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CBC
25-04-2025
- Business
- CBC
Pipelines have become an election issue. What exactly is Ottawa's role to play?
Through a fluke of timing, the federal election coincides almost perfectly with the one-year anniversary of the government-owned Trans Mountain Pipeline expansion coming online — at a time when public sentiment around pipelines is relatively positive. The two campaign front-runners are both emphasizing energy infrastructure, driven by U.S. President Donald Trump's tariffs and threats of annexing Canada. Both leaders are pitching some version of an energy corridor, though Conservative Leader Pierre Poilievre has more directly emphasized pipelines, specifically, while Liberal Leader Mark Carney has more broadly pitched Canada as a " superpower" in both clean and conventional energy. Both of the parties leading in the polls want to kick-start the economy, reduce Canada's reliance on U.S. oil and drastically speed up the regulatory process for major projects like pipelines. If the next government wants to put more pipelines in the ground, experts say that could include different strategies such as taking an ownership stake in one, or reducing red tape for private companies. Whichever party forms government next week will also have to make a decision on the Trans Mountain project, including whether to continue owning the pipeline or put the Crown corporation up for sale. Hands-on approach For now, the parallels between the Liberal and Conservative platforms speaks to a broader acknowledgement that Canada needs to be more involved in building energy infrastructure, said economist Kent Fellows. In some ways, he said, this shift represents a return to the way things used to be. Before the 1970s, most large, linear infrastructure in Canada was built with direct government involvement, from the Trans Canada Pipeline to the Canadian Pacific Main Line to the Trans Canada Highway. After that, he said, there was a roughly 50-year period in which the private sector stepped up and built major projects without much direct government involvement, he said. But as evidenced by the Trans Mountain Pipeline expansion project, which Ottawa purchased to get it over the finish line, that period seems to be over. Its original owner suspended construction in the face of regulatory delays and court challenges from First Nations and the province of B.C. Fellows, an assistant economics professor at the University of Calgary School of Public Policy, said it's not clear yet if the shift in government direction is a "good thing or a bad thing." "But that's sort of where we are now with Canada's inability to attract private investment for these pieces of transportation infrastructure." In the end, the Trans Mountain expansion project took 12 years and about $34 billion to develop and build. The expansion added 590,000 barrels per day of shipping capacity to the pipeline, which carries crude oil from Alberta to the B.C. coast. February polling data from the Angus Reid Institute suggests about half of 2,012 Canadian respondents think the federal government isn't doing enough to build pipeline capacity, and two-thirds said they would support the renewal of the Energy East pipeline, which was terminated in 2017. Of course, that doesn't mean everyone in the country is on board. Writing in the Globe and Mail, for example, Simon Fraser University professor Thomas Gunton said a renewed pipeline push would be a " costly blunder," citing concerns about the cost of new construction and projections of declining oil demand in the years ahead. He also noted that it would likely take at least four or five years to build a pipeline, at which point Trump would be out of office. Uncertainty the biggest investment obstacle For companies looking to build pipelines, however, their main investment hurdle is uncertainty, said Andrew Leach, an economics and law professor at the University of Alberta. Companies need to make upfront investments in projects that hinge on regulatory decisions that may not come until years down the road, he said, pointing to the Northern Gateway Pipeline, which was first proposed in 2004 and was ultimately scuttled in 2016. "It's a big bet," said Leach. One solution, he said, would be to do more broad-stroke assessments upfront to decide what kind of infrastructure the country needs, before getting too far into the details. Leach likened it to a household decision to buy a new car, where a family would typically agree that they need the car first before securing a loan and deciding on a paint colour. "If you can get through that, then you're partway down the field, so to speak … and you've taken away some of that red-black risk that's there for companies," said Leach. Still, both economists cautioned that at a certain point, trying to rush through project approvals could lead to diminishing returns, and open the door to challenges from First Nations groups and landowners. "If you give the impression that you're short-circuiting the checks and balances, then