After months of Premier Danielle Smith vowing to find a company willing to develop a new oil export pipeline, the Alberta government itself is taking the plunge.
As a result, Smith is the third Alberta premier in a row to commit taxpayer money in an attempt to help the industry export more oil out of the province.
The move is already drawing both praise and concern from the oilpatch, which wants a new pipeline but is cautious about government intervention.
There are also many challenges ahead for such a proposal to proceed such as existing federal policies, the regulatory process, and whether enough oil producers are willing to make long-term commitments to use a new pipeline.
On Wednesday, Smith said the provincial government will propose its own project, with help from an advisory group that includes the pipeline companies South Bow, Enbridge and Trans Mountain.
So far, Smith is committing $14 million to create and submit the proposal to the federal Major Projects Office in the spring, which would include identifying a possible route to the West Coast and cost estimates.
At this point, the provincial government says it’s not planning to build or operate a new pipeline itself.
“It’s bold, it’s aggressive and it’s what’s needed to be done in order to get this country moving forward economically,” said Robert Cooper, with the institutional sales and trading team at Calgary-based investment firm Acumen Capital Partners.
Pipeline companies aren’t willing, says Cooper, to risk their investment dollars to pursue a new project because of harmful federal policies over the last decade, such as the cap on oilpatch emissions and the ban on tanker traffic for parts of the British Columbia coast.
“I’m sure there are proponents that would do it, but the federal government has effectively made that impossible,” he said.
Smith should be praised for being a champion of the industry, says Rafi Tahmazian, a retired energy portfolio manager with Canoe Financial. Still, he has reservations about direct government involvement in the sector, similar to the federal government’s purchase of the Trans Mountain expansion in 2018 to ensure the pipeline would be built.
“If the province has to be involved, that’d be a shame. It’d be too bad,” said Tahmazian, adding the government has “no business” building or operating pipelines.
Pipes filling up
Currently, there is space to move more oil on export pipelines following the completion of the Trans Mountain expansion last year, but those pipes will reach full capacity by 2030, according to several forecasts as oil production continues to rise in Alberta.
“We’re all trying to figure out how the hell we manage capacity for when Trans Mountain is full,” Brian Schmidt, chief executive of Tamarack Valley Energy, a mid-sized oil producer, told CBC News in advance of Wednesday’s announcement.
Prime Minister Mark Carney has said he wants to see a new oil export pipeline developed, but so far this year, none of the major pipeline companies have announced such a project. The Major Projects Office is designed to help streamline the regulatory process.
Companies are hesitant to pursue a new export pipeline considering the cost, complexity and the history of failed and troubled projects over the last few decades.
Developing and constructing an export pipeline would likely require tens of billions of dollars and possibly a decade of time to pursue.
Smith’s pipeline proposal will face those same hurdles as “it’s hard to really move a pipeline forward,” said Deborah Yedlin, president of the Calgary Chamber of Commerce.
“Private capital is not going to get risked until government de-risks these kinds of projects,” she said.
Past Alberta investments
In 2018, then-Premier Rachel Notley announced plans to buy thousands of railcars to move the province’s oil to market, eventually inking contracts with railways to transport the rail cars it leased.
Two years later, then-Premier Jason Kenney cancelled the contracts for $1.3 billion, but said the amount was lowered further by $500 million.
Kenney had other plans.
That same year, the Alberta government invested about $1.5 billion as equity in the notorious Keystone XL pipeline, plus billions more in loan guarantees in order to get the pipeline moving. The pipeline was designed to export oil from Hardisty, Alta., to Nebraska.
That investment was squandered when the Biden administration in the U.S. cancelled the permit for the project on its first day in office.
The final cost to Albertans for Keystone XL will be about $1.3 billion, although the province is still trying to recoup the money.
Alberta Premier Danielle Smith makes an announcement on energy infrastructure.
Hurdles ahead
So far, Smith is only investing a fraction of that amount. However, the Alberta government may to increase its initial investment of $14 million, considering the complexity of developing a pipeline.
“It’s not enough to apply for regulatory approval. It’s not enough to do a detailed study,” said Steven Paget, an assistant professor at the University of Calgary’s Haskayne School of Business and a former pipeline analyst with Calgary-based investment bank FirstEnergy Capital.
“To get to the point of putting pipeline in the ground, even assuming you haven’t bought any equipment yet, you’re looking at hundreds of millions,” said Paget.
“It’s a good piece of strategy on her part,” said Dennis McConaghy, a former executive with TransCanada Corp — now known as TC Energy.
He says the announcement shows that Smith is committed to ensuring a new pipeline is developed and built. Still, what’s not clear is whether the large oil producers will support Smith’s proposal by signing long-term contracts to use this proposed pipeline.
“Can she assemble enough of them to give real, I would say, heft and credibility to this tactic,” he said.
There will be other challenges too, including opposing communities and political leaders.
The federal government should commit to other proposed projects that are actually shovel-ready, according to British Columbia Premier David Eby.
“Premier Smith continues to advance a project that is entirely taxpayer funded, has no private sector proponent, is not a real project, and is incredibly alarming to British Columbians,” he said Wednesday.
