Why Canada Must Build More Tidewater Pipelines: Both Oil and Gas

Why Canada Must Build More Tidewater Pipelines: Both Oil and Gas

Produced by Jackie Forrest | by

This article was originally published in The Globe and Mail.

During Prime Minister Mark Carney’s July Stampede visit to Alberta, he said a new oil pipeline to B.C.’s coast will likely be declared a national priority. Still, some Canadians are asking: Why build another pipeline to the West Coast? Don’t we already have enough?

It’s a similar situation for another commodity. While these questions arise less often when it comes to shipping natural gas to Asia – especially as we celebrated our first LNG shipment from the West Coast on the eve of Canada Day – some Canadians still question whether expanding the commodity’s exports is essential to fulfilling the country’s ambitions as an energy superpower.

But the real question is: How can Canada – the world’s fourth-largest oil producer, behind only the United States, Saudi Arabia, and Russia and the fifth-largest producer of natural gas – not be already recognized as an energy superpower? The reason is simple: We fail to export enough of our oil and gas to global markets. As a result, we forfeit both influence and autonomy – and we undermine our own economy.

To borrow U.S. President Donald Trump’s style: ABSOLUTELY, we need more pipelines! Canada needs new oil and gas pipelines to tidewater. These projects are both politically and strategically vital, ranking among the most consequential nation-building initiatives the country can pursue.

Let’s begin with one of the most debated topics: building a new oil pipeline to Canada’s West Coast. Most Canadians know the federal government completed the Trans Mountain Expansion, which added 590,000 barrels per day of export capacity last year. This additional access to tidewater has already strengthened Canada’s negotiating position with U.S. buyers.

Now that we have alternative export options, American refiners must pay Canadian producers a more competitive price. The pipeline has brought more of the economic upside home, lifting prices by $4 to $7 per barrel and adding an estimated $7-billion to $12-billion in annual revenue for Canadian producers.

These higher earnings translate into more tax revenue and provincial royalties that benefit Canadians nationwide. But sustaining this pricing advantage over the long term – and ensuring American buyers pay fair value – will require more pipeline capacity than the modest boost from Trans Mountain, which may be fully utilized in a few years.  

But the benefits go beyond economics. Expanding Canadian export capacity strengthens Canada’s relevance, influence, autonomy and trade relationships at a critical time. Would Mr. Trump have threatened a 25-per-cent tariff on Canadian oil earlier this year if Canada had more diversified export routes? Would trade negotiations play out differently if Canada held greater leverage?

Turning to natural gas: Expanding Canadian LNG exports to tidewater is just as essential to our ambitions of becoming an energy superpower. This strategy delivers the same strategic advantages as oil pipelines alongside substantial economic benefits.

In 2024, Canadian natural gas sold for about one-half of the U.S. price – effectively giving it away. However, with the recent launch and potential expansion of Canadian LNG exports, we have an opportunity to bring the economic benefits of these resources back to Canadians.

For example, using a conservative assumption, if all Canadian natural gas priced just $1 per gigajoule higher as a result of tidewater access, producers would gain an additional $7-billion per year – benefiting companies and citizens in B.C., Alberta and across Canada. And this doesn’t even factor in the additional growth in gas and liquids production that new export terminals can unlock.

To be an energy superpower, a country needs to export energy to many nations. Canada isn’t there yet. To unlock more value, boost security and build real influence, we need to get more oil and gas to tidewater. All Canadians stand to gain.

So, the next time you’re asked whether Canada needs to expand oil and natural gas exports to become an energy superpower, the answer is a resounding YES! Thank you for your attention to this matter!

Is the US Clean Energy Boom Over?

Is the US Clean Energy Boom Over?

Produced by ARC Energy Research Institute | by

The President of the United States signed the “Big, Beautiful Bill” into law on July 4th. The new legislation brings big changes to the future of U.S. clean energy development. It reduces many (though not all) of the Biden-era subsidies from the Inflation Reduction Act of 2022 (IRA).

This week on the podcast, our guest is Mike Carr, Executive Director at SEMA Coalition—an organization supporting the U.S.-based solar supply chain. Mike has extensive experience in U.S. federal energy policy, including past positions at the Department of Energy and the U.S. Senate Committee on Energy.

Jackie and Peter asked Mike: How would you characterize the Bill’s impact on U.S. clean energy, and what damage has it caused? At a high level, does this major policy shift lessen the appetite for investment, even in areas where subsidies remain, due to concerns about political uncertainty? For clean technology manufacturing, such as solar panels, do the newly introduced restrictions on Foreign Entities of Concern (like China) regarding content, intellectual property, and investment make it more challenging to qualify for the production tax credit (45X)? Renewable energy projects that commence construction within a year of the Bill’s passage can still be eligible for subsidies for the following four years; does this create a construction boom, and what happens afterward? Given China’s dominant position in manufacturing many types of clean energy technology, how should the U.S. compete? Is it better to leapfrog China with innovation, rather than simply following and producing the same technology?

