Chris Waddell (Moderator): I’d like to start with Peter Nicholson, because he has an update on his June 26 Sage piece A Pipeline Isn’t a Field of Dreams. Peter?
Peter Nicholson: Thanks, Chris. Since the events of July 2 we have quite a bit more information on the agreement between Canada and Alberta over the rules that are going to govern both the pipeline and oil sands production developments.
I think there is a growing recognition that a pipeline shouldn’t be a “field of dreams” – that it is very important to identify the volumes of oil that would fill a pipeline with a capacity of roughly one million barrels a day. And the industry itself, in its comments, has been pretty clear that that million barrels is probably going to have to come mostly from greenfield oil sands expansion. There could be argument about that, but if you read carefully – in fact, even quickly – the remarkable speech that Jon McKenzie, the CEO of Cenovus, gave on June 9, you can see that his presumption is that, yes, this pipeline only makes sense as a project if it’s accompanied by a very substantial increase in greenfield oil sands.
Until now the industry, and Alberta too, have always said that this investment hasn’t been coming forward for the last decade or more, because of the regulatory regime imposed on the industry in Alberta by the federal government, primarily related to climate objectives.
So what’s really remarkable about what happened on July 2 is that that issue should now be substantially off the table. I mean, it’s going to be pretty hard to blame Mark Carney for the regulatory environment, where he and Alberta have come to a joint agreement promoting it strongly, with very little daylight between them.
In the course of reaching that agreement the federal government has made some pretty significant concessions, and I’ll remind you of some of them:
The removal of the oil and gas emissions cap;
The delegation to Alberta of the federal methane regulations;
Ensuring that the Alberta carbon pricing regime, the Technology Innovation and Emissions Reduction regime, is adapted to the specific circumstances of the oil and gas industry;
Amendments to the Competition Act to remove some of the greenwashing provisions that have been blamed for investment uncertainty; and
Generally streamlining the regulatory process to keep it within a two-year time frame.
In addition to that, the tanker ban issue is now off the table because we’re looking at a southern route.
And most significantly there’s a change about carbon capture, the thing that I thought was probably most discouraging of new investment, as sort of a condition for the pipeline.
But if you read the agreement now on carbon capture, frankly, it is not going to be an impediment at all. In the first place, it bites in 20 years, in 2045, for a total of 16 megatons, starting with a six-megaton requirement in 2035. But just to put this in context, how many of you know how much carbon dioxide is currently associated with oil sands activity? The answer, for 2024, is 92 megatons. So put the six in that context; even put 16 in that context.
In addition to that, when you read the language carefully, even this 16 doesn’t have to come from a Pathways project, from carbon capture. It can come from other technologies or improvements in process. Moreover, I don’t know what the assumed business-as-usual path will be against which the 16 tons would be reduced, but when you combine all that with the fact that there are extensive investment tax credits targeted at this project, coming from both Alberta and Canada, I don’t think that is any longer a significant impediment. Moreover, there’s an MOU with the industry that is going to permit a series of negotiations on the financial fine print.
So, anyway, to wrap that all up, the big issue on the regulatory and political front that’s been standing in the way, I think, is substantially off the table.
So that leaves the commercial issue. Will the industry now come forward with the investment in new production? I’ll just read you one quote from the Jon McKenzie speech because it’s very important. He said – and remember, this is on June 19, well after the May 15 implementation agreement, which included all those concessions that I just mentioned – “What is missing and unclear in the MOU is the commitment to regulatory reform that would allow industry to grow production and fill the million-barrel-per-day pipeline to the West Coast.”
I find that a kind of strange thing to say, but you’ll notice in the July 2 memorandum of understanding, the full text of which we haven’t seen, we know what the objectives are. That July 2 Pathways MOU sets out four objectives including “supporting the development of fiscal frameworks to enable substantial oil sands development, production, and growth.”
Now, I don’t want to read too much between the lines there, but clearly there’s a hint that the industry really is expecting further taxpayer support for production. We know that governments are up to their eyeballs in the actual pipeline itself, and in supporting whatever the Pathways costs would be, but there’s been no discussion yet of what would be required as further federal grease – or provincial grease, for that matter – to ensure that there is new major greenfield oil sands development. Now, that could be a very, very big bill, or that may not actually be the intention of the little hints that I’ve been drawn to question.
