Canada’s Pipeline Obstructionism: A Costly Mistake Finally Corrected?

 

In 2016, the Fraser Institute released a report titled The Costs of Pipeline Obstructionism, warning that Canada’s failure to approve and build new pipeline infrastructure would cost billions in lost revenue, weaken the country’s energy sector, and make Canada overly dependent on the U.S. market. Eight years later, the Trans Mountain Expansion Project (TMEP) has finally been completed, increasing Canada’s oil pipeline capacity and significantly improving market access. 

However, the project is now under scrutiny due to its massive cost overruns and underpriced tolls, which could leave taxpayers with a multi-billion-dollar subsidy to the oil industry. This article evaluates how the 2024 reality aligns with the 2016 warnings, proving that pipeline obstructionism was one of the most economically damaging policy failures in modern Canadian history, but also exposing ongoing policy failures regarding cost recovery.

1. Market Access & Export Diversification

2016 Concern:

• Canadian crude oil lacked access to global markets, forcing producers to sell almost exclusively to the United States.
• The lack of pipelines to the east and west coasts prevented oil exports to higher-paying international customers.
• Western Canadian Select (WCS) crude suffered major price discounts due to limited transportation options.

2024 Reality:

✅ With the Trans Mountain Expansion operational, half of all shipments from the pipeline’s marine terminal are now heading to Pacific Rim nations.
✅ Non-U.S. oil exports doubled in the second half of 2024, proving that demand exists when infrastructure is available.
✅ Canada no longer has to accept deep price discounts when selling crude oil, significantly increasing revenue.

Lesson: Had Canada approved Trans Mountain, Energy East, or Northern Gateway sooner, billions in lost revenue could have been avoided.

 2. Economic Impact & Oil Price Differentials

2016 Concern:

• Lack of pipeline capacity forced Canadian oil to be sold at a discount, transferring wealth to the U.S.

• The price differential between WCS and WTI crude cost the industry and government billions annually.

• Without pipelines, rail transport became the default, increasing costs and environmental risks.

2024 Reality:

✅ The WCS-WTI price differential improved by $10 per barrel in Q4 2024 compared to Q4 2023.
✅ Analysts estimate $10 billion in additional oil revenue since the expanded Trans Mountain system began operating.
✅ Pipelines are now replacing costly rail transport, lowering expenses for producers and improving safety.

Lesson: Regulatory delays directly cost Canada billions—money that could have funded healthcare, infrastructure, or tax relief.

3. TMX Toll Underpricing & Taxpayer Subsidies

Ongoing Concern:

• The federal government charges oil companies less than half of the toll rates required to recover the $34 billion capital cost of TMX.
• The International Institute of Sustainable Development (IISD) estimates this amounts to a subsidy of up to $18.8 billion, or $1,248 per Canadian household.
• The oil industry is now appealing to reduce these already insufficient toll rates even further.

Needed Action:

✅ To recover costs, toll rates would need to double from $11.37 to $24.53 per barrel.
✅ If this is not feasible, an alternative is to impose a levy on all Western Canadian crude exports—a precedent set in Alberta in 1986—to ensure taxpayers are repaid.
✅ Without immediate action, Canadian taxpayers will permanently subsidize the oil industry for a project that was supposed to be self-funding.

Lesson: Canada must ensure that major infrastructure investments do not become disguised public subsidies for profitable industries. TMX must be financially self-sufficient.

4. Refinery Capacity & Value-Added Production

Ongoing Concern:

• Canada continues to export crude oil rather than refining it domestically, missing out on higher-value refined product markets.
• Limited refinery capacity forces Canada to import refined fuels, creating a trade imbalance despite being a major crude oil producer.
• The lack of investment in refineries means Canada remains dependent on foreign refineries for gasoline, diesel, and jet fuel.

Needed Action:

✅ Building new refineries would allow Canada to capture more value from its own resources rather than exporting raw crude at lower prices.
✅ Domestic refining capacity would improve energy security, reducing reliance on imported fuel and stabilizing domestic prices.
✅ A fully integrated energy strategy—including pipelines and refineries—is necessary to maximize long-term economic benefits.

Lesson: Pipeline expansion was a necessary step, but Canada must now focus on building refineries to fully benefit from its energy resources

5. Regulatory Delays & Government Inaction

2016 Concern:

• Canada’s lengthy, unpredictable approval process discouraged private investment.
• Indigenous and environmental opposition caused delays and cancellations of key projects (Energy East, Northern Gateway, Keystone XL).
• Pipeline approvals took years or were outright blocked by political interference.

2024 Reality:

✅ Trans Mountain Expansion overcame years of political resistance and was completed.
⛔ Future pipeline and refinery projects still face excessive regulatory hurdles, making investors cautious.
⛔ Trans Mountain’s operators warn that regulatory inefficiencies could slow further capacity increases.

Lesson: While TMEP’s success proves the value of pipelines, Canada’s regulatory system remains broken. Without streamlining, future energy investments will be jeopardized.

Conclusion: Canada Must Prevent TMX From Becoming a Permanent Taxpayer Burden

The 2024 success of the Trans Mountain Expansion validates nearly every warning issued in 2016:

• Canada lost billions due to pipeline delays and regulatory uncertainty.
• Overreliance on the U.S. hurt Canadian producers when trade tensions escalated.
• Regulatory barriers continue to slow investment, despite clear demand for more capacity.
• Market access immediately increased prices and revenue, proving that infrastructure investment pays off.
• Failure to set proper toll rates has created a massive, hidden subsidy to the oil industry at taxpayer expense.
• Failure to build refineries still limits Canada’s ability to fully capitalize on its energy resources.

Final Thought: Canada must learn from this experience and prioritize energy infrastructure—including proper cost recovery policies and refinery construction—as a strategic national interest. If pipelines and refining capacity had been developed alongside sound financial planning, the country would be in an even stronger economic position today.