From the Canadian Energy Centre

By Grady Semmens

Expansion work underway takes on greater importance amid trade dispute

Last April, as the frozen landscape began its spring thaw, a 23-kilometre stretch of newly built pipeline started moving natural gas across northwest Alberta.

There was no fanfare when this small extension of TC Energy’s Nova Gas Transmission Limited (NGTL) system went online – adding room for more gas than all the homes in Calgary use every day.

It’s part of the ongoing expansion of the NGTL system, which connects natural gas from British Columbia and Alberta to the vast TC Energy network. In fact, one in every 10 molecules of natural gas moved across North America touches NGTL.

With new uncertainty emerging from Canada’s biggest oil and gas customer – the United States – there is a rallying cry to get new major pipelines built to reach across Canada and to wider markets.

Canada’s Natural Resources Minister Jonathan Wilkinson recently said the country should consider building a new west-east oil pipeline following U.S. President Donald Trump’s threat of tariffs, calling the current lack of cross-country pipelines a “vulnerability,” CBC reported.

“I think we need to reflect on that,” Wilkinson said. “That creates some degree of uncertainty. I think, in that context, we will as a country want to have some conversations about infrastructure that provides greater security for us.”

Many industry experts see the threat to Canada’s economy as a wake-up call for national competitiveness, arguing to keep up the momentum following the long-awaited completion of two massive pipelines across British Columbia over the last 18 months. Both of which took more than a decade to build amidst political turmoil, regulatory hurdles, activist opposition and huge cost overruns.

On May 1, 2024, the Trans Mountain pipeline expansion (TMX) started delivering crude oil to the West Coast, providing a much-needed outlet for Alberta’s growing oil production.

Several months before that, TC Energy finished work on the 670-kilometre Coastal Gaslink pipeline, which provides the first direct path for Canadian natural gas to reach international markets when the LNG Canada export terminal in Kitimat begins operating later this year.

TMX and Coastal GasLink provide enormous benefits for the Canadian economy, but neither are sufficient to meet the long-term growth of oil and gas production in Western Canada.

More oil pipeline capacity needed soon     

TMX added 590,000 barrels per day of pipeline capacity, nearly tripling the volume of crude reaching the West Coast where it can be shipped to international markets.

In less than a year, the extra capacity has enabled Canadian oil production to reach all-time highs of more than five million barrels per day.

More oil reaching tidewater has also shrunk the traditional discount on Alberta’s heavy oil, generating an extra $10 billion in revenues, while crude oil exports to Asia have surged from $49 million in 2023 to $3.6 billion in 2024, according to ATB analyst Mark Parsons.

With oil production continuing to grow, the need for more pipeline space could return as soon as next year, according to analysts and major pipeline operators.

Even shortly after TMX began operation, S&P Global analysts Celina Hwang and Kevin Birn warned that “by early 2026, we forecast the need for further export capacity to ensure that the system remains balanced on pipeline economics.”

Pipeline owners are hoping to get ahead of another oil glut, with plans to expand existing systems already underway.

Trans Mountain vice-president Jason Balasch told Reuters the company is looking at projects that could add up to 300,000 barrels per day (bpd) of capacity within the next five years.

Meanwhile, Canada’s biggest oil pipeline company is working with Alberta’s government and other customers to expand its major export pipelines as part of the province’s plan to double crude production in the coming years.

Enbridge expects it can add as much as 300,000 bpd of capacity out of Western Canada by 2028 through optimization of its Mainline system and U.S. market access pipelines.

Enbridge spokesperson Gina Sutherland said the company can add capacity in a number of ways including system optimizations and the use of so-called drag reducing agents, which allow more fluid to flow by reducing turbulence.

LNG and electricity drive strong demand for natural gas

Growing global demand for energy also presents enormous opportunities for Canada’s natural gas industry, which also requires new transportation infrastructure to keep pace with demand at home and abroad.

The first phase of the LNG Canada export terminal is expected to begin shipping 1.8 billion cubic feet of gas per day (Bcf/d) later this year, spurring the first big step in an expected 30 per cent increase in gas production in Western Canada over the next decade.

With additional LNG projects in development and demand increasing, the spiderweb of pipes that gathers Alberta and B.C.’s abundant gas supplies need to continue to grow.

