Courtesy TC Energy
Myth buster

Myth: TMX is not needed

A recent activist report claims this new Canadian pipeline unnecessary but ignores the central reason for constructing TMX.

The Trans Mountain Expansion (TMX) Project is not needed.

As construction of the TMX pipeline from the oil sands region in Alberta to marine shipping facilities in Burnaby, B.C. continues, a recent report by the Canadian Centre for Policy Alternatives (CCPA) determines the pipeline is unnecessary. Instead, the report claims: expansions and optimizations of existing pipelines will provide adequate ongoing access for current oil sands production to U.S. markets; a cap on greenhouse gas (GHG) emissions from the oil sands will effectively prevent production growth, therefore cancelling the need to additional pipeline capacity; construction costs have increased, making the project less financially viable; the 2020 pandemic has resulted in an unprecedented decline in demand for oil that is likely to continue.

The CCPA uses very selective and often outdated information to draw its conclusions, while ignoring the fundamental reason for expanding capacity on the Trans Mountain pipeline: market diversity.

TMX is absolutely necessary to allow oil sands production access to both U.S. and global markets, as opposed to the current situation where more than 90 per cent of Canada’s oil production goes to the U.S.

Global markets for heavy oil are expanding. In its latest World Energy Outlook, the International Energy Agency (IEA) projects the demand for oil could peak over the next decade in Europe and other Western countries, demand for oil will continue to grow in Asia, notably China and India. The IEA expects the global demand for heavy oil will grow over 20 per cent by 2040 and that Canada has the capability to supply 75 to 80 per cent of that demand.

In fact, shipments of Canadian oil to Asia — transported to the West Coast via the existing Trans Mountain pipeline — are already occurring. According to Statistics Canada, 7.5 million barrels of Alberta crude, with a total value of $539 million, shipped to markets in China, Thailand, South Korea, and Hong Kong in 2018 and that trend continued in 2019. Also, the majority of U.S. production is light shale oil but many refiners, including those in Asia, want heavy crude. Canada is one of the few countries capable of meeting that demand — making TMX a vital infrastructure link to those overseas markets.

TMX also allows expanded access to growing markets in California, which is not connected by pipeline to U.S. continental oil production; California is primarily supplied by in-state production, plus tanker shipments from Alaska. Both these sources are gradually diminishing, creating a market opportunity for Canadian oil. Further, some of California’s oil production has high emissions intensity — higher than oil sands production. A study by the California Environmental Protection Agency determined the Placerita oil field near Los Angeles, California, generates about twice the GHG emissions as Canada’s oil sands.

Shipments from Canada’s West Coast to Asia make sense given the demand for heavy oil from Asian refineries – and Canada’s leading environmental standards.

The IEA also recognized Canada as a leader in emissions reduction practices. In addition to continuous improvement on emissions reduction associated with oil sands production, Canada’s West Coast is closer to Asia-Pacific markets than any other North American source of heavy oil. The distance from the Port of Vera Cruz in Mexico to Shanghai, China is about 10,000 nautical miles, while the distance from Vancouver to Shanghai is about 5,100 nautical miles. Shorter shipping distances further reduce global greenhouse gas emissions from marine transport.

The project is also good for Canada’s economy, at a time when recovery from pandemic lockdown is essential. TMX is in the best interest of Canadians. Polls show a majority of Canadians support the project.

Earlier in 2020, the government reported the Trans Mountain pipeline earned net income of $29 million from operating revenues of $728 million in the 19 months since the government purchased the pipeline from Kinder Morgan Canada.

Finally, while the pandemic has decreased oil demand in the short term, most forecasts expect a demand recovery to near pre-COVID levels within a couple of years, driven by population growth and improving standards of living globally. Canada’s commitment to reducing the emissions intensity of oil sands production will allow it to meet this demand in a sustainable manner.

The bottom line:
The CCPA’s report misses the main objective of the TMX project: market diversification. The goal of TMX is to diversify the customers for Canadian oil. With relatively short transportation routes to important growing markets for heavy oil, and a stable supply of responsibly produced resources, Canada has a distinct advantage to capture and grow a share of the global market.

Growing our global customer base will benefit Canadians through additional employment, economic growth and generating government revenues that will help Canada address issues of national debt, unemployment and social program funding.

With some of the highest environmental standards in the world, and a commitment to innovation and new technology development, Canada can play a leadership role in responsibly produced energy while still attracting investment, spurring innovation, creating jobs, and maintaining economic benefits across the country,