A PIPELINE ISN'T A FIELD OF DREAMS: Before Canada builds another west coast pipeline, someone has to show where the new oil will come from
Peter Nicholson is a former Deputy Chief of Staff for Policy in the Office of the Prime Minister of Canada and currently serves as Chair of the Board of the Canadian Climate Institute.
Canada’s ambition to become an energy superpower has revived calls for a new oil pipeline from Alberta to the Pacific coast. The provincial government strongly supports the idea, agreeing to submit a proposal to the federal Major Projects Office by July 1. Alberta argues that inadequate pipeline capacity is the principal obstacle to expanding oil sands production and increasing Canada’s energy security. The political appeal of the project is obvious. A new west coast pipeline promises larger export markets, reduced dependence on the United States, more jobs, higher royalties and taxes, and a visible demonstration that Canada can still build major national infrastructure.
The economic case is much less obvious.
The central question is not whether Canada would like another west coast pipeline. It’s whether the oil industry itself sees a commercial opportunity large enough to justify building, and filling, one. A pipeline is not a “Field of Dreams”: it cannot be built simply on the hope that production will eventually materialize. Before committing tens of billions of dollars, investors need confidence that sufficient oil will be available over several decades to generate an adequate return. If there is no convincing answer to that question, the pipeline should not be built.
There are only two possible sources of oil for a new west coast pipeline. The first is diversion of existing exports from the United States to Asia. The second is net new production beyond the capacity of the existing and already planned pipeline network. These two possibilities have very different implications.
Diversion changes the destination of oil that is already being produced. It would have strategic value by reducing Canada’s dependence on a single export market and giving producers greater bargaining leverage with U.S. refiners. It does not, however, create many new jobs, generate significant additional royalties or taxes, or materially increase Canada’s GDP. Only new production produces those benefits. It is therefore the possibility of substantial new oil sands development—not diversion—that would potentially provide the main economic justification for another west coast pipeline.
The first question, then, is whether foreseeable growth in oil production is likely to exceed the capacity of the existing and already planned pipeline network. Here the evidence points in a different direction from much of the public debate.
Canadian oil sands production reached approximately 3.6 million barrels per day in 2025. According to the latest outlook from the Canada Energy Regulator (CER), production from existing projects is expected to increase by roughly 480,000 barrels per day over the next quarter century. Virtually all of this growth comes from debottlenecking, expansion of existing facilities, and general optimization, rather than from new greenfield developments.
Meanwhile, the existing pipeline network continues to expand. Trans Mountain, now operating at a design capacity of 890,000 barrels per day, is implementing operational improvements that its management expects will increase throughput by approximately 300,000 barrels per day by 2028 without constructing another pipeline corridor.
South of the border, Enbridge has begun a series of Mainline optimization projects that will increase export capacity to U.S. markets by approximately 400,000 barrels per day over the next several years. South Bow’s proposed Prairie Connector would add a further 450,000 barrels per day of capacity from Alberta to the U.S. Gulf Coast.
The precise timing of these projects is less important than their combined implication. Even allowing for uncertainty, the additional capacity of approximately 1.2 million barrels per day, already under advanced planning, is far greater than the increase in production that the CER currently foresees from existing (“brownfield”) oil sands projects. This does not by itself prove that another west coast pipeline will never be required but it does fundamentally change the burden of proof.
Advocates of a new million-barrel-per-day pipeline must explain not simply why another export route would be desirable, but where the additional oil will come from. If foreseeable brownfield oil sands production can already be accommodated by the existing network together with announced expansions, then a new pipeline can only be justified by a very large increase in greenfield production or by large-scale diversion of exports now flowing to the United States. Neither proposition is impossible. But both require much stronger evidence than has so far been presented.
The acid test is straightforward. Before committing tens of billions of dollars to another west coast pipeline, investors—and ultimately governments—should be able to point to producers prepared to commit very substantial volumes under long-term shipping contracts. Expressions of interest, conceptual proposals and political endorsements are not enough. Without committed production, there is no commercial foundation for the project. Without commercial foundation the project would depend on potentially massive new subsidies. That’s no way to build a stronger economy.
So, the discussion should shift from pipelines to the more important question: would producers invest in enough new oil sands production to justify another major west coast pipeline?
A million-barrel-per-day pipeline would require an enormous volume of new oil. If foreseeable brownfield production can be accommodated within the existing and imminent pipeline network, then the new pipeline can only be justified by a substantial wave of greenfield oil sands investment extending well beyond the production increases now anticipated.
The catch is that oil sands projects require very large upfront capital commitments and are expected to operate for several decades. Producers base investment decisions not on current oil prices but on their expectations of future demand, future prices, and their own competitive position over the life of the project. A pipeline does not create those expectations; it merely provides transportation if the investment case already exists.