TC Energy CEO Francois Poirier is “very bullish” about the prosect of building a second phase of the recently completed Coastal GasLink pipeline connecting natural gas in northeast B.C. to LNG terminals on the coast at Kitimat.

The company is also continuously expanding NGTL, which transports about 80 per cent of Western Canada’s production, with more than $3 billion in growth projects planned by 2030 to add another 1 Bcf/d of capacity.

Meanwhile Enbridge sees about $7 billion in future growth opportunities on its natural gas system in British Columbia.

In addition to burgeoning LNG exports from Canada, the U.S. and Mexico, TC Energy sees huge potential for gas to continue replacing coal-fired electricity generation, especially as a boom in power-hunger data centres unfolds.

With such strong prospects for North America’s highly integrated energy system, Poirier recently argued in the Wall Street Journal that leaders should be focused on finding common ground for energy in the current trade dispute.

“Our collective strength on energy provides a chance to expand our economies, advance national security and reduce global emissions,“ he wrote in a Feb. 3 OpEd.

“By working together across North America and supporting the free flow of energy throughout the continent, we can achieve energy security, affordability and reliability more effectively than any country could achieve on its own.”

From the Canadian Energy Centre

By Will Gibson

Investment in ‘value-added’ projects more than doubled to $4 billion in 2024

In the 1930s, economist Harold Innis coined the term “hewers of wood and drawers of water” to describe Canada’s reliance on harvesting natural resources and exporting them elsewhere to be refined into consumer products.

Almost a century later, ATB Financial chief economist Mark Parsons has highlighted a marked shift in that trend in Alberta’s energy industry, with more and more projects that upgrade raw hydrocarbons into finished products.

ATB estimates that investment in projects that generate so-called “value-added” products like refined petroleum, hydrogen, petrochemicals and biofuels more than doubled to reach $4 billion in 2024.

“Alberta is extracting more value from its natural resources,” Parsons said.

“It makes the provincial economy somewhat more resilient to boom and bust energy price cycles. It creates more construction and operating jobs in Alberta. It also provides a local market for Alberta’s energy and agriculture feedstock.”

The shift has occurred as Alberta’s economy adjusts to lower levels of investment in oil and gas extraction.

While overall “upstream” capital spending has been rising since 2022 — and oil production has never been higher — investment last year of about $35 billion is still dramatically less than the $63 billion spent in 2014.

Parsons pointed to Dow’s $11 billion Path2Zero project as the largest value-added project moving ahead in Alberta.

​​The project, which has support from the municipal, provincial and federal governments, will increase Dow’s production of polyethylene, the world’s most widely used plastic.

By capturing and storing carbon dioxide emissions and generating hydrogen on-site, the complex will be the world’s first ethylene cracker with net zero emissions from operations.

Other major value-added examples include Air Products’ $1.6 billion net zero hydrogen complex, and the associated $720 million renewable diesel facility owned by Imperial Oil. Both projects are slated for startup this year.

Parsons sees the shift to higher value products as positive for the province and Canada moving forward.

“Downstream energy industries tend to have relatively high levels of labour productivity and wages,” he said.

“A big part of Canada’s productivity problem is lagging business investment. These downstream investments, which build off existing resource strengths, provide one pathway to improving the country’s productivity performance.”

Heather Exner-Pirot, the Macdonald-Laurier Institute’s director of energy, natural resources and environment, sees opportunities for Canada to attract additional investment in this area.

“We are able to benefit from the mistakes of other regions. In Germany, their business model for creating value-added products such as petrochemicals relies on cheap feedstock and power, and they’ve lost that due to a combination of geopolitics and policy decisions,” she said.

“Canada and Alberta, in particular, have the opportunity to attract investment because they have stable and reliable feedstock with decades, if not centuries, of supply shielded from geopolitics.”

Exner-Pirot is also bullish about the increased market for low-carbon products.

“With our advantages, Canada should be doing more to attract companies and manufacturers that will produce more value-added products,” she said.

Like oil and gas extraction, value-added investments can help companies develop new technologies that can themselves be exported, said Shannon Joseph, chair of Energy for a Secure Future, an Ottawa-based coalition of Canadian business and community leaders.

“This investment creates new jobs and spinoffs because these plants require services and inputs. Investments such as Dow’s Path2Zero have a lot of multipliers. Success begets success,” Joseph said.

“Investment in innovation creates a foundation for long-term diversification of the economy.”