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Secret reports the federal government is relying on to argue the Trans Mountain pipeline expansion is commercially viable are based on the unrealistic assumption the pipeline will operate for 100 years, Canada’s financial watchdog told Canada’s National Observer.

For months, Finance Canada has refused to share any information about the financial reports produced by TD Securities and BMO Capital Markets, which Finance Canada says prove TMX is still commercially viable despite ballooning construction costs.

“We believe that's probably too long of a time horizon, to assume that the pipeline will be operating for at least another century ... let alone to take into consideration revenues that will be generated over such a long period of time,” Parliamentary Budget Officer Yves Giroux told Canada’s National Observer.

“Also, because of the various commitments to net-zero or to reduce reliance on fossil fuels, we didn't think that using a 100-year time horizon was appropriate.”

Giroux said his office did not view the TD and BMO reports directly, but did talk to Finance Canada officials about the findings and methodology to inform its independent analysis.

Finance Canada did not return requests for comment by deadline.

In its most recent report, the PBO used a much shorter 40-year time frame to analyze the profitability of the Trans Mountain pipeline and expansion project. Giroux’s report confirms what was already clear: TMX is no longer a profitable investment.

The main difference between the PBO’s report and the TD and BMO ones is the time frame, which explains why the government believes Trans Mountain is profitable, said Giroux. “We don't have the same view.”

For the first time, the PBO also modelled a scenario where the project is cancelled immediately and found the government would have to write off an estimated $14.4 billion worth of assets. A cancellation would bankrupt the Trans Mountain Corporation, the report says. The federal government has shown no signs it intends to cancel the project.

For months, Finance Canada has refused to share any information about the financial reports produced by TD Securities and BMO Capital Markets, which Finance Canada says prove #TMX is still commercially viable despite ballooning construction costs.

Considering how much has already been spent on construction, it's probably better at this point to complete the project so it can start generating revenue, said Giroux.

The PBO just looks at the net present value of the project, or the value of its potential investment opportunity — other economic costs or benefits were not included in the analysis.

From Ottawa’s vantage point, it doesn’t matter if TMX is a money loser because it will incentivize investment, create jobs and increase income tax and royalty revenues, said Rory Johnston, a market economist at investment firm Price Street. Because it supports those aims, it makes sense as government policy when it wouldn't necessarily as a commercial, private decision, said Johnston.

For example, when the pipeline is in operation, there's an expectation Canadian oil from western provinces, notably Alberta, will be able to sell at a higher price than it currently does, which would generate benefits for the Canadian economy, said Giroux.

The PBO’s new analysis was prompted by questions from MPs like NDP environment critic Laurel Collins, who requested an updated cost analysis of the pipeline and expansion project after costs soared in February. The price tag currently sits at $21.4 billion — up 174 per cent from an estimated $7.8 billion when the government first bought the pipeline from Kinder Morgan in 2018.

To keep the planet from reaching dangerous levels of warming, the world must rapidly move away from fossil fuels, which would render a lot of the industry’s infrastructure worthless. A study recently published in the journal Nature Climate Change found Canadians stand to lose $100 billion based on oilfields and production equipment alone — not including pipelines or refineries.

Canada’s Energy Regulator has yet to model a net-zero by 2050 scenario despite the fact that limiting global warming to 1.5 C requires the entire world to cut its greenhouse gas emissions by 45 per cent by 2030 and achieve net-zero emissions in 2050. In December, Natural Resources Minister Jonathan Wilkinson asked the regulator to include Canada’s net-zero by 2050 goal in its 2022 report.

The PBO’s calculations don’t account for the risk of TMX becoming a stranded asset during the global energy transition.

“That's a potential impact that would negatively weigh on the price of the pipeline and its long-term profitability,” said Giroux, adding it’s part of why his office doesn’t think TD and BMO’s century-long lifetime assumption is realistic.

There are many problems with using a 100-year time frame, said Omar Mawji, energy finance analyst for Canada for the Institute for Energy Economics and Financial Analysis.

“Either the people doing the analysis don't quite understand the dynamics of a pipeline and a supply source. Or, you know, they're doing it because … they're trying to look for a way to make it profitable,” Mawji told Canada’s National Observer.

He said a pipeline’s lifetime is typically 40 years, and the life of most oilsands projects is 40 to 50 years. If TD and BMO’s 100-year lifetime analysis is any indicator, there would have to be new oilsands projects approved in the near future and then again in 2050 or 2060, said Mawji.

The federal government says Canada’s current climate plan will reduce greenhouse gas emissions 40 per cent below 2005 levels by 2030. If the government wants to hit that target, Mawji said it's “very hard to assume” it will approve more oilsands projects.

“On one hand, they're saying, ‘Our objective is to reduce CO2 emissions in the oil and gas sector by this much,’” he said. “But on the other hand, ‘We want to build a pipeline that, for it to be economic, would require additional oilsands production.’”