Please review our disclaimer at: https://www.arcenergyinstitute.com/disclaimer/

Check us out on social media:

X (Twitter): @arcenergyinst
LinkedIn: @ARC Energy Research Institute

Subscribe to ARC Energy Ideas Podcast
Apple Podcasts
Amazon Music
Spotify

Episode 291 transcript

Disclosure:

The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.

Announcer:

This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.

Jackie Forrest:

Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forrest.

Peter Tertzakian:

And I’m Peter Tertzakian. Welcome back. Well, Jackie, it’s that time of year in Calgary. It’s the Stampede.

Jackie Forrest:

So lots to celebrate because not only is it Stampede, but we have our first LNG shipment on the eve of Canada Day. So it’s definitely a new era in Canadian gas, and everyone’s hoping that this is not one and done. A lot of conversation at Stampede week about momentum building for more big projects around LNG, and maybe even an oil pipeline. We heard the potential for that from our prime minister this weekend.

Peter Tertzakian:

We sure did. So yeah, there’s a lot of upbeat talk at the Stampede, so I think we’re going to hear a lot more as the week progresses on. But this week, we’re going to really look south of the border because there was some big news down there as well. The Big Beautiful Bill as President Trump had coined it has been passed, right?

Jackie Forrest:

That’s right. Everything’s going on time here in Canada. We got our C-5 done for Canada Day, they got their big beautiful build done for July 4th Independence Day, and we’ve been focused a lot on Canadian clean energy, but Canadians need to look across the border to understand what’s happening there because it does have impacts on us. For the last several years, it’s been tough for Canadian clean energy projects to compete with the very generous subsidies that the Americans have been offering, and Biden put those in 2022. So it’s important for us to see, well, what’s happening across the border and what does that mean here in Canada?

Peter Tertzakian:

Yeah. Well, much as President Joe Biden at the time brought in the Inflation Reduction Act, which had huge subsidies for extreme energy and a lot of development ensued, a lot of excitement. The Big Beautiful Bill as it’s termed also has a lot of ramifications because it pulls back a lot of those incentives. And whereas, we in Canada can think of this as a potentially just a US issue, it’s really not because capital flows across borders. So we really need to look more into this, and who better to help us with that. And Mike Carr, Executive Director at SEMA, otherwise known as the Solar Energy Manufacturers for America, it’s a Coalition that supports US-based supply chains for solar energy. So welcome, Mike.

Mike Carr:

Thank you very much, Peter.

Jackie Forrest:

Well, Mike, it’s great to have you on. We had met back in May and you have so much knowledge. Maybe tell us a bit about the SEMA Coalition, but also your previous roles with the US Department of Energy and at the US Senate Committee on Energy.

Mike Carr:

Sure. Thanks again. I appreciate you guys having me here. I guess, I’ll start with me. I’ve been in Washington DC now for about 30 years. I am trained as a lawyer with a specialization in environmental law, and I really worked the very bulk of my career around climate and energy policy. I worked at various stints set at different government agencies, including the Department of Interior and the US House of Representatives. But the bulk of my sort of climate and energy career really began at the Senate Energy and Natural Resources Committee in 2004. I worked there as a senior council for about eight years, and that was sort of during the era where in particular the United States was trying to figure out what’s next. Oil prices, as you may remember, had sort of spiked in that 2006, 2007, and 2008 timeframe, and it’s really when the United States began to think hard about how we would develop the next generation, the resources, and how the United States would fit into that.

And that’s when I really first became enmeshed in examining our industrial policy or at that time lack thereof, around manufacturing in particular. That my boss, the chairman of the committee at the time, Senator Bingham of New Mexico, was particularly concerned that the United States was losing ground to our international competitors. So we began designing policies both on the regulatory side, which was the jurisdiction of the committee, but he also served on the finance committee which develops tax policy. So we began working on tax credits such as the EV purchase incentives back then, the loan programs in the energy committee, and the like to try to reinvigorate manufacturing in the United States. I did that until he decided to retire in 2012, and I went from there as a political appointee in the Obama administration at the Department of Energy as the number two at the energy efficiency and renewable energy division within the Department of Energy.

I did that for about three years. And then with a couple of my colleagues left to try to work it from the industrial side and began talking to companies in the clean energy and manufacturing space about what it really took to pull this industrial policy together and advance our goals. After a few iterations around 2019, led to several solar manufacturers in the United States getting together and really digging into why we had fallen so far behind, and what it would really take to catch up.

