Pipelines: The need for refining capacity
As the clock ticks down to Kinder Morgan's deadline on the Trans Mountain expansion project, CIBC's economics team is warning "inaction is not an option" for Canada when it comes to pipeline development.
In a report released Thursday morning, economists Benjamin Tal, Andrew Grantham and Katherine Judge mapped out the need for additional pipeline capacity to ship oil to Asia, the U.S. Gulf Coast and the eastern seaboard.
"Simply put, the current pipeline system is ill-equipped to deliver products where they are needed the most," the report reads.
The economists note Enbridge's Line 3 could bring relief in 2020 and that capacity could exceed production in 2021 if TransCanada's Keystone XL and Kinder Morgan's Trans Mountain expansion project see the light of day.
But that's by no means a sure thing. Kinder Morgan suspended most work on its controversial $7.4-billion expansion project last month and set a May 31 deadline for clarity on the path forward amid political obstacles in British Columbia.
The pipeline capacity restraints come at a significant cost, with CIBC reckoning the energy sector has lost out on approximately $12 billion in revenue as the discount on Canadian oil has widened over the years, reaching US$30 per barrel earlier this year.
"Inaction is not an option … all told, 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," the report's authors wrote.