The Pointless Pipeline: Trans Mountain

Work continues on TMX, despite every economic indicator pointing to its futility; and despite the federal government’s recent recommitment to climate action.  In its most recent Throne Speech, the government promised that action to reduce greenhouse gas emissions would be ‘at the core’ of the recovery plan for Canada’s economy. Their old refrain about using the profits from the pipeline to fund climate action is looking pretty sketchy at this point; they seem to have abandoned that one in favour of an odd sort of equity argument: “balancing the needs of Alberta’s oil industry” with…the future stability of the global climate? That little promise we made in Paris?

Dr. Tom Gunton, the expert economist with whom we worked during the National Energy Board hearings, recently published an opinion editorial detailing the burgeoning cost and dwindling returns to be expected from TMX.  Costs to complete construction of the new line are now estimated at 12.6 billion taxpayer dollars, or roughly $5.2 billion more than they were when oil suppliers signed contracts to use it.  The tolls, or rates that the suppliers have committed to pay were set to provide a return on an investment of $7.4 billion—the cost at the point that Kinder Morgan walked away from the deal.

That means we are all subsidizing the oil industry to the tune of $5.2 billion, at a minimum.  That’s just the construction cost: what about the ongoing operations and the likelihood that the pipeline will actually pay off?

Conditions have changed rather dramatically. With the price of oil remaining at historic lows and certainly well below the cost of opening up new tarsands sites, capital markets have virtually abandoned such projects.  Existing mines continue to produce so as to have some cash flow, but they’re mostly operating at a loss. Earlier forecasts of growth in oil production have been overtaken by reality and it is now unequivocally clear that TMX is not needed to move Canadian bitumen products to market: it will have excess capacity that will be felt as a hole in the pockets of taxpayers forced to further subsidize its operation.

The International Energy Agency predicts a 9 percent decline in demand for oil this year and says demand growth will grind to a permanent halt within 10 years.  This is not good economic news for a piece of infrastructure with a lifespan of some 50 or more years. Dr. Gunton explains that, even under the much rosier pre-COVID oil production forecasts, TMX still represented excess capacity of between 610,000 and 1.5 million bpd.  It is simply not needed, now or in the future.

It is difficult to see that much money being squandered at a moment when investment in building a better, more resilient economy is so sorely needed. It is more difficult still to unpack the political equation that keeps the money pouring into that particular black hole:  it clearly hasn’t resulted in the thawing of relations between Alberta and Ottawa.

Just imagine, though, what could be accomplished with an investment that size in renewable energy or electrified transportation!