And when I say catch up, fall behind, at this point, it really is about China’s industrial policy around manufacturing. And what we had seen was a dedicated effort by the Chinese manufacturer or the Chinese government to in effect monopolize manufacturing across a number of clean energy spaces, including batteries and solar. And we came to believe that really to advance the technology, to secure supply chains, to really arrive at a place where we could solve these larger problems around deployment of clean energy as well, it was necessary to build out a complete supply chain for that in United States and with our allies in North America. And so that was how the SEMA Coalition was originally born and then sort of took it from there.

Jackie Forrest:

That’s interesting, Mike. I mean, I think the US had some real successes in your time, like a support of Tesla, which turned out very well. And we’re going to get to this issue about China because it hasn’t gotten any better since 2004. It’s gotten much worse in terms of their dominance and their scale and their expertise in many of these areas.

Peter Tertzakian:

So Mike, it strikes us across the border here that the Big Beautiful Bill is quite consequential to the Inflation Reduction Act. In other words, it’s almost like a sledgehammer, if not a scalpel or both to a lot of the programs that were put into place by the Biden administration. So could you categorize exactly what this means in terms of the clean energy, transition/revolution, whatever you want to call it in the United States. On a scale of 1 to 10, how damaging is this to the momentum that the United States was trying to achieve in the face of that Chinese competition we talked about earlier and that we’ll come back to?

Mike Carr:

Well, that’s right, Peter. It is in fact a dramatic reversal of industrial policy when it comes to clean energy. In particular, technology such as solar and wind we’re singled out for very, very strong reversals in policy at various places. Storage was in that category, hydrogen policy was in that category, and then adjustments were made along the way. To some extent, we need to see how this plays out, but whether it’s a 10 or a seven or an eight on the 1 to 10 scale, it is certainly in the higher registers there. This was, choose your analogy. Was it a sledgehammer taken to industrial policy? Was it a sharp U-turn, wrenching the wheel? There’s a lot of ways to look at it, but very dramatic. And in fairness, the Inflation Reduction Act credits, which carried a lot of this sort of manufacturing industrial policy, were a pretty significant change in direction as well.

The United States has been very leery of engaging in direct industrial policy to compete with China. We have generally relied on tariffs, which I think we can talk about the limitations of tariffs and trade policy. But I think there were a lot of folks who had argued that the United States was sort of asleep with the switch as the industrial core of our economy was hollowed out by these industrial policies from China. And this was often characterized as sort of the IRA, I’m saying, was often characterized as sort of a wake-up call and a beginning to rebuilding that manufacturing base. And I think for a variety of reasons, some mere partisanship, some discomfort with industrial policy, and in many cases focus on competing interests, this was a very strong rebuke of that effort and an attempt to really reverse the momentum on those technologies.

Jackie Forrest:

All right. We’ll get into some of the details, but some of the areas that were spared and mostly preserved, although, I think everything got some changes, like you say, manufacturing. The ability to get tax credits for manufacturing, production tax credits, CCS Carbon Capture Storage, biofuels, geothermals did well, areas that didn’t do so well were large-scale wind and solar, green hydrogen, residential solar EVs. But just taking a step back, there were some spared and some really cut hard. And you can argue in some of these areas that were spared, you should still have the economic case to go forward with your decision to build a new manufacturing plant or maybe build this carbon capture storage plant. But how are companies looking at this massive change? If every four years you could get such a fundamental change in the policy, how do you make 20-year investments? Do you think that this is damaging for all areas, even the areas that were maybe spared more in terms of the subsidies?

Mike Carr:

I think you raised a very good point, Jackie. I mean, I think this was going in perhaps the biggest concern that the business community had in, and was voiced by a number of members of Congress as well, and certainly economists on all sides of the spectrum. And I do think it was largely unprecedented. I have never seen a reversal like this, and I’ve often heard it voiced that a previous Congress may make some policy decisions that the new governing party doesn’t agree with. But they have often said, and certainly I’ve heard my boss say this when we took a majority that we risked undermining our own credibility if we did reverse course on some of these things. And Congress and policymakers across the spectrum, they want the private sector to do things. They understand that markets are not shaped without on their own, markets are shaped by policy decisions. And so if you reverse those policy decisions, then you do lose a great deal of credibility. And the next iteration, you’re not able to get the private sector to believe you.

Peter Tertzakian:

Well, one can’t help but think that actually the Chinese would be quite happy with this bill, at least in the near term because, obviously, it allows them to continue to subsidize and gain more momentum and a lead at least notionally. But another school of thought might be that, well, if you actually cut subsidies and tax credits and what have you, it actually makes pre-market companies even more attuned to driving down costs and innovating and getting ahead. That’s the way I’m thinking about is that tens, if not hundreds of billions of dollars were invested as a catalyst of the IRA. If there could be enough momentum now for companies to innovate on their own and really take it from a free market perspective. I mean, the free markets are hugely innovative, and too much subsidization actually can lead to what I would call, Innovation Laziness. Is there an argument to be made that actually cutting some of these subsidies may actually be a catalyst to kickstart the free market into a more aggressive innovation mode?

