Trans Mountain's financial nightmare offers lessons in the reality of pipelines

National Observer

20 hours ago

Every morning, David Huntley checks on the oil tanker traffic outside his home. He can see them cruise up Burrard Inlet from his living room window a few hundred metres above Westridge Marine Terminal, where the Trans Mountain pipeline ends. When I popped by for a visit on June 3, an Aframax called the Tyrrhenian Sea had just docked and was partly visible through a thicket of trees. Last time Huntley saw it here was April 20; since then, it has been to China and back.
Huntley, 88, has penetrating green eyes and a shock of white hair. He's lived in this cluttered bungalow at the foot of Burnaby Mountain for 41 years. Tankers have been passing below his patio all that time, though it used to be no more than one a week. Now it's almost once a day — there were 25 in May; 28 in April; 30 in March. 'My job got a lot harder once they finished Trans Mountain,' he told me.
Huntley's 'job' is to track the movements of every oil tanker loading up on Canada's West Coast. He doesn't rely on his eyes, but on satellites that track the tankers long after they've sailed out of sight. That data gets transmitted to a number of tanker-monitoring websites, like vesselfinder.com and marinetraffic.com, which Huntley scours every morning and most nights. He's been doing this for 10 years — ever since he spotted a tanker sailing by without a tugboat — and keeps meticulous handwritten notes. These make it clear that well over half the bitumen piped through Trans Mountain is now going to Asia, mostly China.
Huntley's no fan of all this. 'Global warming is causing destruction, injury and death,' he told me. 'Under other circumstances, those responsible would be charged, convicted and jailed.' But putting that little quibble aside, the view from Huntley's patio seems like an advertisement for the new pipelines so many in the oil patch are clamouring for. Tidewater, baby: Trans Mountain has both unleashed a production boost in Alberta and diversified the market, a prairie premier's dream.
But is it? Just as Huntley needs satellites to comprehend the tanker's movements, to really understand what Trans Mountain is telling us about the need for new pipelines, you need to look closely at the numbers — in particular, the money. When you do that, the dream becomes a financial nightmare.
Huntley, 88, uses websites that track the global movements of oil tankers to maintain his handwritten ledger on the origin and destination of every tanker that fills up with Trans Mountain bitumen. Photo by Arno Kopecky/Canada's National Observer
Canadian taxpayers who own Trans Mountain face the prospect of billions in debt. The only real question is, how many billions will that be? writes Arno Kopecky
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'Trans Mountain is definitely losing money,' says Tom Gunton, a professor of resource and environmental management at Simon Fraser University who has been following Trans Mountain closely for years.
Not just a bit of money, either. According to Gunton's calculations, spelled out in a recent report he published for the International Institute for Sustainable Development, Canadian taxpayers stand to lose between $9 billion and $19 billion from Trans Mountain, putting it among the largest oil subsidies in the world.
Most Canadians are well aware of how dramatically over-budget Trans Mountain became. From an initial estimate of $5.4 billion, the final price tag came in over $34 billion. Analysts have been asking ever since how the government expects to get that back. 'There's no way anyone will pay the full cost of this pipeline,' Rory Johnston, an energy researcher and founder of the Commodity Context newsletter, told CBC in April 2024, when construction was completed. 'You're going to need to take a haircut of at least 50 per cent of this pipeline.' So far, the government has avoided that haircut by not selling. We own the asset and the debt, as income from the project starts to trickle in.
What the average voter may not appreciate, though, is just how meager that trickle is, and why: the oil companies who are now shipping their product on Trans Mountain were given a sweetheart deal based on that initial price estimate.
Oil producers pay a per-barrel toll to pipeline companies. Just like Bell charging for data that passes through its cell towers, the tolls are how the pipeline company recovers its construction and operation costs, plus the return on investment. The toll rate is usually a function of the project's cost — at least that's how it works in the private sector. But Trans Mountain is a Crown corporation owned by taxpayers and built with political rather than economic imperatives in mind. Such was our government's zeal to make it operational that Trans Mountain locked in its customers' toll rates years before the project's full cost came into view. As a result, oil producers are paying just over $11 per barrel to use Trans Mountain. That's roughly half of what would be required just to break even, leaving the Canadian taxpayers who own Trans Mountain with the prospect of billions in debt. The only real question is, how many billions will that be?
Close-up view of the Trans Alaskan Pipeline, viewpoint from Delta Junction Viewpoint along the Richardson Highway. Photo by Shutterstock
'There's nowhere else in the world where the taxpayers are subsidizing the transportation costs of the oil sector,' Gunton notes. 'It just doesn't make any sense. They're a profitable industry, and historically they paid for their own transportation to market, as they should. So Trans Mountain is unprecedented — unprecedented in building a project where half the capital costs are not even included in the rate base for determining tolls.'
Astonishingly, the deal isn't even that great for oil producers.
'Even with the subsidized tolls on the pipeline, it actually costs more to ship on Trans Mountain over to China than it does shipping on Enbridge's system down to the Gulf,' Gunton says. That helps explain why the pipeline still isn't operating at capacity. One year after it started operating, the pipeline is just over 80 per cent full; the only companies using it are the ones who signed shipping contracts before construction began.
