To build or not to build: that’s the question facing Canadian politicians, oil and gas experts and industry leaders when it comes to domestic pipelines, as U.S. President Donald Trump continues to tout plans for American energy independence.
In a wide-ranging virtual address to the World Economic Forum in Davos, Switzerland, on Thursday, Trump made an array of comments, including repeating his statement of not needing Canadian cars, lumber, or oil and gas amid the threat to impose 25 per cent across-the-board tariffs on Canadian imports.
His statements in recent weeks have fuelled conversations about where else Alberta could send its oil.
“We have to wake up to the reality that there’s been a major shift south of our border and at the same time, we have to look at diversifying our our market,” said Sonya Savage, who was Alberta’s energy minister under Jason Kenney.
“I think if you look back at the last 10 years, it’s been an extremely difficult time in the history of our country,” she said of cancelled pipeline projects such as Northern Gateway to the west, Energy East to the Maritimes, and the Keystone XL expansion to the U.S. Gulf Coast.
“I think it took this threat of tariffs coming out of the U.S. to expose how vulnerable we are in Canada,” said Savage, who before being elected was a oil and gas executive that, among other things, worked on the Northern Gateway pipeline project.
Savage argues the project moving Alberta oil to Kitimat on B.C.’s north coast would have opened up opportunity beyond the United States.
“I think the the veto of Northern Gateway in 2016 was probably the biggest, if not one of the biggest, mistakes this country has ever made. That project would have would have moved 525,000 barrels of oil to the northwest coast of B.C., which is close to Asian markets,” Savage said.
“It had been approved by the National Energy Board after a long regulatory process and being deemed to be in the national interest. And yet it was vetoed by the Trudeau government.
“I would love to see a project like Northern Gateway put back on the table.”
Premier Danielle Smith agrees and believes the project might deserve another chance.
The president of the Union of BC Indian Chiefs, Grand Chief Stewart Phillip, said Tuesday that while he “really fought against” Northern Gateway’s construction before it was scuttled in 2016, that was a “different time” and Canada now has “no choice” but to reconsider.
Phillip’s comments came after Smith suggested on social media that construction of the pipeline needs to “immediately start” to diversify the country’s export markets, in light of Trump’s threatened tariffs on Canadian exports.
But one day later, Phillip took back his comments, saying, “I do not support resuscitating dead projects, which would have been an absolute disaster for our lands and waters.”
The challenging economics of building pipelines
McGill University professor Amy Janzwood is an expert in the politics of energy and the environment, and has studied the Northern Gateway pipeline at length.
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“Given the changing economic context and market dynamics, it does not make any more sense to try to revive the project,” she said on Thursday.
“You do not hear these proposals from major pipeline companies — these are politicians that are hoping to really use this as political discourse to talk about what they hope is the future for Alberta’s energy.
“But unfortunately, the sector is facing a number of challenges and the idea of building new pipelines is really going to be met with the both commercial, economic and political and regulatory challenges.”
The Northern Gateway pipeline was initially approved by the federal government in 2014 but cancelled two years later after a legal challenge.
“Since then, the economics and the commercial landscape has changed dramatically,” Janzwood said.
Canada’s major energy and pipeline companies are not interested in building new pipelines due to commercial and and regulatory challenges, she said.
“The number of hurdles to to cross when building massive new pipeline infrastructure like this is quite significant,” she explained, citing the regulatory process, environmental approvals, land acquisition and public support.
“There are a whole host of challenges to building new energy infrastructure.”
About 97 per cent of Canada’s oil is shipped south of the border, Janzwood explained, making up about 60 per cent of U.S. crude oil imports. That means nearly a quarter of the oil America consumes every day comes from north of the border.
However, she said Canada can’t open up taps that don’t exist.
“The promise of doubling oil production and increasing exports by building pipelines is really just wishful thinking at this point, given current market dynamics and energy infrastructure, the infrastructure constraints alone.
“You can’t wave a magic wand to double production, nor can you wave a magic wand to build new pipelines.”
Enbridge, the Alberta-based pipeline and energy company behind the now-dead Northern Gateway, told Global News on Thursday it has no plans to revive it.
