After blocking key pipelines for years, the Trudeau government is scrambling. With U.S. tariffs looming, the chickens have come home to roost
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The Feb. 11 edition of the Financial Post was headlined: “West-East pipeline talks perk up oilpatch ears as U.S. targets Canada.” Federal Industry Minister François-Philippe Champagne was quoted as saying the new rules of Canada-U.S. relations “may mean you need pipelines that go west-east.”
Wow, what an insightful revelation! For decades, Liberal governments have stymied pipelines to both the east and west coasts, forcing oil producers to sell to U.S. refiners at huge captive-market discounts.
In 2010, Enbridge filed a regulatory application for the Northern Gateway pipeline from Alberta to Kitimat. The innovative project would have carried diluted oilsands crude to the seaport, where the condensate would be removed and shipped back to dilute more crude. After four years of hearings, environmental reviews and stakeholder consultations, the Harper cabinet approved the project.
But in 2016, that was struck down after a legal appeal by Indigenous bands claiming insufficient consultation. Enbridge launched a new round of consultation, only to see Prime Minister Justin Trudeau block the project, saying no pipelines should cross the newly created Great Bear Forest Reserve. After six years and multiple lawsuits, a pipeline that could have been onstream for a decade was dead.
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In 2014, TransCanada Corporation filed a regulatory application for the Energy East project, which would have converted a natural gas pipeline no longer in use to carry western oil to Ottawa. A new pipeline would then transport the oil to Montreal refineries before continuing past Quebec City to the Irving refinery in Saint John, N.B.
It’s hard to envision a more economically beneficial and environmentally benign project. Rather than new construction, an unused pipeline would be employed for 90 per cent of the distance. Quebec would get Canadian oil, removing the hazard of tankers travelling up the St. Lawrence carrying oil from Algeria, Saudi Arabia and Angola. And Canada would finally get access to international oil markets.
Inexplicably, this project was cancelled after the Quebec government announced it would block it.
Donald Trump’s tariff threats seem to have shifted Quebecers’ views. A recent poll suggests 59 per cent now favour a new Energy East project. But once burned, twice shy—it’s highly unlikely any pipeline company would wade into those volatile political waters again.
Paradoxically, the only pipeline that has achieved access for Canadian oil to tidewater ended up being owned by the federal government. The first Trans Mountain pipeline, completed in 1953, carried oil, gasoline and diesel fuel from Alberta to the company’s Burnaby terminal.
In December 2013, Kinder Morgan, whose Canadian division then owned the pipeline, filed for regulatory approval of a $5.4-billion expansion from 300,000 to 890,000 barrels per day. That sparked intense opposition from environmental activists and Indigenous groups. In May 2016, the National Energy Board recommended approval, and the prime minister announced cabinet approval, subject to 157 conditions aimed at addressing potential Indigenous, socio-economic and environmental impacts.
A year later, Kinder Morgan announced it would proceed with the expansion if it secured financing through a public share offering. It did, and Trans Mountain became an independent Canadian corporation. In January 2018, however, the B.C. government restricted shipments pending more “spill response studies,” increasing uncertainty for investors. Three months later, Kinder Morgan suspended non-essential spending. After five frustrating years, they’d had enough. Canada’s reputation among resource developers as a country where “you can’t get anything done” was reaffirmed.
A month later, the federal government bought Trans Mountain for $4.4 billion. Construction began the following year. And projected costs rose, from $7.4 billion to $12.6 billion in February 2020 and then to $21.4 billion in February 2022. Finally, in March 2023, with construction 80 per cent complete, the company announced the final cost to Canadian taxpayers would be $30.9 billion.
After scuppering Energy East and Northern Gateway, why did the Trudeau government go to such lengths to save Trans Mountain?
Canadian oil exports to the U.S. have long been subject to large captive-market discounts. Just before the government bought Trans Mountain, that discount was a staggering $83 million per day. Alberta oil revenues provide a significant portion of federal tax revenue, including funds for equalization grants to other provinces, and account for 20 per cent of foreign exchange revenues. The Liberals apparently realized their ideological opposition to oil export pipelines was financially untenable.
After decades of selling Canadian oil to U.S. buyers at billions of dollars below international prices, Trump’s plan to add a 10 per cent export tax is all the more ironic. Northern Gateway and Energy East would have meant we could just close the taps.
As they so often do, the chickens have come home to roost.
Gwyn Morgan is a retired business leader who has been a director of five global corporations.
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