How do you destroy Canadian oil/gas industry? How do you destroy Canadian oil/gas industry? Get Trudeau to help. The federal government’s budget watchdog issued a report saying the Trans Mountain Expansion project, a twinning of a pipeline first built in 1953 that brings oil from Edmonton to Burnaby, was no longer commercially viable. The cost has jumped from $7.4 billion in 2017 to $21.4 billion and rising.
An economic slam dunk of an idea — moving Canada’s enormous oil reserves to energy-hungry Asian markets, instead of accepting lower prices in the shale-flooded American market — TMX is still deemed viable in downtown Calgary. Producers in Alberta have lined up for contracts, and at a $100/barrel world price, the business case remains strong.
But detractors of the project jumped on the news, arguing that TMX is now destined to be a money loser for the country. The irony, of course, is that it is delays sparked by those detractors that largely caused the costs to balloon in the first place.
It wasn’t always this way. The first phase of the Trans Mountain twinning was a 158-kilometre stretch completed in 2008. It was finished on time and on budget despite passing through Jasper National Park. But the smooth ride did not last. Appeals, delays and political infighting led Kinder Morgan, the Texas-based owner of the project, to divest. With no private investors willing to insert themselves into the quagmire, the federal government purchased the assets for $4.5 billion in 2018, with the thought that it would take about another $3 billion to complete.
How did the cost of TMX triple since then? COVID, B.C. floods and wildfires did it no favours. But it was regulatory and permitting delays, environmental concessions, and the cost of capital, interest and labour to address all of those that have added the lion’s share. TMX has become the poster child of Canada’s broken regulatory approval system.
It is worth highlighting some of the impositions the construction project has faced.
Over 100 anthills, 150,000 amphibians and thousands of bird nests have had to be moved or protected at a cost of over $50 million. “Crossings” for snakes, snails and frogs have been established. Rare mosses have been hand-picked and relocated. TMX is the site of the largest archeological project in Canadian history, with hundreds of archeologists conducting tens of thousands of digs, at a cost likely over $100 million.
On some sites, there are more monitors than construction workers, who understandably feel policed. The City of Burnaby, which officially opposes the project, has delayed minor traffic and construction permits, further wasting workers’ time.
But it is a bird’s nest that best highlights the disdain shown for the project. In April 2021, an Anna’s hummingbird nest was found in a tree that was felled in TMX’s clearing zone. It was reported by members of the Community Nest Finding Network, who had been watching the site. The Anna’s hummingbird conservation status is of “least concern” and its breeding range has actually expanded in recent decades. But Environment and Climate Change Canada decided to shut down construction for months, concerned that other nests could be similarly damaged. It is difficult to gauge the exact cost of this shutdown, but credible assessments have pegged it north of $100 million.
One can love migratory birds and still concede that there are more constructive ways to protect nesting habitats. But there is no concern with balancing cost versus benefit when it comes to TMX. This has not gone unnoticed in the investment community. Who would want to put their money into a resource project in Canada when timelines can double and costs can triple, even following approval?
There are people who dislike pipelines so much that they feel no empathy for the impositions TMX workers have faced, or regret the billions of dollars the federal government has absorbed in overruns. They care little that the long-term, own-source revenues TMX will provide to its eventual owners, most likely an Indigenous consortium, have been delayed, or that its completion would help Canada replace Russian exports of oil to our allies in Asia. They are not concerned with the estimated $1.5 billion a year in economic losses Canada is suffering by not being able to get its product to market.
But even the staunchest pipeline opponent should still care about TMX’s troubles, because it exemplifies the Orwellian nature of Canada’s regulatory system. This governs not just pipelines, but transmission lines, railroads, hydroelectric dams, nuclear power plants, mines, wind farms and more. We will need $2 trillion in new infrastructure built to meet our climate goals over the next 30 years. It will not take place with the regulatory system we have today.