Build Energy East for security, build clean energy for prosperity
A new national pipeline may be necessary for our energy security, but we need to offset the cost with investments that will actually pay off.
I am biased... I should say that up front. I strongly believe that we need to move away from fossil fuels for the sake of the planet and future generations. I also believe that Canada, as a historically high CO2 emitting country and one that still has some of the highest per capita emissions in the world, has a moral obligation to do our part in this global transition. So the idea of building new oil and gas infrastructure is not something I am inclined to support.
When I read the International Energy Agency's projections that say we don't need new investment in fossil fuel projects and that we would be better off, both economically and environmentally, spending the money on decarbonisation initiatives, I am predisposed to agree.
I'm on record as saying that I don't think new export-oriented oil infrastructure makes sense for Canada in 2025, given that it requires projecting global oil demand decades into the future at levels that would be catastrophic. I think such investments are essentially betting on the green transition failing spectacularly and the world burning to a crisp.
So when I say that Canada should move quickly to build the Energy East pipeline, I do so with serious reservations. I think (and sincerely hope) that building it will not pay off in economic terms.
But it may be necessary in terms of security. If we can no longer rely on the US as a partner in the continental supply of energy, we have no choice but to ensure our energy security on a national basis. That means connecting our abundant energy supplies in the West to our largest energy markets in the East without crossing a border. That means building Energy East.
And if we are going to build it, we need to build it fast. Every year we lose is another in which our energy security is threatened and we miss out on the benefits of still (sadly) abundant global demand for oil. The clock is ticking. As the opening of Trans Mountain last year showed, the economic benefits of having pipelines to tidewater are real. But they will not last forever.
We also need to move quickly because building this thing is going to be really hard, and waiting won't make it any easier. Energy East, as it was conceived before it was abandoned in 2017, called for 1,500 kilometres of new pipeline to be built, in addition to repurposing 3,000 kilometres of existing gas pipeline. That's more new pipe than the Northern Gateway project would require, or Trans Mountain needed (a project that had the added benefit of being an extension of an existing pipeline).
And on top of building 400 kilometres more pipe than those other projects, we have to procure the 3,000 kilometres of existing pipe from a company that no longer has any interest in the project and that is currently operating the pipeline at profitable capacity (unlike a decade ago when it wanted to build Energy East). A situation that gives TC Energy the kind of leverage in any negotiation that would make Donald Trump wet his pants.
What's more, those 4,500 kilometres of pipe are not just a physical and financial challenge, they're also a jurisdictional one. By one count, the project would require the cooperation of the federal government, six provinces, 75 municipalities and 50 First Nations. The political winds may be at the project's back at the moment, but that is unlikely to last given the multitude of interests involved, and any one of those jurisdictions could potentially delay construction or operation through legal challenges. And this is not an idle threat, given that such challenges caused significant delays to Trans Mountain, and a court victory was one catalyst for the demise of Northern Gateway.
It's also worth remembering the time and cost projections for this project a decade ago. In 2013, TransCanada announced it was moving forward with the $12-billion pipeline based on "firm, long-term contracts" it had in place to transport 900,000 barrels of its estimated 1.1-million-barrel capacity. At the time, the company expected service to begin in late 2017. By May 2016, in filings with the National Energy Board, TransCanada was estimating the cost of the project at more than $19 billion, with a start date in the fourth quarter of 2021. And that was before the NEB decided to start the regulatory process all over again after its first panel recused itself due to conflict of interest concerns. By the time the project was abandoned in 2017 (less than a year from its original projected start date), it hadn't even received regulatory approval, let alone started construction.
And keep in mind that these are the company's estimates, which should be considered best-case scenarios, and that the 2013 announcement represented years of preliminary work. Trans Mountain was first publicly proposed in 2012 and didn't come online until last year, with the federal government buying the project for $4.5 billion in 2018, only to spend $34 billion on it by the time it was finished.
Given that whoever forms government after the spring election will be starting from scratch, with no apparent private sector interest, an optimistic estimate of when the thing will actually be up and running and how much it will cost us should be around 10 years and twice the present value of TransCanada's last cost projection ($50 billion).
And that's optimistic. It's just as likely that the whole thing will become an expensive boondoggle and political albatross that will be abandoned without a shovel meeting dirt.
Any government that tries to build the pipeline will almost immediately run into the competing priorities of expediency and fiscal responsibility. The quickest way to get the thing built will be for the federal government to take it on whole, as it did with Trans Mountain. But it would be fiscally negligent to do so without first seeking the support of private investors (think institutional investors like pension funds), or persuading the Albertan government to pick up a big chunk of the cost (which should definitely happen). Successfully negotiating deals with either group will take time. And that's before negotiating with TC Energy to buy the existing pipeline, where a good deal and a quick deal are unlikely to intersect.
All of these challenges are why you can already see political interest in the idea cooling, most notably from the Minister of Natural Resources, who has walked back some of his recent comments in support of new oil infrastructure.
So, if we are going to do it, we should do it with the understanding that it is really about security and will be a costly project that circumstances have forced on us; that the economic benefits are unlikely to outweigh the upfront costs.
That is why, if we do it, we need to couple our investment with a much larger investment in the kind of infrastructure that is likely to pay dividends. And that is clean energy. Unlike oil, where even optimistic (read: climate-disastrous) estimates see global demand rising gradually over the next 40 to 50 years, demand for electricity is expected to soar. According to the IEA, demand for electricity has grown twice as fast as overall energy demand over the past decade. This trend is expected to accelerate, with the equivalent of Japan's current electricity demand being added to the global total every year, thanks to the increasing electrification of sectors such as transport and building heating, as well as the growth of energy-intensive uses such as air conditioning and AI data centres.
The age of electricity is here, and it will be built on clean energy. All of the growth in electricity demand through 2027 is expected to be met by increased supply from renewables and nuclear. We are no longer talking about decarbonisation and electrification as something we need to do in the future. It's happening now, and if we don't start investing in clean energy at the scale required, Canada risks missing a generational opportunity.
And just because the US is ignoring this reality doesn't mean the rest of the world is being so short-sighted. While everyone is understandably focused on China, countries from the EU to Brazil see the development of affordable clean energy as critical to their future economic prosperity and to attracting investment for the next generation of industrial production.
With enviable clean electricity capacity, a skilled workforce, internationally renowned R&D centres and abundant natural resources, Canada has the assets to compete in this race and lay the foundation for the next half century or more of economic prosperity. But to do so, we need to focus less on the diminishing benefits of our oil and gas and more on the emerging opportunities of our other natural advantages. Following the advice of groups like the Canada Electricity Advisory Council would be a good start.
Yes, the unprecedented threat we face from the United States means we may be forced to build an east-west oil pipeline. But the rationale for doing so is security based, not economic, and if we are to prosper as a country, we must leverage the position in which we currently find ourselves to also make bold investments in sectors where there are generational opportunities.