This is where recent projections by the International Energy Agency (IEA) and the CER become especially relevant. For several years both organizations were criticized—particularly in Alberta—for producing energy outlooks that appeared to be heavily influenced by net-zero policy objectives. Their latest projections have adopted a much more conventional approach. Neither assumes rapid elimination of fossil fuels. Both recognize that oil will remain an important part of the world’s energy system for decades and both also point to a common conclusion.
The IEA “Current Policies” scenario projects global oil demand to increase very slowly at an average of 0.5% annually through 2050 while the “Stated Policies” scenario projects plateauing demand through the 2030s and a slight overall decline by 2050. The exact timing remains uncertain, but the broad direction reflects powerful structural forces: slower growth in China, the rapid electrification of transport, continuing improvements in vehicle efficiency, and especially the declining cost of renewable electricity. None of these trends implies the imminent disappearance of oil. Together they imply that producers contemplating investments expected to operate into the 2050s face a market very different from what prevailed during the rapid growth of the past thirty years.
The CER reaches a complementary conclusion for Canada. In its Current Measures scenario—the central planning case—Canadian oil sands production continues to increase, but only modestly, rising by approximately 480,000 barrels per day above current levels over the next quarter century. This increase comes from optimization and expansion of existing facilities rather than from major new greenfield developments.
The consistency of these two outlooks is striking. One describes the evolution of the global market; the other describes the likely response of Canadian producers. Together they imply that the era of rapid oil sands expansion has largely run its course.
Industry behaviour tells the same story. During the great expansion of the oil sands between roughly 2000 and 2015, the chart shows that producers invested hundreds of billions of dollars in new mines, in-situ projects, upgraders and supporting infrastructure. Today their priorities look very different. Capital spending has shifted toward improving existing operations, reducing costs, paying down debt, increasing dividends and repurchasing shares. The industry increasingly resembles a mature cash-generating business rather than one preparing for another generation of megaprojects.
Oil Sands Capital Spending
Annual | 2000 to 2025E
This strategic change is entirely rational. If global demand growth is slowing, future prices become more uncertain while the low-cost producers in the Middle East and Russia retain the ability to increase supply while cutting price. They have a strong incentive to do so to avoid leaving profitable oil in the ground. So companies have every incentive to harvest returns from existing assets before committing tens of billions of dollars to new projects that may not recover their cost of capital.
The long-term competitive position of Canadian oil sands reinforces that conclusion. Existing oil sands facilities enjoy an important advantage. Once built, they have relatively low operating costs, extremely long reserve lives and very slow production decline rates. They are therefore likely to remain profitable through a wide range of future oil prices. New greenfield projects, by contrast, are based on a very different calculation. They require massive upfront investment whose return depends upon oil prices and market conditions extending thirty years or more into the future.
The greatest uncertainty lies in Asia, the very market most often cited as the principal justification for another west coast pipeline. Asia will undoubtedly remain a major oil consumer for decades. But it is also leading the global transition toward electrification. China, the world’s largest oil importer, is simultaneously the world’s largest investor in solar power, wind power, batteries, electric vehicles and electricity transmission. Those investments are not eliminating oil demand, but they put a cap on its future growth and increase uncertainty for projects whose economics depend on ever-expanding oil consumption.
This means that the commercial case for a new west coast pipeline depends first on the willingness of producers to invest in enough new production to fill it. Indeed, the absence so far of a private-sector proponent willing to commit its own capital may be the single most important fact in the entire debate. If producers believed that another million barrels per day of profitable oil sands production were within reach, one would expect them to be competing for additional pipeline capacity rather than waiting for governments to create the necessary conditions.
That does not prove the investment case can never emerge. It does suggest that the principal obstacle is not transportation. It is instead the industry’s own assessment of the long-term economics of major new oil sands development.
Alberta and much of the industry nevertheless reject that interpretation. They argue that federal regulation—primarily the requirement for large-scale carbon capture and storage (CCS)—is the reason no private-sector proposal has yet emerged.
There is considerable force to that position. The potential Pathways Alliance CCS system would itself require investment measured in tens of billions of dollars, in addition to major expenditures on CO2 capture facilities at individual production sites. Even with substantial public support through tax credits and other incentives, the remaining private investment would be enormous in a project with relatively minor revenue returns (via uses for the CO2). It’s understandable that producers view CCS as a major commercial issue rather than simply another environmental regulation. Meanwhile the federal “tanker ban”—which disallows oil shipment from Canadian ports north of Vancouver Island—effectively removes any of Alberta’s preferred northern routes from consideration thus forcing a new pipeline to parallel the existing Trans Mountain corridor.
While these are genuine obstacles, we should still ask whether they are the decisive obstacles. Suppose, for the sake of argument, that Ottawa removed the requirement for large-scale CCS (and perhaps also the tanker ban). Would producers then be prepared to invest the many tens of billions of dollars required for a new generation of greenfield oil sands projects sufficient to fill a new million-barrel-per-day pipeline?