But my final comment is this: this whole project isn’t about Canadian energy security, absolutely not. We’ve got tons of energy. We’ve got so much energy, of course, we’re always trying to export it. What it’s about is a business proposition, which has now been shorn of a lot of the regulatory impediments. It’s a business proposition to make a profit. It’s just like every other resource development that Canada has specialized in for the last 150 years, and in that regard, I think it would be both peculiar and, frankly, sad if we felt we needed further taxpayer support to act as a crutch for one of our most powerful and successful industries.
Chris Waddell: Is Pathways dead, in effect, if it was ever alive?
Peter Nicholson: No, it’s not dead.
Chris Waddell: You think it still might happen?
Peter Nicholson: No, it’s not dead. In fact, it’s the subject of this specific MOU, which is only summarized – the full text hasn’t been published. That MOU speaks to these tonnage requirements, and there are a lot of financial details to be worked out. But no, it’s not dead. It has been, in my view, watered down with what I would call some weasel words that indicate that, let’s say, the Pathways collection and storage system may end up more as a demonstration project than something done at scale.
Don Wright: When I wrote my July 3 Sage piece about this, I was trying to address the provincialism that has surrounded a fair amount of the debate. I was saddened by one the one hand the Laurentides, for want of a better term, saying “Alberta’s acting like a spoiled child and wants to be treated favorably”, and on the other hand, by the Albertan factions saying, “Oh, we’ve always been screwed by Confederation, and here’s just another example.”
I thought a very helpful historical precedent was what Jean Chrétien did in 1996. He entered into an accord of a similar kind with Alberta to provide the basis for an expansion of the oil sands, and I think it benefited all of Canada. I focused on only one aspect of that, the fiscal federalism aspect; I showed that the rest of Canada really did quite well out of the expansion of the Alberta energy sector. So that was what I was trying to get across.
In terms of the items that Peter brings up, I think it’s fair to ask: Is there going to be an expansion of sufficient quantities to justify the pipeline? I guess all I can really say is “we’ll see”. The only little nuance there is that you can talk about subsidies, or you can talk about governments deciding to change the profile at which they take revenue from projects. Basically, what Alberta and the federal government did in ‘96 was say, “We will not take as much up front, but we’ll recoup it down the road,” and that has really borne itself out. So I’m thinking the discussions that we are going to see may have that flavor. I think Alberta is likely to say, “Yeah, we’re not going to take high royalties at the front end, but once you recover your investment, then the royalties go up.” Something like that.
Chris Waddell: You’re in Victoria, Don?
Don Wright: Yes.
Chris Waddell: Okay. Then let me ask you a Vancouver geography question. The B.C. part of the agreement – the second TMX, I think – is to build a facility on Roberts Bank that would allow large oil tankers to take oil from the new, extended version of TMX. How does the existing pipeline get from Burnaby to Roberts Bank? Doesn’t that mean it has to go under the Fraser River and also through basically urban areas to get to Roberts Bank?
Don Wright: Well, my understanding of the proposal is that the second pipeline will follow the existing pipeline, but when it gets to the Fraser Valley, it’s going to dip south and go through the south-of-the-Fraser places, and go to Roberts Bank. The other little nuance is that the Vancouver Port Authority already has approval to put in a second terminal at Roberts Bank, and my understanding is that it’s going to build on that.
Chris Waddell: For oil, not for coal.
Don Wright: Well, it was originally conceived to be for container traffic. In the MOU they talked about $10 billion for Vancouver port infrastructure, and I’m guessing that’s going to take the existing approved terminal and make it much larger. But details are to be filled in.
Chris Waddell: Any thoughts from anyone on how this contributes to national unity? Or is the time frame so far in the future that people won’t recognize it as something that has to do with national unity? Will people even understand it? That’s a question to everybody: will the general public even understand it as being a national unity issue?
Don Wright: I think it can contribute to national unity, but the federal government, in particular, has got to do a big selling job on that, and sell it the same way Chrétien sold the accord in the ‘90s: this is going to generate revenue, and if oil companies in Alberta make more money, the federal government collects more taxes, and that’s going to benefit people across Canada. I think that’s the type of sales job they have to do.
