Varcoe: Alberta gives Ottawa some credit, a few jabs as TMX nears finish line

‘It’s a bit bittersweet. I think a lot of people are thinking (about) what might have been, but at least this one got to market,’ said Danielle Smith

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Premier Danielle Smith is hailing the impending startup of the Trans Mountain pipeline expansion this spring.

While she’s grateful the federal government stuck with the project through thick and thin, don’t expect the premier to give Ottawa too many pats on the back for seeing the Trans Mountain expansion (TMX) through to the finish line.

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After all, three other proposed pipelines to move oil out of Western Canada were stymied, she points out.

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“I’m sure everyone is saying, ‘It’s about time,’ because we had so many other opportunities that just didn’t pan out,” Smith said in an interview Tuesday, before speaking at the annual CERAWeek by S&P Global energy conference in Houston.

“It’s a bit bittersweet. I think a lot of people are thinking (about) what might have been, but at least this one got to market.”

For years, oil producers and the provincial government have watched as a game of pipeline whack-a-mole played out. As new oil pipelines out of Western Canada popped up, they were hammered down and had to reset.

At the same time, oilsands output surged.

Transportation bottlenecks flared up at times over the past decade, costing producers and governments billions of dollars due to wider price discounts on western Canadian oil.

Enbridge’s Northern Gateway project to move oil from Alberta to Kitimat, B.C., was derailed in 2016 by the Trudeau government.

TransCanada Corp.’s ambitious Energy East development to build a 4,500-kilometre pipeline to ship oil from Alberta and Saskatchewan to New Brunswick died in 2017. The company pulled the plug after facing political and environmental opposition, although federal officials blamed commercial factors.

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The Keystone XL project, designed to ship oil from Alberta to Nebraska, was swept into an intense political debate in the United States. It was already under construction when U.S. President Joe Biden nixed its permit in 2021.

“Because of the uncertainty and because of the political decisions, all three of those (other pipelines) ended up getting cancelled. So it (TMX) became the last one standing, and probably wouldn’t have gone ahead because of the uncertainty if the federal government hadn’t stepped in to finish it,” said Smith.

“We’re grateful that they did, but let’s remember Energy East got cancelled because of the uncertainty . . . Northern Gateway was approved and then the federal government cancelled it,” she said.

“And Keystone XL, they never advocated for it when it got cancelled by Biden, so I think they were sort of obligated to step in . . . I’m glad that it’s finally gotten to completion, but it would have been better if all four had gone ahead.”

Danielle Smith
Premier Danielle Smith. David Bloom/Postmedia

One can debate whether all of the proposed pipelines would have been built, given the competitive and economic forces at play.

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But Trans Mountain is now at the goal-line, the only project that will move more western Canadian oil to tidewater for export.

And it’s been costly.

In 2018, the federal government bought the project from Kinder Morgan Canada for $4.4 billion as the expansion faced opposition from environmentalists and the B.C. government.

Since then, construction costs have soared.

The project’s price tag, once pegged at $5.4 billion a decade ago, is now expected to exceed last year’s estimate of $30.9 billion — likely about 10 per cent higher, according to regulatory filings by the federal Crown corporation that operates it.

The line will nearly triple the existing capacity of the Trans Mountain pipeline — which runs from the Edmonton area to a terminal in Burnaby, B.C. — to 890,000 barrels per day (bpd).

Trans Mountain Corp. chief financial officer Mark Maki, who will speak at the energy conference on Wednesday, confirmed the organization still expects to see the first oil shipments occur in the second quarter.

Maki said the last “meaningful construction activity” on the project is occurring in the Fraser Valley between Chilliwack and Hope. Once complete, the line can then be filled with oil as it prepares for commercial operations.

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“We’ve already done some line-fill work. It’s a very staged process where some of the loops on the system will be filled with oil over the next little while, and then the rest of the line-filling will take place (between) in April and May,” Maki said Tuesday.

“Confidence is high on the second quarter (for) first oil.”

He expects the pipeline will be highly utilized in 2025 and close to full. That’s essential as Alberta oil output grows.

The provincial government expects oil production to average almost 3.9 million barrels per day, climbing to more than 4.2 million bpd by 2027.

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Building TMX is a strategic move for Canada, allowing the industry to access markets outside of the United States.

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It will also help Canadian oil producers meet the increasing global demand for energy, said Heather Exner-Pirot, special adviser to the Business Council of Canada.

“You have to appreciate that the Liberals have paid a very heavy political cost for buying TMX,” she said.

“The circumstances were terrible that they had to buy it, and they helped create those circumstances. But also, thank God that they did buy TMX and we’re finally seeing it cross the finish line.”

The soaring costs, however, mean taxpayers will end up footing a hefty bill so Ottawa can sell Trans Mountain to the private sector, said Eugene Kung, a staff lawyer with West Coast Environmental Law.

“This project definitely has to be one of the biggest boondoggles in Canadian history,” Kung said.

While that debate continues, it is anticipated the project will shrink the price differential between West Texas Intermediate crude and Western Canadian Select heavy oil, and generate more revenue for the province.

Having sufficient transportation “is absolutely critical to maximizing value,” said Kevin Birn, a vice-president with S&P Global Commodity Insights.

“What TMX offers Canadians is optionality and potentially price stability.”

Chris Varcoe is a Calgary Herald columnist.

[email protected]

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