Is a New Oil Pipeline in Canada’s National Interest?

Need to know:

• Building a new oil pipeline would be a costly mistake for both Alberta and Canada. World oil demand is likely to peak in the next few years, and existing pipelines have the potential to provide adequate capacity at lower cost and risk.
• As the Trans Mountain Pipeline (TMX) shows, building new pipelines is risky because of cost overruns. The TMX was originally forecast to cost CAD 5.4 billion and ended up costing CAD 34.2 billion.
• The TMX pipeline is not recouping its costs. Because the tolls charged to the oil industry do not cover the full project costs, Canadian taxpayers could end up subsidizing oil shipments by between CAD 8.7 billion and CAD 18.8 billion, or up to CAD 1,255 per household, over the life of the project.  
• A new pipeline would have to charge significantly higher tolls than existing pipelines to cover the high construction costs. Higher tolls on a new pipeline would result in lower returns to the oil industry and lower royalty payments to government relative to using lower cost expansion options on existing pipelines.
• A new pipeline to British Columbia’s North Coast would require lifting the current oil tanker moratorium, posing a significant risk of a devastating oil tanker spill.
• All major project proposals should be subject to a cost-benefit study and should not proceed if they do not create a net benefit to Canada. A new oil pipeline is unlikely to meet this standard and is inconsistent with Canada’s emission obligations.
• Pipelines and fossil fuel projects should not receive public subsidies. The subsidies currently being provided to oil companies using the TMX should be removed by applying a cost-recovery levy on oil shipments to cover the full construction costs.

Investing in large-scale nation-building projects has become the priority of the Carney government as it seeks to grow Canada’s economy and diversify exports away from the United States.

While this strategy to stimulate investment has merit in the current economic environment, there is a significant risk of building uneconomic projects that could leave Canadians worse off, especially if the projects are subsidized by taxpayers and expedited by bypassing normal regulatory reviews through the new One Canadian Economy Act.

One project that exemplifies these risks is Alberta’s proposal for a new oil pipeline, which was recently agreed to in a Memorandum of Understanding (MOU) signed between Ottawa and Alberta.

The MOU contains a number of provisions, including commitments not to implement an emissions cap on the oil and gas sector, to suspend the clean electricity regulations, to maintain an industrial carbon pricing system, to implement a carbon capture project, and to streamline the approval process. The effect of these measures requires further details that the parties are still working out.

But the most controversial initiative contained in the MOU is support for a new oil pipeline to the BC Coast. Alberta supports the pipeline as a means of growing the energy sector and accessing Asian markets. BC and Coastal First Nations oppose it on the grounds that it entails significant environmental risks associated with oil tanker spills, it will increase emissions contributing to climate change, and that there are lower-cost, lower-risk options for shipping oil to markets via existing pipelines.

To better understand these risks of the proposed pipeline, it is helpful to examine the most recent experience building an oil pipeline in Canada: the construction of the Trans Mountain Expansion Project (TMX).

 

Trans Mountain Pipeline Expansion

TMX was proposed by the American owner Kinder Morgan (KM) in its application to the National Energy Board (NEB) in 2013. The project tripled shipping capacity on its existing pipeline that brings oil from Alberta to British Columbia and Washington State.  

After receiving regulatory approval in 2016 to build TMX, KM announced in 2018 that it was suspending construction due to increasing concerns about the project’s economic viability. The Government of Canada commenced discussions with KM about the future of TMX and, in May 2018, announced it would purchase the pipeline.  

Following the government purchase, the approval of TMX was subject to an additional NEB review to address omissions in the first review and was reapproved in 2019. Construction resumed with completion in May 2024 at a cost of CAD 34.2 billion, more than six times he original estimate.  

