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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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Trudeau Declares Climate Emergency... Then Approves Major Oil Pipeline

Canada declared a national climate emergency on Monday. The next day, Prime Minister Justin Trudeau gave the greenlight to a massive oil sands pipeline.

The House of Commons, with strong support declared climate change a “real and urgent crisis.” A week before, Justin Trudeau proposed a ban on single-use plastics, which, if implemented, would be the latest in a growing number of bans on plastic that could put multibillion-dollar bets on plastics and petrochemicals by the oil industry at risk.

But Trudeau has never really stood in the way of Canada’s oil industry, despite years of platitudes about addressing climate change. That was clear on June 18, when he gave the approval to the Trans Mountain Expansion (not for the first time), a $4.5 billion twin pipeline that would run along an existing line from Alberta to the Pacific Coast in British Columbia.

The Trans Mountain Expansion is one of a few high-profile pipeline projects that have run into serious trouble. Trudeau first gave the greenlight in 2016, but the project ran aground amid legal challenges from First Nations and environmental groups. Last year, Kinder Morgan, the original owner of the project, headed for the exit, threatening the cancel the project altogether.

Desperate to keep it alive – and the clearest example imaginable of how much the Canadian government depends on the oil industry – Trudeau moved to nationalize the project in mid-2018, buying it off of Kinder Morgan’s hands. A year later, here we are, with Ottawa once again trying to push it forward.

“This isn’t an either/or proposition. It is in Canada’s national interest to protect our environment and invest in tomorrow, while making sure people can feed their families today,” Trudeau said on Tuesday. Despite Trudeau’s plea, many see it precisely as an either/or proposition. Faced with a binary choice, Trudeau could either anger the oil industry, or anger First Nations and environmental groups. He chose the former, even though that was mostly expected. Related: Oil Prices Jump On Hopes Of End To U.S.-China Trade War

“The approval comes as no surprise—the federal government owns the pipeline after all,” Scotiabank’s Rebekah Young wrote in a note. The Canadian government has vowed to build the project with a Crown corporation, then turn it over to private investors or some other company.

But the next step is unclear.

The approval from Trudeau’s government is a “positive step” for the project, but “project execution risk remains elevated,” Goldman Sachs wrote in a note to clients. The investment bank said that while the government plans to begin construction this year, Goldman is not factoring the project into its base-case forecasts, “given prior uncertainty in the outlook of this project.”

“Today’s decision is a positive development for Canada’s western oil sector, but it will have little impact on short term production,” Rebekah Young for Scotiabank said. The expansion will triple the pipeline system’s current capacity, taking it up to 890,000 bpd. “However, with the earliest completion date only by 2022,” Young added.

Still, commencing construction on the project would be seen as a breakthrough for Canada’s oil industry. “We would also anticipate that reaching surety in construction of TMX would provide oil sand producers confidence to commence re-investing in production growth, given the capital constrained budgets most companies are now operating under,” Goldman analysts said. “That said, we continue to see pipeline shortages until at least 2022…and during this period from now until then, see light-heavy differentials wider than pipeline economics.”

The inability to build a new pipeline had diminished production growth in Canada’s oil sands, and could limit output in the long run. The Canadian Association of Petroleum Producers (CAPP) just released its 2019 Crude Oil Forecast, and lowered its estimate for production growth to 1.44 percent annually through 2035, less than half its prior estimate from 2014. “Pipeline constraints, a lack of market diversity, and inefficient regulations are largely responsible for holding back Canada’s oil sector,” CAPP said.

Oil forecasts aside, the Trans Mountain Expansion will still run into stiff resistance from First Nations and environmental groups. “The Trudeau government does not have the right to put a pipeline through unceded Secwepemc land,” spokeswoman Kanahus Manuel said, according to Reuters. More lawsuits and protests are inevitable. Related: Norwegian Oil Pioneer: Big Oil’s Exodus Has Started

Moreover, the pipeline needs permits from British Columbia, where the government has opposed the project.

“[T]he project still faces significant political, regulatory, and judicial challenges, and ultimately we see a tremendous amount of execution risk up until the oil starts flowing,” Gavin MacFarlane, a VP with Moody’s Investors Service, said in comments circulated to reporters.

Meanwhile, the other pipeline that could potentially add takeaway capacity from Alberta – Enbridge’s Line 3 replacement – hit another snag. State agencies in Minnesota said on Tuesday that they would not issue permits until a revised environmental review was completed, following a recent court order that said the state had failed to adequately assess the potential impact of an oil spill. In short, permits could be delayed longer than expected.

If Line 3 fails to move forward for any reason, that increases the stakes and importance for the Trans Mountain Expansion as the only route left for new pipeline capacity. And vice versa.

By Nick Cunningham of Oilprice.com

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  • Ross Ephgrave on June 20 2019 said:
    Hmmmm... It's okay for certain nations to expand oil at a breat-taking pace... to hold other nations for ransom through trade threats, etc to prop up their own exportability.... Hmmm... but God forbid a nearby nation wants the right to export oil off-shore themselves.... to break out of this controlling rut... Or, maybe if Canadian oil wasn't forced down to negative margins by our customers we wouldn't need a pipeline...????? Oil is on the way out, why shouldn't Canada capitilize on it over the short term? As a nation Canada has that same right. If its done right, if its managed right it can work. And in 10-15 years when oil is no longer required to the degree it is now, maybe Canada will still be one of the players becacause we have quite a bit of it in the ground and we are deveoping technologies to get it out cheaper AND cleaner. Yes we can in the short term look to financial gain, and yes there is a climate crisis looming but shutting off Canada won't save the whole world. The other large oil producing nations should look in their own back yards first and maybe we should all humble ourselves and work together. Buddy you sound jealous. a pipeline is coming and with it more independence to Canada.
  • Rudolf Huber on June 23 2019 said:
    The real issue is not "angering the oil industry or angering environmental groups". Its rather that Trudeau has already mentally spent the revenues expected from such a project and he also mentally boasted his job creation achievements. Small entrepreneurs know the dynamic all too well. You had a great meeting with a prospective client, all looks good and you start mentally spending the money you are going to make. A new Mercedes gets ordered (not really), you imagine your life in a better condo or a house, you see yourself at expensive trips or recognized by friends and family. And then, it all threatens to go away. You are on the hook now. You can't say no. I have been there and it burned me so bad that a deal is a deal only when the money is in the bank today. No exceptions made. But Trudeau is a politician and politicians always need new shiny objects they can dangle in front of voters. Imagine he had to answer hard questions from Canadians that are struggling why he kills jobs. The environuts are easier to deal with - or so he thinks.

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