“We currently have no plans to develop Northern Gateway. Our current effort is focused on leveraging our pipeline in the ground and our existing rights of way. There’s lots of capacity there that is efficient and less disruptive to communities and the environment,” Enbridge said in a statement.
So where does Alberta go from here?
In a province whose prosperity for the better part of a century has been tied directly to the oil and gas industry, Janzwood said it’s not an easy answer.
“I think it’s a huge, important conversation and one that has been very politically difficult to broach in Alberta for a long time.”
She said in the short term, governments have to focus on the current uncertainty, whether it be retaliatory tariffs or increased taxes on our energy exports.
In the long term, though, she said Alberta needs to take a hard look at how the world is changing when it comes to energy consumption.
“The inevitable decline and uncertainty and risk with oil markets is something that, unfortunately, the Alberta government has not been willing to take head-on. This is a significant challenge.”
Janzwood said oil production could peak in Canada as early as 2026.
“So as the rest of the world is turning towards cleaner energy sources, it’s really important to be able to have these conversations about what diversification looks like in the Alberta context.”
Trump’s contradictory statements: ‘Saying things based on his mood’
On Thursday, Trump also pushed for the OPEC+ alliance of oil exporting countries to bring down the cost of oil — which experts said conflicts with the Republican leader’s own plans to make America energy-dominant.
The president’s speech came on his third full day back in office. Trump signed a stack of executive actions this week, rapidly charting a new path forward for the United States.
He campaigned on U.S. energy dominance and signed an executive order upon his return to the White House declaring an energy “emergency” as part of his plan to reduce regulatory hurdles. Trump has said it will allow the country to “drill, baby, drill.”
But industry experts said his comments Thursday contradict his vow to increase oil production in the U.S. while also cutting inflation for American consumers.
“The U.S. energy dominance agenda is mutually contradictory with ‘OPEC lower your oil prices,’” said Heather Exner-Pirot, an adviser to the Business Council of Canada.
If the members of the OPEC+ alliance decide to increase production, that would lower prices, she said. Lower prices would displace American supply, which is much costlier to produce.
American producers are now close to breaking even with oil at $70 per barrel. They would want prices to go up if they are to increase drilling.
“There is no coherency or consistency in what he’s saying on oil markets,” said Exner-Pirot, who is also director of energy, natural resources and environment at the Macdonald-Laurier Institute in Ottawa.
Exner-Pirot said she has a theory about the inspiration for Trump’s OPEC comments. She said American oil producers may have warned the president that they can’t ramp up production as he’s promised.
Exner-Pirot said she suspects that Trump is “saying things based on his mood in the past 24 hours.”
Asked to react to Trump’s claim that the U.S. doesn’t need Canadian oil, Alberta Premier Danielle Smith’s press secretary Sam Blackett said the premier’s message “has not changed.”
“A U.S. tariff will hurt American and Canadian consumers, and we should be focused on developing our trade relationship through diplomacy, not threats. Not only should we be focused on outlining the benefits of trade between Canada and the U.S., but Canada must focus on accelerating its two per cent GDP NATO commitment and strengthening our southern border,” Blackett said on Thursday.
“In a negotiation, both sides will say all kinds of things and use different tactics. It’s important when this happens to remain calm and diplomatic while continuing to carry out Alberta’s and Canada’s strategy. The premier will continue to do so.”
Carlo Dade, director of trade and trade infrastructure at the Canada West Foundation, said that if oil prices drop as Trump has requested, it could cut revenue in several Canadian provinces.
Dade agreed that Trump’s words and goals are contradictory, adding it will pose an ongoing challenge for Canadian officials trying to navigate the bilateral relationship amid tariff threats and a pending review of the Canada-U.S.-Mexico Agreement.
“How do you make policy decisions when you’re getting tweets or policy announcements that contradict each other? This is the dilemma going forward and this is why it’s such a hard job dealing with Trump,” Dade said.
“And I don’t think we’ve really wrapped our minds around it.”
— with files from Lisa Johnson and Kelly Geraldine Malone, The Canadian Press along with the The Associated Press