When was the best time to start building new pipelines?

Yesterday would have been a much better time to start building more Canadian pipeline capacity.

That’s the message from CIBC Capital Markets economic analysts, who recently wrote an article for CIBC Capital Markets Economic Insights entitled Pipelines: Easing the Bottleneck.

The authors explain how Canada’s economy is in dire need of more pipelines. They state that our current infrastructure is “designed to meet the needs of the past, less so the present, and clearly not the future.”

Here are a few reasons why they believe that Canada needs the Trans Mountain Expansion Project (TMEP) and other major pipeline projects, quickly.

$12 billion dollars lost

There are many factors that influence the price of Canadian oil. The distance we must transport Canadian oil, the fact that the vast majority of our product is currently only shipped to one customer (the US) without increased capacity to tidewater, as well as the type of oil Canada produces contribute to Western Canadian Select (WCS) being sold at a discount. When there isn’t enough room in the existing pipelines to ship product to market that discount becomes even greater. In fact, the lack of pipeline capacity and resulting inability to ship product has led to $12 billion in lost revenues over the past five years alone. That’s a lot of money that could go towards supporting healthcare, education and infrastructure in Canada.

Hit to Canada’s GDP

A lack of pipeline capacity is already impacting companies’ ability to get energy products to market, and this is expected to get worse before it gets better. Oil demand is increasing, and with that production in Canada will increase to 4.6 million barrels per day by 2020 – we will continue to produce more than we can ship until 2021 when Keystone XL and TMEP are expected to be in operation. This has a real and negative impact on Canada’s economy.

A thriving energy sector is a thriving Canadian economy

As the CIBC article states, “the future of Canada’s economy looks brighter when the energy sector is thriving in a sustainable manner, of which pipeline capacity is a crucial component.” It is better for all Canadians when we have a strong economy – that means more good jobs; more money for schools, roads and hospitals; and more government revenue to fund the social programs that Canadians take so much pride in.

For more information on pipeline capacity constraints in Canada, see our recent posts Would refining more oil in Canada solve our pipeline capacity problem? and Why does Canada need more pipelines?.