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New SFU study shows Trans Mountain Pipeline viability in doubt with new climate policy

Published by , Editorial Assistant
World Pipelines,

Researchers at Simon Fraser University conclude that Canadians will lose an estimated CAN$11.9 billion from the Trans Mountain pipeline expansion.

The study released is the first comprehensive benefit cost analysis to assess the impacts of weaker oil markets, Canada’s new climate plan, and cancellation of the Keystone XL pipeline on the economic viability of the Trans Mountain pipeline expansion.

“The $11.9 billion loss to Canada is primarily due to a more than doubling of the Trans Mountain construction costs from the original CAN$5.4 billion to CAN$12.6 billion, combined with new climate policies just confirmed by the Supreme Court that will reduce the demand for oil,” said Professor Thomas Gunton, lead author of the study.

The study shows that stronger climate plans announced by Canada and other countries will reduce future demand for oil to the point where neither Keystone XL nor the Trans Mountain expansion is required.

The Supreme Court of Canada ensured implementation of Canada’s climate plan by upholding the constitutional validity of the federal carbon tax in its decision released on March 25th. The study also discounts the argument that Trans Mountain’s shipping contracts ensure its success.

“The Trans Mountain’s shipping contracts do not cover the construction cost overruns and the contracts are unlikely to be renewed when they expire due to weaker oil demand,” added Gunton.

The study cautioned that the failure to renew the shipping contracts when they expire in 15 to 20 years would jeopardise Trans Mountain’s longer-term financial viability.

Environmental costs associated with greenhouse gas emissions and the risk of oil spills are also major cost factors. The study estimates that the risk adjusted cost of a marine oil tanker spill is CAN$2.6 billion in environmental damage and clean-up costs.

The study tested different scenarios and found that the net loss to Canada could range from a low of CAN$3.2 billion to a high of CAN$18.5 billion. The study found no likely scenario in which the project would generate a net benefit to Canada.

The study concludes that Canada would be better off shelving the partially completed project and using the funds for more productive investments in renewable energy and other projects that would generate more long-term jobs in Alberta and BC than building a pipeline.

“Private sector companies such as BP and Shell are responding to declining demand by shifting investments from oil to green energy and the federal government should follow their lead,” said Gunton.

The study notes that energy giant BP forecasts that oil demand has peaked and will decline over the next several decades, while the International Energy Agency forecasts that oil demand will peak by 2030 and will have to decline by almost one-third by 2040 to meet Paris climate change objectives.

Private companies are cutting investment in oil with Teck canceling their CAN$20 billion Frontier oilsands project, and BP and Shell shifting investments from oil to green energy.


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World Pipelines’ March 2021 issue

The March 2021 issue of World Pipelines includes: a regional report on pipeline projects in Asia-Pacific; a summary of the latest and best construction equipment courtesy of the annual Heavy Equipment Review; a welding-focused Q&A; and technical articles on hot tapping, sustainable steel and decommissioning.

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