Edward Greenspon: I think that if Alberta sees Canada at the table, that’s a positive – an institutional positive, if you will. Certainly, seeing Canada not at the table or being antithetical to its interests, that perception has been a negative. And I am struck that the next point in this occurs in October, when the federal Major Projects Office is supposed to render a decision. I don’t think that’s going to be a hard decision, to say this is a national-interest project. It’s not going to be the final decision. And obviously, if the MPO said it’s not a national-interest project, that would be extremely politically damaging. I don’t expect that.
Chris Waddell: I think the deadline’s supposed to be just before the referendum, isn’t it?
Edward Greenspon: Yes, exactly. I’m sorry; I should have said that explicitly in making the point about October. But at the same time, I think you’re getting a lot of commentary breaking out in the country that’s very negative, and it’s helping feed the kind of commentary that people can glom onto.
In the Saturday Globe and Mail, the opinion section had a cartoon, which is unfortunately neither artistically arresting nor in any way humorous. It’s basically a global-warming cartoon: Danielle Smith saying, “Meanwhile, in Alberta, I can’t think of a single reason why this pipeline is a bad idea.” Those are the kinds of things and reactions that can get amplified and played out. I expect we might see more, rather than fewer, of those.
Miville Tremblay: I think this will not be well received in Quebec. I think people understand that something had to be done to keep Alberta in Confederation, and we in Quebec will be facing a similar vote in the fall, although to choose a government rather than to make a decision on sovereignty itself. But people I talked to were very disappointed from the beginning by Carney sort of reneging on his environmental, green, or sustainable-finance credentials to allow Alberta to have a national pipeline.
My reading at the time was that it did look like that, but that maybe Carney was bluffing. Here I’m taking the line of columnist Max Fawcett, and maybe it was wishful thinking on his part or mine, or we’re both naive, saying that the likelihood of this project succeeding was low, because I don’t think the market will be there for a long enough period to make the investments make sense. But now, with the additional concessions made by Mark Carney – saying, yes, maybe we can finance 90 per cent of it – that was a big threshold he crossed.
Peter, your piece reminded me of the major capital investment needed to fill that pipe, also another big hurdle. But it seems to me now that Carney is willing to do whatever it takes for this to happen, and so the risk will be borne in large part by the taxpayer. I think this will be increasingly difficult to swallow in this part of the country.
Chris Waddell: The idea that it should be publicly financed, you mean?
Miville Tremblay: Yeah, and more likely also if there are additional subsidies for smaller-scale carbon capture projects and subsidies for capital investment in greenfield projects. Well, if you add it all up, that’s a whole lot of money.
Edward Greenspon: Miville, does that change in any way if the governments are taking equity positions – if they’re taking ownership and potentially a piece of the profits, rather than just providing a subsidy to businesses?
Miville Tremblay: Maybe it lessens opposition a bit for those who look at it as a pure financial matter, but many people in Quebec will look at it first and foremost as a wrong move for the environment. Maybe they could have believed that it wouldn’t happen, but now it really looks like Carney is willing to do whatever is needed.
Martin Coiteux: The question for me is still “who’s going to buy that potential extra supply from Canada?” Even if we subsidize, or if the government is taking the risk by taking an equity position, do we have any idea? Because if there is not an increase in overall world demand for that kind of oil, that supply would substitute for something else, for somebody else’s supply. Do we have an idea of what that could be, if that’s possible, and how it could affect the profits or losses from that project?
Chris Waddell: I don’t have it right in front of me, but we do know how much has gone where from the original part of Trans Mountain. Whether that would continue is an open question.
Peter Nicholson: I’ll have a comment on Martin’s question, but also on what Miville just said. I think it’s going to be very important to keep separate in our minds the subsidy or public investment in the pipeline itself and what may be required to bring forward the oil to fill it. I mean, if you produce a pipeline that doesn’t have much oil in it, it’s incredibly expensive. Obviously, you have to have this thing pretty much filled, and so the requisite new production is crucial. That’s an issue that hasn’t even been on the table yet: what the public or industry’s expectation of further support should be.
