Emissions cap could hurt Trans Mountain pipeline's sale price: Calgary Chamber

Amanda Stephenson, The Canadian Press

The Calgary Chamber of Commerce is warning Ottawa that its proposed cap on emissions from the oil and gas sector could compromise the valuation and sale of the Trans Mountain pipeline.

The business group made the argument Wednesday in an open letter urging the federal government to reconsider proceeding with the promised cap, which the government has said it intends to finalize in mid-2024.

"If there is a risk that (Trans Mountain) might not be able to rely on a steady and predictable flow of oil from the oil sands production, it will result in a lower valuation by investors and a lower price received when the asset is sold," states the letter, which was signed by Calgary Chamber of Commerce president Deborah Yedlin as well as a number of other Alberta-based business groups and oil-and-gas sector leaders.

The federal government published its regulatory framework for a proposed cap on emissions from the oil and gas sector in December last year and the industry has been fighting tooth-and-nail against it.

The government has said that under its proposed plan, the oil and gas industry will have to cut emissions by more than one-third by 2030 or buy offset credits.

It has said the cap is meant to cap pollution, not production, but the industry has warned the cap will have "unintended consequences" — scaring away investment and potentially causing companies to curtail their output.

"Rather than support investment, the emissions cap would create uncertainty, unfavourable economic conditions and a punitive regulatory environment, all of which would strand investment and innovation in decarbonization projects," the Calgary Chamber said Wednesday.

The Chamber added the uncertainty around the proposed emissions cap is coming at the same time the federal government has embarked on the first phase of what is expected to be a two-part divestment process for the Trans Mountain pipeline.

The pipeline, which is owned by the federal government, is Canada's only oil export pipeline to the West coast. Its expansion, which is more than 98 per cent complete, has been underway for more than four years and has so far cost at least $34 billion.

The sale of the Trans Mountain pipeline will be one of the largest commercial transactions in Canadian history. The government is already in talks with Indigenous groups along the pipeline's route who may be interested in purchasing a stake in the asset, and is expected to later consider commercial offers for the remaining stake.

But the pipeline expansion's ballooning construction costs already pose a problem for the government, which bought Trans Mountain for $4.5 billion. Observers have pointed out the government will likely need to sell it at a loss, as prospective buyers will only offer a price that can be supported by the pipeline tolls — the fees oil shippers pay to move oil on the pipeline.

As for its proposed emissions cap, the federal government has said the limit it ultimately legislates will take into account what is technically achievable, as well as the forecasted global demand for oil and gas. 

Data from the Canadian Energy Regulator shows Alberta's greenhouse gas emissions increased 19 per cent between 2005 and 2020, the only Canadian jurisdiction where emissions have grown during that time. 

More than half of Alberta's emissions come from oil and gas production.

This report by The Canadian Press was first published March 27, 2024.

Canadian oil flows to Los Angeles as Trans Mountain start nears

Robert Tuttle, Bloomberg News

Canadian crude shipments to Los Angeles are surging, a possible preview of how an expanded pipeline that’s nearing startup may redraw flows along the Pacific Coast.

Three tankers carrying a total of 1.74 million barrels have sailed from Vancouver to the biggest U.S. West Coast city in March, the most in at least four years, according Vortexa tanker data. At least two of the shipments of heavy Cold Lake crude from the oil sands went to Marathon Petroleum Corp., which operates a refinery in the city. The U.S. refiner declined to comment in an email. 

Marathon’s ramp-up of Canadian crude imports could be a sign of things to come once the Trans Mountain pipeline’s expansion — which will nearly triple the capacity of the line running from Alberta to the Pacific Coast to 890,000 barrels a day — starts operating in the second quarter. The U.S. refiner is a contract shipper on the new pipeline.

While the first two cargoes off the expanded system — also known as TMX — are expected to go to China, some analysts argue that U.S. West Coast refineries may become the preferred market due to the proximity and the relatively small Aframax tankers that are able to access Vancouver. 

Canadian crude may displace oil from Iraq, Saudi Arabia or Latin America, Erik Broekhuizen, tanker researcher for Poten & Partners, said in a note last Friday.

“The short shipping distance from Vancouver gives the TMX crude competitive transportation costs,” he said.