The Trans Mountain Corporation (TMC) reports that the expanded pipeline is making money for the government, with a net income before tax of CAD 409 million in the first half of 2025. TMC’s income statement is misleading, however, because it does not include the full interest costs to the government on its investment in TMX. TMC’s 2025 financial statements show that only CAD 12 billion of the CAD 35 billion current value of the government’s investment in the pipeline is recorded as debt incurring interest charges on TMC’s books. The remaining CAD 23 billion was converted to equity to remove the interest charges from TMC’s expenses and transfer the debt to a separate entity, TMP Finance, that pays interest to the Export Development Canada. Interest is being paid on the loan but because it is not being paid by TMC it is not shown as an expense on TMC’s financial statements, making TMC appear profitable. If the interest charges on this CAD 23 billion debt are included (assuming a conservative 5% interest rate) the government incurred an estimated before-tax loss from TMC of CAD 166 million for the first 6 months of 2025, not a profit.  

The result is that only CAD 15.4 billion of the CAD 34.2 billion cost of the pipeline is covered by tolls. If toll rates are not increased, Canadian taxpayers could lose between CAD 8.7 and CAD 18.8 billion or CAD 581 to CAD 1,255 per household subsidizing the transportation costs of the oil industry.  

While the financial cost to taxpayers of TMX is high, the total net costs to Canada are even higher when considering environmental costs such as GHG emissions and potential pipeline and oil tanker spill damages as well as other economic costs such as the impact on other pipeline companies. An independent, comprehensive cost-benefit analysis estimates that the net cost of TMX to Canada, when all costs are included, ranges between CAD 11.3 billion and CAD 30.1 billion — even when the potential impact of TMX increasing the price of Canadian oil exports is included.  

Lessons From the TMX for Building Canada Smarter

The lessons from the TMX experience are clear. First, governments should not build or financially support fossil fuel projects such as pipelines that the private sector considers too risky. If projects are viable, they can be built by the private sector without government subsidies. Providing subsidies will simply increase the probability of building uneconomic projects that weaken the economy and damage the environment.

In cases such as the TMX, where the government provided financial support, the terms of the assistance should ensure that the government’s contribution is fully repaid. For the TMX, this could be done either by increasing toll rates or by applying a special levy on transportation costs to fully recover the government’s investment so that taxpayers do not incur a loss.

Second, proposals should be evaluated by the government based on a comprehensive, public cost-benefit assessment of the project to determine whether it is in the public interest.

In the case of the TMX, the NEB review  did not include a comprehensive cost-benefit analysis. Instead, the review  relied on a simplified qualitative (as opposed to quantitative) assessment of the costs and benefits. The NEB review also focused only on the TMX pipeline proposal without assessing the merits of the TMX relative to alternative pipeline options or considering whether oil production would be sufficient to justify building the TMX.

A comprehensive cost-benefit evaluation would have taken all the relevant factors into account to determine whether the TMX was in the public interest. It would have assessed the significant environmental risks from increased emissions and potential pipeline and oil tanker spills. It would also have fully assessed the economic risks by conducting a supply-and-demand analysis of pipeline capacity and examining the shipping contracts to ensure that tolls would be high enough to cover construction costs. Finally, it would have evaluated alternative, lower-cost options for existing pipelines and alternative configurations for the TMX, such as expanding pipeline capacity to Washington State refineries, which would have reduced environmental risks by avoiding marine oil tanker traffic and increased returns for oil companies by reducing the shipping distance to markets.

By conducting this type of cost-benefit assessment, the government would have been able to more fully identify the economic and environmental risks of the TMX and could have better assessed the options for either addressing them or shelving the project.

A third lesson from the TMX is that major projects consistently experience significant cost overruns. The TMX was originally forecast to cost CAD 5.4 billion and ended up costing just over CAD 34.2 billion. Unfortunately, cost overruns are the norm in major projects. A multi-jurisdictional review of 633 energy projects, for example, found that three quarters of the projects took longer to complete and exceeded their cost estimates by an average of 79%.

The cause of cost overruns is an “optimism bias” that leads project proponents to consistently underestimate costs and overestimate benefits. To address optimism bias, project proponents should use a tool called “reference class forecasting,” which consists of reviewing the costs and benefits of completed projects and adjusting the budget forecasts accordingly for the project under review. In the case of the TMX, the construction cost forecast would have been increased by the average cost overrun experienced in similar projects.