So, to summarize that, we have to keep the public participation in the pipeline separate in our minds from what might be new public participation in production itself. As for Martin’s question, that’s the $64-billion – or trillion – question. In fact, it’s probably the primary reason why the industry would be reluctant. They know they’re going to be facing low-marginal-cost producers in an environment over the next 30 or 40 years that no one thinks is going to be particularly robust. It may not be shrinking, but you have sources of oil in the Middle East, Russia, and possibly also Venezuela and other parts of South America that can produce at least as cheaply – and, in many cases, far more cheaply – than the oil sands.
There is always a market. The question is: how much can you fill that market, at price P, and still be profitable? I think that’s the issue. And when you look at the extremely large up-front capital commitment that would be required against that sort of very long-tail risk, it’s hard to see the business case at this stage. Meanwhile, the existing franchise is an extremely profitable one now. They’re just coining it.
Don Wright: First of all, when we talk about the government subsidizing the pipeline, we need to be careful. If they build a pipeline and no oil goes through it, the government is likely to lose money on the whole deal. But if they build the pipeline and the oil does go through it, the government will recover all of its investment through the toll. So it’s not really a subsidy. They are taking risk, but in the current regulatory environment, you can argue that that was the only way to get a pipeline built. So that’s something we should keep in mind.
On Martin’s question, I would take a different view than Peter does. There is an implicit notion that the rest of the world’s oil production is this permanent stream of output that Canada somehow has to displace, but the reality is that existing oil reserves deplete at a fairly rapid rate. Last September the International Energy Agency estimated that if there were no new investment in oil and gas, production would fall by five and a half million barrels a day per year. In order just to keep output at its current level, the industry around the world has to invest something like $600 billion a year.
So, in Canada’s case, the question is: can we compete for that investment that’s needed to replace the oil that is depleting at a fairly rapid rate, most notably in the U.S. shale plays? People debate when the peak is going to happen. It has certainly happened in some of the basins, and there’s a fair amount of commentary suggesting that the Permian Basin in Texas and New Mexico, the last big elephant, is probably near its peak as well. So it’s not that Canada needs to displace existing production; rather, it can be part of the replacement of depleting oil production elsewhere.
Chris Waddell: Don, when Mr. Chrétien made his announcement back in the mid-1990s, the oil sands were mostly being run by multinational corporations. They mostly pulled out after 2014, in part, I think, because of concerns about the negative environmental impressions that oil sands created. But we now have primarily Canadian companies running the existing oil sands operations. Does that make it easier or more difficult to think that they might be supported by government to build new production facilities? And I should remind you that I started as an energy reporter in 1980, a week before the National Energy Program, so I well remember the last time our government got involved in supporting Canadian energy projects.
Don Wright: I don’t know if it makes it easier for Canada to provide support for production. Just to put this on the table: I am not in favor of subsidizing new oil sands production. I’m fine with looking at tweaking tax structures and changing the time profile at which government collects the rents from the resource, but I wouldn’t argue for subsidies. I think – and Peter’s piece talked about this – the Canadian producers might be more comfortable with just optimizing the existing investment and not necessarily investing in new greenfield plants. We’ll see.
On the other hand, I think foreign governments and foreign companies might be interested in that. You’ve seen interest from Japan, for example, and Korea, in trying to make their supply more secure by possibly investing in the oil sands, so that’s a possibility too.
Edward Greenspon: Just to build on Don’s point about depletion: the rest of the world depletes. Shale oil depletes very quickly. The place that depletes exceptionally slowly – because it doesn’t really deplete – is the oil sands. It’s one of its competitive advantages. So, in that world, there’s a truly stable supply that does not require the same kind of reinvestment and rediscovery that other places might require.
That is part of a larger point, that it’s very easy for people who aren’t buyers or sellers to have an opinion that market demand is not going to be there. In fact, we repeatedly do this as a country. We did it around LNG, particularly, and delayed our entry into LNG probably for a decade or more because a lot of people who don’t actually have to buy or sell LNG determined that there wouldn’t be a market for it. And they were wrong.