Everything we know about current industry behaviour suggests the answer is probably no. The reason is straightforward. The commercial case for those investments ultimately depends not on regulation but on expectations regarding future demand, future prices and future profitability. If those expectations remain unconvincing, removing regulatory barriers cannot by itself transform an unattractive investment into an attractive one.
This distinction is important because it changes the interpretation of the present political debate. If regulation is the fundamental problem, governments can solve it by changing the rules. If the underlying economics are the fundamental problem, governments can proceed only by shifting risk from private investors to taxpayers through direct or indirect subsidies—subsidies, we should note, to one of the world’s richest industries.
But for Alberta, another west coast pipeline has become far more than an infrastructure project. It has become a symbol of whether Confederation still works for an energy-producing province that believes its principal industry has for decades been constrained by federal policy. For Ottawa, climate policy and Indigenous reconciliation have become equally powerful political commitments. The result is a debate in which symbols increasingly dominate economics.
There is a further irony. If producers themselves are unconvinced that another million barrels per day of greenfield production can be justified commercially, then regulatory barriers become a convenient scapegoat for why no project proceeds. Removing those barriers would obviously improve the economics, but not necessarily the underlying investment decision. The decisive evidence is not whether governments express support for a pipeline, nor whether a consortium announces a conceptual proposal, nor even whether a pipeline company is prepared to examine the project. The decisive evidence is whether producers are prepared to commit enough future production under long-term contracts to justify the investment. Until that happens, the commercial case remains incomplete.
None of this argues against Canada's aspiration to become a stronger energy exporter but only that the opportunity may lie elsewhere. Natural gas presents a very different picture. Canada's Montney formation, straddling the Alberta-B.C. border, is perhaps the largest and lowest-cost gas resource in North America. LNG Canada has already demonstrated that Canadian liquid natural gas can attract large-scale private investment when supported by long-term purchase agreements and identifiable export demand. Additional LNG projects will require further pipeline capacity to the BC coast, but those investments are being driven by committed customers rather than by hopes that future production will eventually appear. In the case of LNG, market demand is pulling infrastructure into existence. In the case of another major oil pipeline, infrastructure is at risk of trying to pull production into existence.
Canada will remain one of the world’s major oil exporters for decades to come. Existing oil sands projects will continue generating substantial income, employment, royalties and export earnings—essentially an annuity for the people of both Alberta and Canada. Production from existing oil sands facilities will continue to increase modestly, broadly in line with the CER’s projections. None of this depends upon constructing another million-barrel-per-day pipeline to the Pacific coast.
The more important challenge for Canada’s long-term energy strategy is not to maximize oil production at any cost. It is to invest where future markets offer the greatest opportunity. On the evidence presently available, that argues for supporting continued optimization of the oil sands while giving greater priority to natural gas and LNG.
Canada needs urgently to improve its capacity to build major projects quickly and competently. Energy infrastructure is an essential part of that agenda. But national ambition does not eliminate the need for commercial discipline. The purpose of strengthening Canada’s project-building capacity is to support investments justified by long-run economic value, not by political symbolism.
Canada should remain open to another west coast oil pipeline if producers—without requiring new production subsidies—eventually demonstrate a commercially compelling need for one through firm investment commitments and long-term shipping contracts. That evidence has yet to appear. Until it does, the case for another major bitumen pipeline to the B.C. coast remains more political than economic.
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As a now long retired petroleum economist I find this article to be most accurate in all respects. A couple of tangential points: the current level of oil sands production results from the huge investments over largely the period 2005 - 2015. This growth was significantly assisted by taxpayers and resource owners through tax and royalty relief. Many see this relief as a subsidy. I am one of these. The production growth from these subsidies has been impressive. However these subsidies brought on line higher cost production that would have otherwise been uncompetitive, and they lead to increased costs for all sectors of the economy. There is a fine line between subsidizing and assisting. Industry will always see regulatory relief and taxpayer input as justified and never as a subsidy. Industry too will see the correct policy desire for Canada to become an energy superpower as an opportunity to squeeze a few more dollars out of taxpayers. By the way, Canada already is a world energy superpower! A final word on subsidies/taxpayer help. It is entirely legitimate for governments to assist industry expansion. A question in this regard is: will taxpayers be entitled to a return on their investment or will their investment simply be a subsidy.
People are finally starting to ask the right question. Do the oil sands producers want this pipeline? All evidence to date demonstrates a complete lack of enthusiasm.
As noted, there is over one million barrels per day of new or optimized pipeline capacity in the pipeline, so to speak. That's almost a 30% increase over current production. This ephemeral pipeline will serve the next million barrels, an almost 60% increase in production in less than a decade! The total price will be well over $100 billion, dwarfing the costs of the pipeline itself, at a time when companies are relentlessly cutting costs.
If the producers aren't willing to declare their full support for this initiative then why is this farce, and the divisiveness it is causing, allowed to continue?