Ongoing investments in fossil fuel infrastructure are undermining the massive reduction in emissions needed to meet the Paris Agreement goal of limiting global warming to well below 2 C (preferably 1.5 C), according to the most recent report by the Intergovernmental Panel on Climate Change. The panel also found emissions from existing fossil fuel infrastructure could single-handedly exhaust the world’s remaining carbon budget, meaning there is no place for new infrastructure in a climate-safe future.

Roughly halfway through its life, the project will also need “major reconstruction” to stay in use, and at that point, if there’s not enough oil passing through the pipeline, an operator could decide it's not worth reinvesting in, said Mawji.

Last month, the federal government greenlit a $10-billion guarantee on a loan for the Trans Mountain Corporation that was quietly financed by Canada’s six biggest banks, including BMO and TD. The loan guarantee assures investors that if the Crown corporation can’t repay the loan, the public will pick up the tab. This is a win-win for the banks because even if the project isn’t completed, they are guaranteed their money back, said Mawji. As underwriters of the debt, TD and BMO are “going to give the government a report that shows that it's worth it,” he said.

While a case can be made for the economic benefits of building TMX, Mawji said it's also important to consider what the benefits would have been if those billions had instead been spent to incentivize investment in renewable energy.

“It's a frustrating thing for the taxpayer … especially if you voted based on climate change,” said Mawji.

Natasha Bulowski / Local Journalism Initiative / Canada’s National Observer

Keep reading

Confirmation that Trudeau's Liberal Govt is betting on climate disaster. Missing emissions targets by miles.
A world still burning high volumes of the most carbon-intensive fossil fuels a century down the road is on a high-emissions trajectory to warming well past 2 C and severe climate impacts.

To keep warming under 1.5 C, the IPCC advises we must halve emissions by 2030. Zero net emissions by mid-century. No room for oilsands expansion.
The IEA's "Net Zero by 2050" Roadmap prescribes "no investment in new fossil fuel supply projects" after 2021. "No new oil and natural gas fields are needed in the net zero pathway, and supplies become increasingly concentrated in a small number of low-cost producers."
Liberal energy/climate policy ignores climate arithmetic and defies the science.
"there's an expectation Canadian oil from western provinces, notably Alberta, will be able to sell at a higher price"

China and India, presumably the two biggest target markets for TMX and expanding dilbit exports, are now buying discounted oil from Russia. Making AB tar sludge even less competitive in Asia, unless it drops the price.

Giroux: "Considering how much has already been spent on construction, it's probably better at this point to complete the project so it can start generating revenue"

Wealth that degrades our life-support systems is illusory. The costs of climate change and fossil-fuel pollution are prohibitive. Hence, the need to shift away from fossil fuels ASAP.
The only reason the O&G industry is viable is because it largely externalizes its health, environmental, and climate costs.
AB's oil & gas industry has barely started to fund its clean-up liabilities: upwards of $260 billion.

Prof. Naomi Oreskes: "The costs of climate change are so great that they now threaten the very prosperity that economic growth is intended to generate. So we can say we're interested in fossil fuel development, gas pipelines, or fracking, or tarsands… because they're going to generate economic growth. But the reality is that the cost of those things will be many times greater than the economic value that they produce."
"From Ottawa’s vantage point, it doesn’t matter if TMX is a money loser because it will incentivize investment, create jobs and increase income tax and royalty revenues"

Hollow argument. Investing in the sustainable economy we need to build for tomorrow would incentivize investment, create jobs and increase income tax revenues. Without costing us our future.
Invest in the solution, not the problem.

How many permanent new jobs will TMX create directly?
"Once the proposed Expansion Project is complete, operating and maintaining 1,150 kilometres of the twinned Trans Mountain Pipeline system will result in approximately 90 new operating positions: approximately 50 in British Columbia and 40 in Alberta."

The Liberal govt is looking at only one side of the balance sheet. Are fossil-fuel jobs the only worthwhile jobs?
How many jobs are imperilled by climate change and oil spills?
Climate change impacts already cause huge economic damage and imperil jobs in many industries -- from forestry to fisheries, from farms to wineries to ski-hills. And not just jobs, but entire towns. Even ecosystems.

How many jobs in other sectors is Freeland ready to sacrifice for fossil fuel jobs?
How many lives?
How many towns and cities?
How many homes?
How many species?
How many ecosystems?
How many grandchildren?