Markets find or make themselves at whatever price. Obviously, it’s a risk, but it’s not a risk that’s easy even for people in the action to figure out. It was very hard to know what Saudi Arabia and Russia were going to do in 2014 – flood the market and drive down prices. It’s hard to know when there’s a war on Iran, etcetera. But the one thing I think we do know is that Canadian oil has at least a bit of a security and reliability advantage – a political advantage, a geopolitical advantage, in some way or another.
As far as the risk that the pipeline and producers might take, pipelines don’t get built without what they call an “open season”, meaning the commercial arrangements that people will commit to putting in. So, without that commitment, there won’t be a pipeline. Will they make that commitment? I guess that’s the question, and I certainly don’t have the answer.
But what I find really interesting – though I don’t know what to make of it – is that governments seem to be willing to step up in a way that I hadn’t imagined they’d be willing to step up. I’m thinking particularly of the Alberta government, which owns the resource. The Alberta Petroleum Marketing Board is taking in-kind oil to sell, rather than just royalties. The Progressive Conservative Alberta government of Peter Lougheed had an oil company, and the Alberta Petroleum Marketing Board seems to be becoming in some ways like what the Canadian Wheat Board was 30 or 40 years ago. I just wonder what the Alberta government would do if oil sands companies don’t act on their leases.
Chris Waddell: Well, the Alberta government did spend $1 billion on Keystone XL that actually went nowhere. So maybe.
Edward Greenspon: And the Canadian government spent a lot of money on TMX, which is making money.
Martin Coiteux: I have a follow-up question on this depletion issue, and the fact that we have to invest $600 billion a year globally, as I understood from Don’s comment. Do we have an idea of the marginal cost of the oil that would come out of that $600 billion investment per year, and how it compares to the marginal cost of adding to oil sands production in Alberta?
Don Wright: I don’t have an answer at my fingertips for you on that, Martin. The probable answer is that it really varies all across the world. The only thing I can offer is that I recently saw an estimate that the marginal cost of new oil in the Permian is getting close to US$65 a barrel.
Peter Nicholson: That calculation you asked about, Martin, is obviously an exceptionally complex one. But it’s the kind of calculation that the oil industry is basically paid to make, and that’s why I think it’s so important not to substitute for their judgment on projects like this. For the best technical analysis of the future the oil industry is facing, we still have to turn to the International Energy Agency projections, and they’re very granular. They have insight into every country’s production, field by field. If you look in detail at their current-policies production projections out to 2050, the OPEC+ countries are actually seen to be increasing, but not the rest, which includes Canada, the U.S. and a few others. It’s still possible that Canada could gain market share within that group, but, at least on the best projections, we’ll be competing for a shrinking share relative to Russia and the Middle East.
Secondly, with regard to subsidy, you really have to look at tax benefits, royalty delays, and things like that on a net-present-value basis. Otherwise, you can make anything make sense if you forget about the ultimate cost 10 years down the road of option A versus option B. So, on an NPV basis, making the royalty regime a lot more favorable to the oil industry is itself a subsidy. It’s less politically visible, obviously, but nonetheless it’s economically relevant.
One other thing: the annual sustaining investment in the oil sands right now is about $12 billion a year. So it’s not by any means insignificant. And if you look at the total investment that was required to produce our current 3.6 million barrels a day, that was about $360 billion. So it appears, on the back of the envelope, that to produce a million barrels a day of greenfield production, you’re probably going to have to pony up roughly $100 billion. So the question is: is that the best allocation of scarce capital? I think we have to leave that issue to the industry to judge, but I don’t think we have to tip the scales on what is really a business decision through taxpayer grease. I come back to this: if this country has to subsidize its most successful industries in the resource sector, of all places, then God help us!
Don Wright: On the subsidy question, I’m all for net-present-value calculations, but the calculation you make is “is there a project or is there not a project? What is the profile of net revenue if the project goes ahead?” If that’s positive, as opposed to zero, then I’m not buying that that’s a subsidy argument. Now, if you were to lower taxes on current production at current facilities, you don’t have much of an argument for that. But we’re talking about whether there can be incremental production or not.