you'll have people who become opposed to it," said Leach. Pipeline for sale? Of course, the most direct way for the federal government to be involved in energy infrastructure is by taking ownership of a project — as was the case with the Trans Mountain Pipeline expansion, which came online May 1, 2024. Some experts say the pipeline likely won't fetch its full sticker price of $34 billion, but could be worth about half that. That would be an important infusion of cash considering the country's growing deficit. While the plan has always been for Ottawa to sell off the pipeline, Trans Mountain CEO Mark Maki told CBC News in March that perhaps it could remain under government ownership longer as a "national company." Ottawa could not only collect annual profits, but use the Crown corporation to build other major pipelines or other energy infrastructure. "There's no reason that you have to sell, and if, in fact, there's development that needs to take place for the good of the nation, it may well serve the country to keep it longer," said Maki, in a March interview on the sidelines of the CERAWeek energy conference in Houston. "That's something I would expect the political folks will be looking at as they think about corridors for infrastructure." While public support for pipelines is growing right now, the next government would also need to corral differing opinions about whether building new ones is a good idea at all. Kevin Birn, an analyst at S&P Global, said Canada could need new pipeline capacity by 2026 if oil production continues to grow at its current pace, though he noted some capacity can also be added by enhancing existing infrastructure. Leach, with the University of Alberta, said one additional pipeline could be useful as an energy security move to ship oil east without crossing into the U.S. With one pipeline already under government ownership, the next prime minister will have no shortage of decisions to make about how to build energy infrastructure in the best interests of Canada — all while grappling with the most difficult part of governing: what events are sure to come next.
CBC
31-01-2025
- Business
- CBC
Mind the gap: Why Trump's tariffs could blow out the WCS and WTI differential
While the price gap between a barrel of North American benchmark oil and a barrel of Canadian oilsands crude has long existed, some market watchers say if the tariffs proposed by U.S. president Donald Trump were applied to Canadian oil exports, that gap would widen even further — limiting revenues for Canadian producers and negatively impacting the economy as a whole. West Texas Intermediate, also known as WTI, is the benchmark North American oil price, representing a blend of light, sweet oil. It's easier to refine and it's good for making gasoline. Because of this, it's sold at a higher price than Canadian crude, called Western Canada Select (WCS). WCS is a much heavier, sour blend of crude oil that comes from Canada's oilsands. While it's better for making diesel, it's more difficult to refine, therefore it's priced at a discount to WTI. "Our WCS is priced lower than WTI because they're just different qualities. They fit into refineries differently, they make a different slate of products and they're at different locations," said Richard Masson, executive fellow with the University of Calgary School of Public Policy and former CEO of the Alberta Petroleum Marketing Commission. Trump reiterated his tariff threat as recently as Thursday afternoon, where he told reporters in the Oval Office the U.S. would be deciding whether the levies would apply to oil by Thursday evening. As of Friday morning, there had been no definitive announcement from the White House related to tariffs on energy. Lodging a 25 per cent tariff against Canadian energy exports would widen that price gap, or "differential," because if Trump follows through, Canadian oil producers may need to ramp down production, Masson says. Reducing production would push that differential out. "When we have more oil than there is pipeline capacity or refinery demand, we end up with wider differentials. And that's a problem for Alberta because it reduces revenues, royalties and taxes," said Masson. Alberta's budget About 97 per cent of Canada's oil was exported to the U.S. in 2023, with about 87 per cent coming from Alberta, according to data from the Canada Energy Regulator (CER). Alberta is also the largest source of crude oil exports to the United States. "There's no way to look at [tariffs] in a positive way, it's going to be negative for Canada as a whole," said Charles St-Arnaud, chief economist with Alberta Central, the central banking facility for the province's credit unions. "Not everyone will be affected the same way. It's clear when you look at the data, Alberta will be more impacted than the rest of the country … in terms of industries, oil and gas and manufacturing are going to be the most affected." In Alberta's second-quarter fiscal update, the government forecasted the average WTI price of oil at $74 US, marking a $2.50 US