OTTAWA — The federal government has announced it is moving ahead with the Trans Mountain pipeline expansion, ending months of speculation over the development and offering some relief to the embattled oil and gas sector amid a years-long pipeline bottleneck.
Prime Minister Justin Trudeau made the announcement in Ottawa Tuesday afternoon, accompanied by five of his cabinet ministers.
The decision could go some way toward restoring investor confidence in Canada, which has waned amid a failure by the oil and gas industry to build major new export pipelines. Years of political and regulatory wrangling have delayed major infrastructure projects, including Trans Mountain, fuelling deep discontent in Western provinces. However, even before the announcement critics contended a green light for TMX would be too little, too late.
The decision underscores a balancing act by the Trudeau government to both support growth in the fossil fuels industry while also enforcing stricter environmental policies, including an economy-wide carbon tax. On Monday, the House of Commons passed a motion to declare a national climate emergency in Canada.
Trudeau announced last summer that the federal government would buy the existing assets of the Trans Mountain pipeline for $4.4 billion, after the project’s private-sector owner, Kinder Morgan, threatened to scrap the project. Around the same time, a Federal Court of Appeal judge struck down an earlier approval of the expansion, forcing the government to repeat a portion of its consultations with First Nations communities affected by the pipeline, which carries oil to the B.C. coast for export.
Federal officials, under the direction of Minister of Natural Resources Amarjeet Sohi, have conducted months of talks with local communities along the pipeline’s path in an attempt to temper opposition to the project.
But in question period on Tuesday, Conservative MPs pressed the Liberal government on when construction would actually begin on the project, warning that added delays could lead to ballooning costs.
The question is when will it get built
In a written statement released Tuesday in anticipation of the project’s approval, Conservative leader Andrew Scheer said the decision “comes as no surprise,” and called on Ottawa to immediately move ahead with work on the pipeline.
“The question is when will it get built,” Scheer said. “The Liberals still have absolutely no plan for construction.”
The expansion project would nearly triple the pipeline’s current capacity to 890,000 barrels of oil per day, bringing crude oil and other petroleum products from northern Alberta to a port near Vancouver.
It is expected to cost roughly $9.3 billion, according to documents filed last year by the pipeline’s former owner. However, analysts have warned that prolonged construction delays and a worker shortage in Western Canada could substantially raise the estimated costs of the pipeline, particularly if construction firms miss this year’s crucial summer building season. Some estimates put the expansion cost closer to $12 billion.
The project could come online around 2022 or 2023, according to recent estimates.
Fresh shipments of pipe have been making their way to storage yards along the proposed expansion route in recent weeks, according to a report by the Financial Post, suggesting construction firms are prepared to move ahead with the project.
The cabinet decision on Tuesday also comes as two other crucial conduits — the Line 3 and Keystone XL projects — languish in the U.S. regulatory and legal systems, leaving oil producers with few other options to get their product to market.
Earlier this month, a Minnesota court rejected Calgary-based Enbridge’s Line 3 replacement pipeline, further delaying a project not expected to come online before the end of 2020. The project would ship oil from northern Alberta to Wisconsin, and double current capacity to 760,000 barrels per day.
Meanwhile, construction will not begin this year on TC Energy’s Keystone XL pipeline, despite a favourable U.S. Court of Appeal ruling that allowed the company to move ahead with the project. The 830,000-barrel-per-day pipeline has been struck down by state-level regulators in Nebraska.
The Trans Mountain expansion could be getting underway amid a looming pipeline crunch in Alberta in coming years.
Analysts expect that increasing oilsands production next year could force a record number of barrels onto rail cars, prolonging financial pain in the oilpatch well before any new pipeline projects come online.
Canada could be shipping as much as 500,000 barrels per day of oil by rail car next year, according to a recent estimate by IHS CERA in Calgary, or roughly one out of every nine barrels produced in the country. In 2016 that ratio was closer to one in every 43 barrels produced in Canada.
A shortage of pipeline capacity caused Canadian heavy oil prices to plummet late last year, forcing producers to accept an average US$43 per barrel discount compared to U.S. benchmarks over the month of December.
Later this week, finance minister Bill Morneau will send letters to 129 Indigenous communities to begin discussions around offering First Nations a financial stake in the project.