“Would I support TMX [Trans Mountain Expansion pipeline] knowing what I know now? No.”
In 2017 I thought that the Trans Mountain Expansion (TMX) pipeline was a great idea. My expert sources didn’t expect peak oil demand until well into the 2030s, maybe the decade after. Why wouldn’t Canada maximize oil sands revenue while it could? Then Kinder Morgan hightailed it out of town, Canada bought the project in 2018, its cost ballooned by 700 per cent, and in 2020 the energy transition caught fire. Mine is a classic case of “if I knew then what I know now.”
Plenty of folks in the climate and Indigenous communities say that TMX was a boondoggle from the beginning. At a 2018 Burnaby rally against the project that I reported on, local residents were understandably upset about major new industrial assets (including oil tanks) being built in their neighbourhood. Indigenous opponents protested against the trampling of their treaty rights and damage to their traditional territories. The large crowd was angry, noisy, and determined.
But we forget that public opinion polls at the time showed a majority of British Columbia residents favoured TMX’s construction.
Then the energy transition took a great leap forward, powered by China’s dominance of clean energy technology (think solar panels, batteries, electric vehicles) manufacturing, with the onset of the COVID-19 pandemic in early 2020. Russia’s invasion of Ukraine in February of 2022 and the ensuing global energy insecurity – and price inflation – was another boost for the transition.
Suddenly, the end of oil became more than a Greenpeace talking point.
The International Energy Agency predicted peak oil demand in 2030. The Rocky Mountain Institute, a proponent of the “very fast energy transition” narrative, speculated that peak demand might already be here. All the while, China kept subsidizing and expanding its EV manufacturing sector. In its domestic market, the world’s biggest, electric passenger vehicles now account for half of all auto sales. Legacy auto executives like Carlos Tavares of Stellantis are openly speculating that China’s EV makers could wipe out a considerable portion of century-old brands, like GM and Ford.
This is what energy transition disruption looks like.
The energy status quo isn’t being quietly eased out the door as much as it’s been rudely tossed into the Colosseum with the lions along with a “good luck, it’s been nice knowing ya!” The heyday of the TMX debate in 2017 and 2018 seems quaint viewed from today’s perspective. How could I have ever imagined that Alberta oil sands (bitumen) exports might have another 20 or 30 years before being threatened by new energy technologies?
I wasn’t alone then and there are many Canadians who still think that way.
In a joint statement about TMX’s official start up yesterday, Alberta Premier Danielle Smith and Energy Minister Brian Jean effused about the pipeline’s impact on their province. They called it a “game-changer.”
“World demand for oil and gas resources will continue in the decades ahead, and the new pipeline expansion will give us the opportunity to meet global energy demands,” they crowed, neglecting to mention that TMX approval was due to a 2016 deal between Rachel Notley’s NDP government and the Liberals of Prime Minister Justin Trudeau, Smith’s bête noir.
Economics professor Trevor Tombe also praised TMX as a good deal for Canadian taxpayers. His calculations, and those of other economists, shows that the entire $34 billion price tag “is more than compensated for by higher GDP after only a few years of operation.”
His well-argued essay makes a credible case for the long-term profitability of the pipeline.
“Despite the sticker shock, the pipeline remains incredibly valuable, both as an individual asset and as a key piece of infrastructure for Canada’s economy,” Tombe writes. “The pipeline may have been late and (far!) over budget, but it was worth every penny.”
As his graph above shows, TMX’s net income is low to start, then grows significantly out to 2042. “The pipeline will be highly profitable for many years,” he concludes, with plenty of revenue to pay off debt regardless of whether Ottawa continues to own it or if it is sold to private investors.
My concern is that both Tombe and the Alberta government assume enough global demand and prices high enough to sustain TXM profits.
Given current trends, the International Energy Agency’s APS (announced policies scenario) is the most likely scenario, according to the experts I interview. A loss of almost 50 million barrels per day of demand in 25 years does not bode well for Alberta.
The reason why there may not be enough demand is complex: rapid electrification of road transportation; ever stricter policies as nations fail to reach their climate targets; the clean energy arms race as China, the US, and Europe compete to dominate clean technology manufacturing; emerging economies rejecting oil and gas in favour of renewables and EVs, despite the expectations of oil-producing countries like Canada.
The Canadian Energy Regulator’s net-zero modelling from last year shows that in a fast energy transition scenario, with subsequent low oil prices, Alberta bitumen production falls significantly. Certainly enough to affect TMX operations and probably Tombe’s rosy financial projections.
Would I support TMX knowing what I know now?
No.
The risk is too high. There is a very good chance that a rapid energy transition results in oil and gas stranded assets. Alberta, not surprisingly, thinks that it will be the last barrel standing, that its assets will be valuable for decades in the future. While the competitive spirit is commendable, 90 per cent of the oil producing jurisdictions in the world break even under $50 per barrel, and every one of them thinks that they will be the last barrel standing.
In 2017, like Smith and Tombe, I thought there would be decades for TMX to pay for itself. My, how much has changed in seven short years. Now I worry that within a decade global oil prices will begin to fall and not many years later, TMX will be a bust.
Sure this is a worst case scenario. But didn’t our mothers teach us to hope for the best but plan for the worst?
Decisions were made long ago, capital was spent, and the pipeline is now full of oil destined for Pacific tidewater. There is nothing to do now but cross our fingers.
Please offer up thoughts and prayers for Canadian taxpayers, including this penitent journalist who wishes he knew then what he knows now.
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