Huge opportunity costs:
"Canadian jobs in renewable energy had already surpassed jobs in the oil sands back in 2014. That's before the downturn in the oil sector, and before the continued growth in development and jobs in clean energy."
"Why do we listen to oil execs when they talk about jobs?" (National Observer, Sep 5th 2018)
"Making a less energy intensive Alberta can create many jobs. Out of 56 economic sectors, oil and natural gas extraction are dead last in job creation — a measly 3.5 jobs for every $1 million invested."
"Alberta needs a low-carbon plan" (Rabble)
Nearly 300,000 Canadians were directly employed in clean energy in 2017 — nearly 100,000 more than in mining, quarrying, and oil-and-gas extraction.
"Clean energy one of Canada's fastest-growing industries" (CP 2019)
"Job killer or job creator? Experts predict a climate employment boom" (CBC)
"Solar Employs More People In U.S. Electricity Generation Than Oil, Coal And Gas Combined" (Forbes)
Clean energy employment in the U.S. exceeds fossil fuel jobs nearly three-fold.
"Massive Job Counts Show Renewables, Efficiency Taking Hold in 'Every U.S. Zip Code'" (The Energy Mix)
If renewables can create jobs in Republican states, they can create jobs anywhere — even in Alberta.

Once again, Pounder has presented a pretty solid set of arguments and points that defy much solid refutation.

But it's clear the Liberals aren't listening and are more interested in presenting distorted rationalization (and double speak) for their decisions. On other hands, the Conservatives are and would only be worse; the populace still doesn't seem to want to go with the NDP; and it continues to shun the Green Party, which does offer a reasonable alternative. One can't get experience in governing if never given a chance. One shouldn't expect real changes in government if one only votes for the same party throughout life, or flips from one major party to the other.

The Ontario populace just re-elected a climate-change-denying government (underscored by the fact that it denies it is a climate-change-denying government), which is hell bent on doing "great things" like raising highway speed limits, building questionably necessary multi-lane highways, eschewing climate mitigation of any sort, and a host of other 'silly' moves such as breaking green energy contracts and eliminating the position of Environment Commissioner. And yes, the government got re-elected with a record-breaking, low voter turnout, despite all the legitimate issues (including those outside the realm of environmentalism) that were clearly in front of voters by election day.

So, if "the people" aren't going to vote for a party that really offers to make a difference, and if the majority or near-majority of eligible voters won't even show up to vote, what does that tell us about ourselves, and what does it foretell of our self-inflicted future? (he asked, rhetorically)

Well said. While I continue to criticize Liberal / NDP and Conservative politicians for their inability to do the right thing, it is the citizens of Canada who are ultimately responsible for our ongoing climate change failures. Until a large portion of Canadians demand that municipal, provincial and federal politicians prioritize on leading us to a low-carbon future NOW, there is little hope for life (as we know it) on Earth! Every decision an individual, politician, and corporate executive makes should be partly (heavily weighted that is) based on its impact to mitigating climate change...

There's a lot of hydrogen in them thar capped-off Alberta wells. The academics at UofC think they have an affordable way to get it out, no carbon: (NB: They are academics, and industry is very tentatively trying their technology - but their recent sale to Clear Hydrogen UK is very encouraging. 5000 Tonnes of green hydrogen per day, if it works...)

If they, or the next guys after they go broke, crack that problem, then we have the possibility of an impressively-cheap hydrogen economy for where batteries don't work: 40,000 bulk-carrier ships that supply the world; long-haul trucks, etc. [It's actually 50,000 bulk-carriers just now, but 10,000 of them carry hydrocarbons and must be obsoleted. Think of that. This GND is a very, very big global project.]

Anyway, it's just possible that building TMX, and not-sealing those 80,000 wells in Alberta, will turn out to be the most green-promoting, world-saving (especially, the Alberta part of the world) "blunders" of recent history.

Call me an optimist.

Optimist, I'll take a pass on. Stubborn, I'll agree to.

It's far past time to consider relying upon unproven technologies, with, as yet, no real market.

I checked out your link. I stopped reading at "using N2 to power production of "carbon negative" oil.

It ought to be an offence to misrepresent emissions as being only Scope 1 emissions, with no regard to Scope 2 or Scope 3 emissions. Even if it were possible to produce "carbon negative" (a term I'd like to see defined), there is no way getting around the fact that burning oil of any kind makes it a bad carbon emitter.

And not capping the wells means that they continue to offgas, and leak GWGs.

I'm wondering where batteries "don't work."

More likely, green hydrogen will eventually be produced at lower cost locally around the world from water via electrolysis powered by renewables.
For reasons of energy density, safety, and ease of transport, it won't make economic sense to export appreciable volumes of hydrogen.

Re: “For example, when the pipeline is in operation, there's an expectation Canadian oil from western provinces, notably Alberta, will be able to sell at a higher price than it currently does,
What is the logic behind this? The same logic that says a higher price is available in Asia? This is nonsense. There is much unused shipping capacity with the existing pipeline and most of the tankers go to California. If a higher price were available in Asia the tankers would all go there.

It's amazing that some reviewers for the movie "Don't Look Up" thought the satire was too heavy-handed.
How could satire be too heavy-handed for this sort of cognitive-dissonance-inducing government stupidity?