David Dodge: I just keep wondering whether there are other oil and gas projects that ought to come first. It seems to me the project to get natural gas from the Montney Basin in B.C. and Alberta out to the Pacific Coast looks like a much better value proposition. Expanding TMX itself, I think, is probably a good value proposition. A connector down into the U.S. for another 300 or 400 million barrels a day looks like a pretty good value proposition. I keep wondering why we focus on the most difficult value proposition of them all rather than moving on those. I think we could move relatively quickly, and we have the physical capacity to move relatively quickly on those other ventures. But there are physical issues related to building the new pipeline, and then huge physical issues if we have to go to greenfield production. So I stand back and think that, if we’re really interested in maximizing value for the country, there are other things we should be getting on with first. That’s where our first dollars ought to be going. I’m a little surprised that there hasn’t been more discussion of the order in which we’re generating capacity to sell oil and gas abroad.
Chris Ragan: First, about marginal costs, and then about subsidies. My sense is that the cost of creating a new oil sands facility requires oil at something like $90 a barrel, whereas the marginal cost in existing facilities, I’ve seen, is something like $35 or $40. So these things are incredibly capital-intensive, but once they’re built, they actually operate at quite a low price. The question I want to pose is: “What happens in the middle of that?” What I mean is, if you take an existing facility in the oil sands, to what extent can they expand their existing operations – not build a new facility, but just expand or optimize their existing facilities? Can they increase by 10 per cent at that cost of $35 a barrel? I simply don’t know.
And so, when Peter says, “Well, where’s the new million barrels a day going to come from?” If we really need to build brand-new facilities, kind of out of thin air, then that’s going to be a much more costly venture than if we can expand existing ones. But I simply do not know the cost, or if it’s even possible, to take an existing facility and make it 10 per cent bigger, or at least produce 10 per cent more.
On the subsidy issue, as a general rule, I dislike the idea of governments providing subsidies to all kinds of industry, for all the usual reasons. I would say that as an economist. But I do find myself thinking differently about resources that are owned by the people. To me, this is quite different from subsidizing the production of electric batteries or some randomly selected product. If we’re talking about a product that is in the ground, that is owned by the people, and if it’s the case that it will not be developed unless there’s some form of government subsidy or financial investment – but, as a result of that investment, it gets developed and then the people get their take through royalties – it makes me wonder whether, in fact, we should be more open to that kind of subsidy in that situation than in others where there’s no government-owned or people-owned resource at stake. I don’t know whether that’s fuzzy thinking – you can tell me if it is – or whether that’s actually a reasonable way to think about the world.
Don Wright: Chris, I don’t think that’s fuzzy thinking. My article about Jean Chrétien in ‘96 shows that he made exactly that calculation, so I don’t think it’s fuzzy thinking. Just to throw a bit of a curveball out here, David mentioned: why are we taking on this most difficult project? I think, in part, it’s because of the situation we are in because of Donald Trump, and diversifying our markets has some value. Quite frankly, Canada isn’t getting the true world price for the oil it sells to the U.S. because we are captive to that market. But here’s the curveball: it may well be that the best payoff to Alberta is trying to get better value for its natural gas. Peter, you mentioned this in your article. The value of that natural gas right now is basically being given away, and on a BTU basis it should be worth four or five times what it’s currently selling for. Maybe Alberta should be focusing on trying to get more value out of that.
David Dodge: Don, we’re trying to create value, and we’re trying to look at policy that is likely to create the most value domestically. On natural gas, you can create value by building natural gas plants to make electricity, so we can diversify the economy at the same time as finding a good market for the gas. So it seems to me it’s really important to focus on what you’re trying to build here.
I remember well the group we had that did the consultations a decade ago, where we talked about the fact that it’s important for Alberta to build something that goes beyond just the natural gas, or oil and gas, field. We do have opportunities to use the gas to generate electricity, which will enable Alberta to build alternative sources of future income. So I think we should be looking at this as a bigger piece. If we focus too narrowly on pipelines, we’re kind of missing the issue: we’re trying to create value for Canadians so that we can raise Canadians’ living standards over time.
Chris Waddell: To conclude by coming back to pipelines, here’s my last question: How should Canadians look at, and think about, the Alberta-Ontario announcement about a pipeline across the country?