While the overruns for the TMX exceeded the reference class overrun averages and would still have resulted in an underestimate of project costs, the analysis would have provided a more accurate estimate than those the government relied on.

Finally, all project reviews should include extensive engagement with the public and with Indigenous Peoples consistent with the principles of Free, Prior, and Informed Consent.
 

Why Canada Does Not Need a New Pipeline

While a comprehensive cost-benefit assessment of Alberta’s proposed pipeline cannot be completed without more details on the proposed project, current data suggests that it will impose a significant net cost on Alberta and Canada. Forecast growth in oil demand is insufficient to justify a major new pipeline, and upgrades to existing pipelines can meet Alberta’s needs at a much lower cost than building a new one.

Currently, the oil market is experiencing a large surplus, with supply forecast to exceed demand by 4 million bpd in 2026. Forecast production for 2025 of 106 mb/d exceeds the International Energy Agency’s most optimistic demand forecast to 2035 of 105 mb/d, indicating very limited potential for increasing production beyond current levels over the next decade.

Longer-term forecasts point to slower growth or a decline in oil demand, depending on future climate policies. Even in the unlikely scenario where there are no additional climate policy initiatives and the adoption of renewables and electric vehicles slows from their current trajectory, the International Energy Agency shows  that oil demand will continue to grow to 2050, but at a much slower rate than in previous decades. With continued implementation of stated policies, effectively continuing the current trajectory, the world oil demand is expected to peak by 2030 and then decline by 3% to 2050. If global climate change is limited to 1.5°C, demand is expected to decline by about three quarters by 2050.

Private oil companies such as BP forecast a decline in oil demand of between 11% and 68% by 2050, while Chinese demand, which is the target market for a new pipeline, is forecast to peak in about 2030 and then decline due to the rapid electrification of its transportation sector.

With world oil demand growth slowing down and then potentially declining, the rationale for building a new pipeline is weak. The Canada Energy Regulator’s most recent forecast, for example, concludes that no new pipelines are required to accommodate forecast growth in Western Canadian oil production.

But even if oil production grows faster than the Canada Energy Regulator forecasts and more pipeline capacity is required, an additional 1.1 million barrels of capacity can be provided by upgrading existing pipelines at much lower cost and lower risk than a new greenfield project.

Building a new oil pipeline to BC’s North Coast would also pose a significant environmental risk by requiring the removal of the current oil tanker moratorium, which was put in place to protect the marine environment from oil tanker spills. Research on the previous Enbridge Northern Gateway Pipeline proposed for Northern BC showed that there would be a 64% chance of a major oil tanker spill of 10,000 barrels or more, even with improved safety standards, over the first 30 years of operation. The impacts of a tanker spill would be devastating to the region’s environment and economy. Other research has documented that the new pipeline would increase greenhouse gas emissions, even if the proposed project is accompanied by carbon capture.

Given these market fundamentals, there is no rationale for building a new oil pipeline and, if one were built, the tolls required to pay for it would be significantly higher than those of existing pipelines, reducing returns to the oil industry and the Alberta government while putting the environment at risk. This is why no private pipeline company has come forward with a proposed new project and is unlikely to do so without government subsidies.

While some may have a more optimistic view of future oil demand and the viability of new energy projects in Canada, the TMX experience provides valuable lessons for building economic and environmentally responsible projects.

First, governments should not build or subsidize fossil fuel projects that the private sector considers too risky. Rapid deployment and cost reductions in electric vehicles, renewables, and battery technologies mean that the economic risks of oil and gas projects will only increase with time.

Second, proposed projects should be subject to a comprehensive public cost-benefit analysis to determine whether they are in the national interest. An economic assessment should include reference class forecasting to counter the optimism bias that leads to unrealistic cost and timeline estimates.

Finally, all project reviews should include extensive public engagement and consultation with Indigenous Peoples consistent with the principles of Free, Prior, and Informed Consent. These tools will help ensure that the projects built will strengthen the economy and not waste resources on poor investments that would make us all worse off.