As details emerge about Alberta's new pipeline agreement with the federal government, financial analysts and capital market veterans are raising serious doubts about whether Canada's pipeline companies—and their investors—will have the appetite to risk another mega-project in British Columbia.
Political Agreement Meets Economic Reality
The long-awaited memorandum of understanding, set to be unveiled on Thursday, outlines conditions for the Carney government to offer political support for a new oil pipeline to the West Coast. A senior government official confirmed the agreement includes a potential carve-out to the federal oil-tanker ban on B.C.'s northern coast and the elimination of Ottawa's proposed oil-and-gas emissions cap.
In return, Alberta must implement stricter carbon pricing and back a major carbon-capture project, among other requirements. Despite broad enthusiasm in the oilpatch at the idea, experts who analyze capital flows in the sector warn that it may still be unlikely a private-sector proponent steps forward.
Trans Mountain's Ghost Haunts New Projects
Memories remain fresh and debt still lingers from the troubled Trans Mountain pipeline expansion project, whose price tag exploded from $7.4 billion to more than $34 billion. Randy Ollenberger, managing director of oil and gas equity research for BMO Capital Markets, emphasized the cautionary tale of Kinder Morgan Inc.'s struggles with the B.C. government and local authorities during TMX construction.
"If Kinder Morgan had remained behind TMX and the costs ballooned to $34 billion, they would've went bankrupt," Ollenberger said Wednesday. "So Enbridge, Trans Mountain Corp., TC or South Bow, none of these companies are going to step up and build anything unless they know what the cost is going to be."
Pipeline Companies Prioritize Low-Risk Projects
Aaron MacNeil, TD Cowen director and equity analyst, noted that companies like Enbridge Inc., South Bow Corp. and TC Energy Corp. are currently prioritizing quick, low-risk projects or expansions of existing assets that deliver reliable returns.
"These are very tough projects to get built and today, there's no private proponent," MacNeil said. "There's a great national conversation going on about the strategic importance of a West Coast pipeline, but nobody seems to be questioning what would make this project attractive to a proponent."
MacNeil questioned the business rationale for pipeline companies: "If I'm an Enbridge, why would I stop doing that to take on a long, high-regulatory-risk build? What's in it for the pipeline company?"
Analysts warn that if pipeline construction costs ballooned on any new project, the resulting higher tolls would collapse the business case for a new line. Ollenberger summarized the industry sentiment: "There's no publicly traded pipeline company that's going to step up and say, 'I've got a blank cheque. It's going to cost $50 billion, $40 billion, I don't really care.'"
While political clamour over Alberta's pipeline deal with Ottawa has been building, midstream firms have been quietly previewing capital spending plans for next year focused on "brownfield" projects, which involve expanding and de-bottlenecking existing infrastructure rather than undertaking tremendously risky new builds.
