline company would now wade into Canada’s treacherous waters. And indeed, with pipeline opponents in Quebec again railing about Alberta’s “dirty energy”, Legault has already warned that any Energy East revival would first need to earn “social acceptability.”
Paradoxically, the only project that has enabled Canadian crude oil to access tidewater is one that ended up in federal government hands. The first Trans Mountain Pipeline, completed in 1953, carried oil, gasoline and diesel fuel from Edmonton 1,150 km through the B.C. Interior via Kamloops to the company’s export terminal on the Fraser River at Burnaby. While this theoretically provided access to global markets, the pipeline’s relatively modest throughput ended up allocated between B.C.’s domestic needs and sales to California.
Trans Mountain later became owned by the Canadian division of U.S. pipeline giant Kinder Morgan, and in late 2013 Kinder Morgan filed for regulatory approval of a $5.4 billion expansion from 300,000 barrels per day to 890,000 barrels per day. The project immediately met intense opposition from environmental activists and aboriginal groups. Nonetheless in May 2016 the National Energy Board recommended approval and, with even Alberta’s NDP government lobbying in favour, Trudeau agreed – subject to a dizzying 157 conditions aimed at mitigating potential Indigenous socio-economic and environmental impacts.
Trans Mountain’s problems had only begun. In 2017 Kinder Morgan announced it would proceed with the expansion – but only if it secured financing through a public share offering. And the project’s costs were mounting worrisomely. Meanwhile, B.C.’s newly elected NDP government began fighting the project tooth and nail, leading to a nasty spat between NDP governments that saw Alberta Premier Rachel Notley threatening to prohibit sale of B.C. wines in Alberta. In January 2018, B.C. even tried to restrict pre-existing oil shipments until Kinder Morgan conducted more studies on responding to oil spills – even though the pipeline had operated safely for 55 years – a move that seemed designed to increase uncertainty for investors.
What is the Trans Mountain Pipeline?
The Trans Mountain Pipeline is a critical Canadian crude oil pipeline that runs from near Edmonton, Alberta to tidewater in Burnaby, British Columbia, where its throughput is loaded onto tankers. Originally built in 1953, the Trans Mountain Expansion (TMX) project was proposed to triple the pipeline’s capacity but faced years of legal challenges, activist and Indigenous opposition and regulatory delays. In 2018, the Justin Trudeau government purchased the troubled pipeline for $4.4 billion, and after years of cost overruns, the expansion’s final price tag ballooned to $34 billion, all funded by taxpayers. The expanded pipeline entered commercial service in May 2024.
Kinder Morgan understandably warned that if the project continued to face such unreasonable and ever-changing regulatory and political risks, it might not proceed at all. And as one could have predicted, in 2018 the company suspended non-essential project spending. After five frustrating years, the company had had enough. And the world was watching: Canada’s worsening reputation among resource developers as a country where “you can’t get anything done” was cemented.
A month later, the Trudeau government announced it was purchasing Trans Mountain for $4.4 billion. While construction began the following year, in early 2020 the company announced the project’s estimated costs had risen from $7.4 billion to $12.6 billion. Two years later the cost estimate soared again to $21.4 billion. In March 2023, with construction 80 percent complete, the company said the final cost would be $30.9 billion – all of it paid for by Canadian taxpayers. The true tally ended up at $34 billion. What a sickening tale! Contrast this with Northern Gateway’s projected cost of $7.9 billion. Or the original Trans Mountain pipeline: just $93 million.
The question now is: after killing Northern Gateway and acquiescing to Quebec’s blockage of Energy East, why did the Trudeau government go to such lengths to save the Trans Mountain expansion? The answer probably lies in the fact that Canadian oil exports to the U.S. have long been subject to the large “captive-market” discounts that I alluded to above. This simply means that, because there is only one buyer for Canada’s exported oil, and because our nation’s oil production is growing, our oil producers are price-takers, receiving far less than the international benchmarks of West Texas Intermediate and North Sea Brent.
The powerful combination of Northern Gateway, Energy East and expanded Trans Mountain would have given Canada sufficient access to international markets that now we could have just closed the taps on oil exports to the U.S.
With U.S. oil production also booming, America’s energy industry has been pushing hard to increase exports to global markets. This has created what amounts to a continental-scale arbitrage process (as this recent C2C article described): crude oil comes in from the north at a discount, is put to good use within the U.S., while increasing volumes are exported from the U.S. Gulf Coast for sale at global prices. The resulting profits accrue to American companies and investors. (The same thing is happening with natural gas.)
From 2008 to 2018 Alberta’s benchmark Western Canadian Select (WCS) crude oil sold at an average discount (over and above transportation costs) of $17 per barrel. While that’s bad enough, by March 2018, two months before Ottawa announced it was buying Trans Mountain, the price discount was costing a staggering $83 million per day. The profits generated by Canada’s oil and natural gas producers provide a major portion of federal tax revenue, while Alberta’s energy-driven prosperity funds an outsized contribution to the vast equalization grants flowing to Canada’s “poorer” provinces (mostly Quebec), and oil exports account for 20 percent of Canada’s foreign exchange revenues, propping up Canada’s currency. The Liberals at last realized that their ideological opposition to oil export pipelines had become financially untenable. So this pipeline, the most expensive one by far, had to go through.
Today, after decades of Canadian oil selling to U.S. buyers at billions of dollars below international prices, Trump’s repeated threats to add a 25 percent import tariff are all the more ironic. The powerful combination of Northern Gateway, Energy East and expanded Trans Mountain would have given Canada sufficient access to international markets that we could have – at least for a time – just closed the taps on oil exports to the U.S. While that would have been painful to our oil producers (trapping 1-2 million barrels per day in Canada), it would have been far more painful to the suddenly boycotted U.S. Midwest oil refiners and the tens of millions of American consumers they serve. Canada would thus have had a solid position at the trade negotiations.
But as the saying goes, the chickens have come home to roost. Canada is paying dearly for its decade of terrible Liberal energy policy.
Gwyn Morgan is a retired business leader who was a director of five global corporations.
Source of main image: Ledcor.com
