TMX as a project in the national interest validated by US energy importer analysis

Our Margareta Dovgal looks at the benefits of the expansion of the Trans Mountain pipeline system.

The Trans Mountain pipeline expansion project is 97% complete, and is expected to open in the second quarter of the year.

That means it soon will be carrying more oil that will be shipped to Asian buyers, and to U.S. refineries. And those U.S. refineries will — good news for Canada — be paying more for it. They have bought Canadian crude oil for decades. In 2022, for example, the U.S. took from Canada more than 3.8 million barrels of oil a day, which is something like 60% of all U.S. oil imports.

As former U.S. ambassador Mark Green has noted, Canada supplies nearly twice as much petroleum to the U.S. as Mexico, Saudi Arabia, and other countries combinedThe Americans have been getting that Canadian oil cheap, for various reasons.

The discount on heavy Western Canadian Select (WCS) oil, compared with the benchmark of light West Texas Intermediate oil, usually runs at US$10-$15 US a barrel, but last fall hit US$25 a barrel.

These days, it’s running close to US$17. Canadian producers have had to eat this discount, because, other than limited tanker loads of out oil to Asia) the U.S. was the only customer. (Just as it has for decades been the only buyer of our exported natural gas. That will change when the LNG Canada project in B.C. starts shipping liquefied natural gas to overseas buyers.)

Now the expansion will triple the capacity of the Trans Mountain pipeline system, adding 590,000 barrels a day, which can go to the U.S. by pipeline (through the Sumas pipeline connection near Abbotsford B.C.) or to the U.S. or other overseas markers by tanker. 

Trans Mountain’s Burnaby terminal filled its first export tanker almost 70 years ago, in October 1953. There has never been a marine spill. And now the Western Canada Marine Response Corporation has been adding six new spill-response bases, and doubling the size of its fleet of response vessels from 44 to 88.

The costs of the pipeline expansion have been heavy, soaring from an initial estimate of  $7.4 billion, when first proposed in 2012 by Kinder Morgan, an energy infrastructure giant, to around $30.9 billion under its current owner, the federal government, which bought the system from Kinder Morgan in 2018 for $4.5 billion.

In a regulatory filing last December, Trans Mountain Corp. (a federal Crown corporation) called the increase “reasonably and justifiably incurred.” It cited factors that included environmental and regulatory oversight, rights of Indigenous peoples, mitigation of socio-economic impacts, and landowner rights.

But, if costly, the expansion project does mean Canada will get more for its oil.

As reported by The Wall Street Journal: “For years U.S. drivers have been getting a gift at the expense of their northern neighbor — artificially cheap oil. That could change in the coming months when a major pipeline expansion will allow Canadian oil more access to global markets.”

The newspaper noted that the capacity is expected to increase gradually, “which should prevent sudden price surges.” And it suggests that “over the longer term, healthy production growth from Canada could cheapen WCS crude.”

So, goes the U.S. analysis, “The windfall from Canada’s glut will be missed, but it shouldn’t be a shock to the system.” 

What matters to us is the benefits to Canada. For one thing, we now will be able to ship more oil by tanker to refineries on the U.S. West Coast, at a better price than oil by tanker from Alaska.

And we’ll have more oil available for shipment to Asian buyers, who have usually bought oil from the U.S. We were happy to send Canadian oil to China and India last year when some U.S. facilities closed for repairs. Now we’ll have more oil more readily available for overseas buyers.

So, all in all, we can expect to see higher returns on our oil, and we can continue to see the immense benefits of high-paying jobs in Canadian energy, and the benefits of revenues to government.

That’s why that investment was initially made. That’s why the federal government bought Trans Mountain, in the national interest, when it proved too difficult for the private sector to advance it. 

The essential message here is that we all win when our most economically productive industries succeed. They are the basis of national prosperity in Canada. They enable our high quality of life.

And there’s some hope, too, that all this will lead to a higher quality of life for Indigenous peoples. 

Ottawa made it clear in 2018 that it didn't intend to hold onto Trans Mountain for ever.  “We would not expect it to be a long-term hold,” said Bill Morneau, then finance minister. “We would expect it to be a short- or medium-term hold for the government.”

Several First Nations groups have been in discussions with the feds about the possibility of taking ownership shares in the Trans Mountain pipeline system.

Last year, 23 First Nations and Métis groups acquired an 11.57-per-cent interest in seven Enbridge-operated pipelines in the Athabasca region of northern Alberta for $1.12-billion. 

That’s being billed as “a successful playbook that has been developed on how to proceed with complex equity transactions with multiple communities.”

We now await, in the 2024-25 federal budget that is expected soon, the details of Ottawa’s promised Indigenous loan-guarantee program. It will support Indigenous peoples wishing to invest in natural-resource projects.

The feds have been under pressure from anti-petroleum groups to exclude oil and gas projects from such Indigenous investments. Ottawa has not disclosed whether or not that will happen.

But some First Nations groups worry that the loan-guarantee program might mirror the green restrictions of the current Indigenous loan program provided by the Canada Infrastructure Bank.

It allows equity stakes only in infrastructure projects aligned with the bank's investments, such as clean power, green infrastructure, broadband technology, and transportation.

B.C. announced plans in its 2024-25 budget speech for a loan-guarantee program to “support First Nations ownership, partnerships and shared prosperity in projects in their territories and “in a wide range of sectors.”

But there was no word on whether that “wide range of sectors” includes or excludes Indigenous investment in oil and gas.

There are already-existing Indigenous loan-guarantee programs offered by three provinces: Alberta, Saskatchewan, and Ontario. They do not exclude oil and gas.

Sharleen Gale, chair of the First Nations Major Projects Coalition, and elected Chief Councillor of the Fort Nelson First Nation in B.C., argues that fossil fuel investments must be a component of any loan-guarantee program, as equity in the oil and gas industry can empower First Nations to thrive in alignment with their values. 

"We want to be part of the oil and gas industry.”

When designing programs with one central mandate, such as advancing Indigenous economic empowerment, securing strong pensions for Canadians, or ensuring robust investor returns for public institutions, it rarely proves to be a good idea to tack on criteria, however well-intentioned, that correspond to an entirely different, even counterproductive, set of objectives. Divestment campaigns at post-secondaries in the US have shown just how damaging these approaches can be to institutional financial viability. The same learnings need to be applied here.

The reason that provincial programs to support Indigenous access to capital have been successful is precisely because they enable communities to make their own decisions based on good economics and their values. It runs counter to the whole point of delivering policy solutions for Indigenous economic development to rule out the most productive and valuable investments from eligibility.

It also compromises on the federal government's aim, supported by Canadians, to work collaboratively with Indigenous peoples and to depart from a deeply damaging history of paternalism and top-down management of community priorities. Let First Nations decide where they want to grow their businesses. That's reconciliation.

Margareta Dovgal is Managing Director of Resource Works. Based in Vancouver, she holds a Master of Public Administration in Energy, Technology and Climate Policy from University College London. Beyond her regular advocacy on natural resources, environment, and economic policy, Margareta also leads our annual Indigenous Partnerships Success Showcase. She can be found on Twitter and LinkedIn.


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