Oil prices have plummeted. Does Canada still need pipelines?

Global oil prices have fallen close to 60 per cent since June, causing oil producers to tighten their belts and pull back on investment. So, where does that leave proposals for new pipeline projects?

We asked Dan McFadyen, program director of the Extractive Resource Governance Program at the University of Calgary, to share his perspective on the current market situation and whether Canada still needs new pipelines.

With over three decades of experience in the public service and the energy sector (his resume includes serving as Alberta’s deputy minister of energy), McFadyen has seen oil prices drop before.

Listen to what McFadyen had to say about the question on the minds of many Canadians: Does this country still need new pipelines?

Market Q & A with Dan McFadyen

Q: Canadians have seen a lot of headlines lately implying that the drop in oil prices may kill new pipeline projects. Is the expansion of Canada’s pipeline infrastructure still necessary? Why?

Q: Oil prices have always been cyclical. Why does Canada need to be careful not to jeopardize long term infrastructure projects in reaction to short-term volatility?

When have oil prices crashed and then rebounded in the past? Check out this timeline from Goldman Sachs.

Q: Commodity prices aside, why does Canada still need to build pipeline infrastructure for safe and efficient energy transportation?

Q: Even with low oil prices, why is market access still necessary?

So, what were McFadyen’s final thoughts on the current market landscape? It’s “not the time to panic.”

Note: In the above clip, McFadyen referenced this news release from the Canadian Association of Petroleum Producers (CAPP) ­­– distributed on Jan. 21.

Read more about why Canada needs pipeline expansion.

Interview transcript

Market Q & A with Dan McFadyen

Q: Canadians have seen a lot of headlines lately implying that the drop in oil prices may kill new pipeline projects. Is the expansion of Canada’s pipeline infrastructure still necessary? Why?

McFadyen: I think we are going to see a slight draw back in investment. It’s going to reduce the growth production. We aren’t going to see a complete turnaround; Canada’s oil production is going to remain stable, it’s going to continue to grow. I think it’s going to continue to grow at a slower pace until oil prices recover. The supply is going to be there.

On the other side of the equation, I think it’s really important that we expand access to other markets than just our current market because we are kind of tied to basically whatever’s happening in the U.S., so I think we need to continue to invest in pipelines for those two reasons.

Production will continue to grow at a slower pace and once prices recover that growth will pick up again. And secondly, I think access to other markets is critically important for the Canadian oil patch, so I think those two fundamentals drive why we still need to look at investing in infrastructure to meet those two challenges and opportunities.

Q: Oil prices have always been cyclical. Why does Canada need to be careful not to jeopardize long term infrastructure projects in reaction to short-term volatility?

McFadyen: We’ve been through this. Going back, I think my first experience was the downturn in the mid-1980s, and one can never predict when the turnaround is going to come, but it will turn around again.

Basically, global supply and demand fundamentals will change, partly in reaction to reduced energy prices that will drive demand, but the global population continues to grow; demand in some of the developing countries continues to grow, so we will see the supply/demand balance correct itself – that will drive the price curve again.

And secondly, even the major oil producers of the world cannot sustain low oil prices because of their own fiscal requirements. The Middle Eastern countries are dependent on a much higher energy price long term to support their own fiscal needs, so it will recover.

It’s a matter of when, and I’m not able to predict that, but in the past it’s taken a year to 18 months to two years to see a price recovery and [it] will drive new opportunity for investment and upstream production. And so we need to be looking at the infrastructure in order to get that production to market.

Q: Commodity prices aside, why does Canada still need to build pipeline infrastructure for safe and efficient energy transportation?

McFadyen: Pipelines are still, by far and away, the safest, the most efficient way to transport liquid petroleum products or natural gas. You know, we are shifting an awful lot to rail in the last few years and we’ve seen that rail is much riskier both to the environment and to public health and safety, as well as pipelines are much more economic in the long run, so those fundamentals are why we need to continue to invest in pipeline infrastructure.

Rail is a good complement for the incremental barrel, but the core barrel really needs to go by pipeline, from both a safety, as well as an efficiency and cost-effectiveness, perspective, long term.

Q: Even with low oil prices, why is market access still necessary?

McFadyen: First of all, global oil prices are down right now, but the markets are there. In terms of our interconnection, we are mostly limited to the U.S. market, and it’s not clear in that market, whether they are going to create a pathway for re-export of Canadian crude, or in fact, even have the infrastructure to present that opportunity, as the debate around Keystone continues.

So I think having access, our own access, at tidewater through Canadian routes, whether it’s to the West coast or the East coast, will allow us that opportunity to gain access to those markets for crude oil and not be dependent on U.S. policy and politics to determine our future.

And besides crude oil, I think there’s a huge opportunity for [natural] gas, it’s still there through LNG (liquid natural gas), and we know that, while certainly [natural] gas prices are depressed in North America, there are markets around the world where [natural] gas prices are much more attractive. Being able to have access to those higher priced markets on the gas side is a huge opportunity, so it’s not just crude oil we are talking about; it’s the opportunity to get some of our natural gas to some of these markets quite rapidly with respect to growth of [natural] gas to meet some of their own domestic needs, particularly in Asia.

Long term it may be interesting to see, as the situation in Europe settles out, whether there is an opportunity for supplying Canadian oil and natural gas to Europe, long term, to provide them security and stability – they are mostly reliant on Russian imports right now.

So, what were McFadyen’s final thoughts on the current market landscape? It’s “not the time to panic.”

McFadyen: [It’s] not the time to panic. It’s the time to make sensible investment decisions, and most companies are going through that right now. You are going to see a short term pull back on upstream investment as we are seeing, as CAPP came out [with] yesterday, showing about a 30 per cent drop in planned capital investment in the upstream, but that still translated into some $40 billion in ongoing investment. Even in these difficult price times, you can see that the industry is not yet pulling back completely; they are just making more strategic investment decisions. Investment is still continuing at a place, and we need to be ready with the infrastructure to make sure we can get [out] that existing production and new production when comes on to market.


The Canadian Energy Pipeline Association represents Canada’s transmission pipeline companies who operate approximately 115,000 kilometres of pipelines in Canada. In 2013, these energy highways moved approximately 1.2 billion barrels of liquid petroleum products and 5.3 trillion cubic feet of natural gas. Our members transport 97 per cent of Canada’s daily natural gas and onshore crude oil from producing regions to markets throughout North America.