per barrel decrease from its first-quarter fiscal update (oil prices are reported in U.S. dollars). Because the province's budget relies on relatively strong oil prices, St-Arnaud believes tariffs have the potential to uniquely impact the province responsible for the vast majority of Canadian oil exports. "Over the past decade or so, that differential has been about $18, $20 a barrel wide … usually it should be closer to $10, $12 a barrel," he said. "So if we lose $10 a barrel in revenues, that's a lot of revenues that we're leaving on the table." According to data from the Alberta government's economic dashboard, WTI prices averaged at $71.99 a barrel in October 2024, 15.9 per cent lower than it was a year earlier. WCS — the price obtained for many Alberta oil producers — averaged $57.86 a barrel that same month, which was 13.9 per cent lower than the year before. A wider differential means Canadian oil producers would fetch less for every barrel of oil sold, according to St-Arnaud, who says keeping the price spread between WTI and WCS low means more revenue for the province. "And that's why if it widens post-tariffs, it's basically going to hit revenues for the oil sector and also influence a lot of our fiscal revenues," he said. The economist also suggests tariffs could hurt the Canadian dollar. "Oil prices are traded in U.S. dollars, so suddenly the oil we purchase will actually be more expensive," he said, adding that — depending on how tariffs are absorbed through the exchange rate and differential — what Canadians pay at the pump could rise. Canadian crude still needed Thanks to the completion of the expanded Trans Mountain pipeline, Canadian crude exports to the U.S. reached a record high last summer, climbing to 4.3 million barrels per day according to October 2024 figures from the U.S. Energy Information Agency (EIA). Partly because of this pipeline's profitable trend, some believe there's still a chance Canadian energy could be exempt from Trump's tariffs. "They really need our four million barrels a day," said Paul Colborne, president and CEO of Surge Energy, a Calgary-based junior oil producer that operates in Alberta and Saskatchewan. Though tariffs would be paid by U.S. refineries and importers, it doesn't mean there would be no financial pressure on Canadian producers. Should tariffs land on Feb. 1, Colborne says he'll be watching for companies that didn't hedge price risks. Hedging is a risk management tool that can help mitigate the impact of unanticipated price drops for oil and gas producers and their revenues. "If you didn't hedge your differential, it would be a big shot, negative shot, to your cash flow per barrel," he said. "When the market's there, we like to take that risk out of our business." WATCH | Donald Trump asked about tariffs at Oval Office on Thursday: Trump says 25% tariffs coming for Canada, Mexico on Saturday 21 hours ago Duration 2:06 Colborne believes the market has already started to price in an increase to the differential, in response to Trump's tariff musings. He added that, while he believes a 25 per cent tariff isn't a good thing, he doesn't expect the energy industry to be hit as hard as industries like auto manufacturing or exports such as lumber, contrary to St-Arnaud's analysis. 'Shipping crude to the U.S. is not risk-free anymore' Even though the expanded Trans Mountain pipeline, often referred to as TMX, has so far delivered on narrowing the price spread and contributing to some added global market diversification, one energy analyst said it still wouldn't be enough to absorb the shock of American tariffs. "I mean, the pipe doesn't ship all of our crude, right? It certainly has helped narrow the differential a little bit.… But just looking at the sheer numbers, how much the TMX ships versus how much crude we produce, it doesn't solve all of it," said Al Salazar, head of macro oil and gas research at Enverus Intelligence Research. Salazar believes tariffs challenge the U.S. refiners' bottom lines, and he suggests the added cost of levies would then be passed on to the public. He also added that if the seemingly uncertain tariff threat were to land as soon as this weekend, U.S. refiners wouldn't be able to immediately find another, non-Canadian source for how much heavy crude they need. "The refiners have been hooked on Canadian crude, so to speak, and now it's going to cost them more for that barrel. So a refiner really doesn't care where it gets its crude from, just as long as it could profit from the product it develops," he said. "When we talk about the differential and passing [it] on to the consumer … we complain a lot about gasoline prices, but we have to drive to work. So what suffers is other things, other parts of our spending." Overall, it seems Trump could decide any minute whether to slap tariffs on Canadian oil exports. In the meantime, Canadians are watching the president's every move with bated breath. "It feels like all the clients we speak to on the U.S. side, they think this is all a negotiation process," said Salazar.