Now those companies are trying to get the toll lowered further still — Trans Mountain and its clients are locked in a complex dispute currently before the Canada Energy Regulator (CER), though a decision in the years-long case isn't expected before 2026. In response to a query about whether the Crown corporation expects to recoup the $34.5 billion it spent on the project, and how long that could take based on current toll rates, a spokesperson for Trans Mountain wrote by email: 'The Trans Mountain pipeline system is a long-life asset. The tolls for service on the pipeline are approved by the CER and provide for a return (on) the invested capital over the life of the asset.'
Perhaps worst of all, Trans Mountain has failed to alleviate the discount on Canadian heavy oil that was such a big reason for its construction: Alberta bitumen sells for less in American markets than American oil, and leaders in the oil patch along with prairie premiers have long claimed this is because Canadians only have one buyer. But the discount actually got worse in the months immediately after Trans Mountain started operating; one year later, it remains worse than it was in 2020. That's not because we need more pipelines. It's because bitumen is an inferior quality of oil, costing more to refine. Americans aren't alone in paying less for it.
'China is not going to pay a premium for oil over the US,' Gunton says, 'and if they do, then the Middle East is going to ship more oil there, and other producers will ship more oil to China to smooth out those prices. You do get short-term bottlenecks here and there, but over time the price of oil is essentially equalized in all the destination markets, because people move oil around by tanker to take advantage of these price differences. And by doing that, they smooth them out.'
In the meantime, oil producers looking for ways to transport their product won't need a new pipeline any time soon. On top of Trans Mountain's spare capacity, Enbridge is about to add two new pipelines' worth of transport capacity to its existing grid, simply by improving efficiency. At an Investor Day presentation in March, Colin Gruendig, Enbridge's executive vice president and president of liquid pipelines, announced plans for one million additional barrels per day of capacity by 2035 — twice the Trans Mountain expansion's volume, in less time than TMX took to build.
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Granted, none of Enbridge's pipelines lead to an ocean. But even that Trans Mountain advantage may prove fleeting, with Chinese demand for oil set to begin dropping soon. China is leading the world's energy transition, with over half its vehicle sales already in EVs, and many of its neighbours are following suit.
'The Asian [oil] market is not going to grow,' Gunton says, adding that Canadian bitumen — which costs a lot to produce, and yet more to refine — must compete with cheap Middle Eastern oil for those dwindling Asian markets. 'Right now, the Middle East has about five million barrels of unused capacity just sitting there that they can turn on tomorrow, if they want, at very low cost. So, in this environment, I don't think any rational investor is going to bet on building a major new pipeline.'
No businesses are either. For all the talk from premiers like Danielle Smith, there isn't a single proposal from a company that actually builds pipelines to do so today.
So if the best-case scenario for a new pipeline is so bleak, why are so many in the oil patch clamouring for one?
'I think they see this as an opportunity to again get the government to subsidize transportation costs for them,' says Tom Gunton. 'Because the only way you can build a new pipeline is if the government significantly subsidizes it.'
British Columbians, at least, can take some solace in the fact that our provincial government has vocally opposed any talk of building new oil pipelines to the West Coast (although the province does seem open to dredging Burrard Inlet to expand Trans Mountain's tanker capacity). But Carney is still playing footsie with the rest of Canada's premiers on this subject. And in the prime minister's eagerness to turn Canada into an 'energy superpower' by advancing major projects through Bill C-5 (the 'One Canadian Economy Act' now making its way through parliament), the oil patch clearly smells an opportunity — not just for more federal subsidies, but less regulation too.
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'Any new pipeline project would require careful consideration and real provincial and federal legislative change,' wrote an Enbridge spokesperson in reply to my query about whether Canada's biggest pipeline company saw a business case for building a new pipeline anywhere in Canada right now. 'This includes identifying energy projects as being in the national interest, implementing globally competitive energy and carbon policies, simplifying regulation, reducing regulatory timelines and a robust Indigenous loan guarantee program.'
Most of that answer is contained in two words — 'simplifying regulation' — which is exactly what the One Canadian Economy Act proposes to do. Unfortunately for this approach, it's already been tried. Under Stephen Harper's Conservative government, the approval process for pipelines and other major projects was dramatically streamlined, with environmental assessment and other regulations rolled into a one-stop shop called the Joint Review Panel. That JRP approved the Northern Gateway Pipeline proposal, as well as the Trans Mountain expansion, only to have both decisions overturned by a federal court. The Northern Gateway never recovered, in part because Indigenous opposition and the coastal environment made that project so much more tenuous. Trans Mountain only survived by scrambling to conduct the environmental assessment it hoped to skip (the JRP had initially decided against considering the environmental impacts of a seven-fold increase in tanker traffic; it never did consider climate impacts of the increased oil production). Ultimately, the supposed streamlining of the JRP wound up delaying construction instead, thus contributing to Trans Mountain's massive cost overruns.
'Harper was like, 'our regulatory system has too much red tape, we're not getting decisions fast enough, and we want to be an energy superpower,'' recalls Eugene Kung, a lawyer with West Coast Environmental Law who has been involved in court battles with both Northern Gateway and Trans Mountain. 'Tell me if that sounds familiar.'