Future Asian demand, high oil-sands costs and growing taxpayer exposure require much closer scrutiny
Eric Chi, professor of economics at the University of Guelph, says Canada’s proposed West Coast oil pipeline requires far more economic scrutiny before governments expose taxpayers to substantial financial risk. In an interview with Energi Media, Chi questioned whether future Asian oil demand, the delivered cost of Alberta bitumen and competition from lower-cost producers can support the project without extensive public financing.
The pipeline has been promoted as a nation-building project that would expand market access for Alberta oil and reduce Canada’s dependence on the United States. Chi said those political objectives do not replace the need for a transparent commercial case.
Chi argued (see video interview below) that the debate needs to focus on economics, particularly the uncertainty surrounding the markets the pipeline is intended to serve.
China is a particular concern. Its rapid adoption of electric vehicles and broader electrification of transport could slow or reduce oil-demand growth. That would weaken a central assumption behind the project: that Asian buyers will require steadily increasing volumes of imported crude for decades.
India is often cited as the next major source of global oil-demand growth. Chi said the country may consume more oil, but Canadian producers would still face intense competition from Middle Eastern suppliers with lower production costs and shorter, well-established trade routes.
Alberta bitumen also carries additional costs. Oil-sands crude is expensive to produce, must travel a long distance to the coast and then cross the Pacific. Those costs must be recovered in the price paid by refiners, making tolls, shipping charges and the quality discount on heavy crude central to the business case.
Chi said the role of private capital provides another important test. A commercially attractive pipeline should be able to secure investors and long-term shipper commitments without governments assuming a disproportionate share of the risk.
Governments can support a project through direct investment, loan guarantees, tax credits, subsidies or other forms of de-risking. But Chi warned that public financing can transfer losses to taxpayers if construction costs rise or expected demand fails to materialize.
He called for an independent, publicly available assessment of the pipeline’s economics. Such a review should include realistic Asian demand scenarios, comparisons with competing crude suppliers, projected construction and operating costs, toll assumptions, shipper commitments and sensitivity analysis for lower oil prices or slower demand growth.
The absence of that evidence leaves a major question unanswered: can the pipeline generate acceptable returns on its own merits, or will governments be required to make an uneconomic project appear viable?
Chi said the answer should be established before political momentum commits Canada to decades of financial exposure.
The proposed project would take years to approve, finance and construct. Its economics therefore depend less on current oil consumption than on demand and prices well into the 2030s and beyond. Faster electrification, weaker oil prices, cost overruns or higher financing costs could materially change the expected return.
For Chi, the test is not whether governments can assemble enough support to begin construction. It is whether proponents can demonstrate that customers, shippers and investors will continue to support the pipeline when the full costs and risks are visible. Until that case is published, he argues, claims that the project is in the national interest remain incomplete.
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