Peter Nicholson: I’ll say one thing. There is some vulnerability with this Enbridge Line 5, part of which lies on the lakebed under the Straits of Mackinac. Michigan Governor Gretchen Whitmer would like to see it shut down. God help us if there’s ever a spill. So that’s a serious vulnerability. It wouldn’t end the Ontario economy, but it would cause a lot of disruption. On the other hand, is a 5,500- or 3,500-kilometre pipeline through virgin wilderness and every Indigenous land claim you could imagine the answer? I guess the answer is no.
It’s way better to build that tunnel under the Straits of Mackinac that Enbridge has proposed and encase the line in that. I don’t know the geography well enough, but that would seem to be the first option to look at. In the proposed Ontario route – they call it the Northern Shield Energy Corridor – they’re looking at electrical transmission lines and gas lines as well as oil. Maybe there are other arguments for it, but, damn, if we’ve seen the problems we have in creating pipelines or any of that kind of infrastructure, you’d have to think twice. Especially since the capacity, apparently, of that pipeline would only be about half a million barrels a day.
Chris Ragan: About this Ontario-Alberta idea. Let’s suppose Line 5 wasn’t the problem. My question is: “If there is sense in this project, is it entirely that it would take Alberta oil to Ontario and, as a result, Ontario would buy less oil from the United States?” So it would be purely displacing oil coming from the U.S. Is that what this is all about? I mean, I can understand political benefits from this in today’s world, and you might actually have some leverage there. But is there an economic benefit from a pure displacement of imports from the U.S.?
Peter Nicholson: I don’t think so. In this case, the current volume is roughly 500,000 barrels a day: 300,000 stays in Canada, and 200,000 goes to the U.S. So no, I don’t think there is an economic case.
Chris Ragan: But in the absence of economic benefits, it’s a huge cost to incur. Yes, maybe to replace Line 5, but a huge cost to incur for whatever political benefits you’re getting from it.
Edward Greenspon: And security benefits.
Chris Ragan: And security benefits, yes.
Chris Waddell: We’ll have to stop there. Thank you very much, everybody.
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Since Miville name-checked me here, I thought it might be useful to elaborate just a bit on what my argument is -- and isn't.
I never thought that Carney's bluff would stop once a pipeline route was proposed, and I don't think him backing the Alberta government's proposed path is actually a meaningful step forward. The biggest impediment, by far, is the economics of adding an additional one million barrels per day of production on top of the 1.2 million barrels per day that can be added through expansions of existing pipelines (TMX, Mainline) or easier new builds like the proposed Bridger pipeline. You can't do that with bolt-on projects, optimizations, or other incremental improvements to existing operations. You need greenfield projects, and lots of them, to reach those numbers.
As I write here, those are *very* unlikely for a bunch of purely economic reasons.
https://www.nationalobserver.com/2026/07/14/opinion/alberta-oil-production-math
That's why the bluff continues. Carney is, I think, determined not to let his government be blamed for decisions that are ultimately commercial in nature, as tended to happen after the oil price crash in 2014-15. And there's little governments can do to meaningfully alter the economics and hurdle rate on greenfield oil sands projects when they break even at prices nobody is predicting right now -- and look even less likely once the Strait of Hormuz reopens and OPEC countries push out all sorts of additional barrels, both to restore their own coffers and discourage their Asian customers from switching away from oil and gas en masse.
If investors want to speculate on meaningfully higher oil prices in the near term, they have far better ways to do that than commissioning new oil sands projects (mines, of course, but even thermal ones) that will take years to complete. The risks simply don't justify the reward there, and they haven't since 2014. That's especially true given that the risk of global demand for oil peaking (and rolling over) gets higher with each passing year.
Re: excess production.
Japan is investing in changing some of its refineries to take the heavy crude. They are also moving away from renewable energies, by ending subsidies as of 4/27. So I think you’ll slowly see an increase in demand toward, Japan and other middle powers in Asia to absorb the excess volume.
Also with Canada being an observer in the Gcap, the new fighter being jointly developed by Italy, Japan and the UK, you’ll a lot closer ties between Canada and Japan. Focusing mostly on critical minerals, but I’m sure there will be more on the table as trade confidence builds.