Mike Carr:

Yeah, I think there’s a real point to be made there. I like your innovation laziness frame. And what I would say is, that’s frankly what we’ve been seeing in solar for a while because of the Chinese domination and over-subsidization. I think one of our member companies put it very well in a conversation we were having with the senator that was very much along these lines, Peter, where the CEO said, “I’m a free market believer, an advocate, and I am more than happy to compete with other companies, and I’ve been competing with companies my entire life.” But in solar, what you have to recognize is it’s not a company versus another company, it’s a company versus a country. And that’s the way you have to understand these solar manufacturers are seeing the world. They’re not competing versus JA Solar or Longi or any of these Chinese based companies.

They’re competing against the country’s industrial policy, which allows for unlimited subsidization. We’ve all heard the specifics of the subsidization that can be free land, it can be free electricity, it can be cash, but at the end of the day, it is a fundamentally different economic system in China as we all know. And so you can look at it as industrial policy, but another way of just looking at it is it’s a jobs program. The idea is to have manufacturing in all of these provinces throughout the country, and to facilitate that against all comers. And they’re hungry for cash, they can’t sell their product within the country. And from a strict economics perspective, a lot of these investments in manufacturing in China or in their client countries are not productive investments. And I think that that’s really the way you need to judge it.

Jackie Forrest:

Right. And we see this actually in other areas like critical minerals. You can’t get private company funded because the Chinese drive down the prices to the point where there’s money to be made by a private company and building a plant.

Mike Carr:

Exactly. And in those cases, you don’t see advances in mining technology, you don’t see processing advances the way you would like to see them because, let’s say, the externalities of the environmental costs or the energy costs are not taken into account.

Jackie Forrest:

Right. Okay. Well, let’s go back to the manufacturing and the bill. There are also limitations that were put on in terms of, you kept the production tax credit, I think it’s called the 45X, for building a lot of clean technology including solar panels, but also batteries, electrolyzers, things like that. But there’s a new requirement that to get that, you need to make sure that you don’t have any materials or components from foreign entities of concern. I think it’s being called FEOC, and that you have very limited Chinese ownership or debt. I think something like 25% Chinese ownership and 40% of your debt can be from China. If you’re more than that, then you can’t qualify, and you can’t use much Chinese IP. Well, this is difficult because so much of the supply chain, including the critical minerals, the polysilicon, they all come from China where Chinese IP or companies are behind them. So, how big of a barrier is this? Do you think that a lot of companies won’t be able to actually qualify for these credits because of this Chinese content?

Mike Carr:

Well, it’s going to vary a lot by technology. In the case of solar, we actually have a bit of an advantage, in that the raw materials are not particularly rare. You’re using silica and that’s mined throughout North America. It’s produced in the United States as well as a number of other countries. We actually do have a substantial amount of polysilicon manufacturing in the United States. Two of the largest and highest quality polysilicon manufacturers are in the United States. One is Wacker in Tennessee, I believe, and the other is Hemlock Semiconductor in Michigan. It does explain a little bit of why solar is different than say, battery manufacturing. In the solar space, we don’t have a lot of concerns about FEOC involvement. We have access to the intellectual property that we need. We have access to the raw materials from the polysilicon. What we just don’t have is the facilities right now to manufacture them because we couldn’t finance those facilities.

Now with the IRA, although some of these factories are still under construction, we have in the pipeline facilities that are not interacting with the China, and that is the founding principle behind the SEMA coalition is to have a China-free supply chain. And so we’ve made substantial progress on that for the last few years. And so we don’t find it particularly concerning for solar manufacturing. Manufacturers have access to materials. Stuff is coming online in the near future and, of course, there are a limited number of non-Chinese-based overseas, including places like India where some materials can be acquired. The story is very different when it comes to batteries. For example, this is an area where Chinese dominance has been more profound, and the ability to invest in the United States has been even more hampered. Maybe because it’s a little bit more of a nascent industry and we haven’t seen a lot of grid storage, for example. And so, I think there will be significant challenges when it comes to battery manufacturing from these FEOC provisions.

Peter Tertzakian:

So if that’s the supply and componentry dimension, let’s move on, Mike, to the time dimension, particularly as it relates to wind and solar generation projects. So as I understand it, the final rule in the Big Beautiful Bill allows projects that start operations by the end of 2027, which is now what, two and a half years away. Or start construction within a year from now of the bill’s passing to still get these incentives, right? So in other words, if there’s an accelerant in this thing or a time restriction that you could only get the incentives, basically, if you get going now or you can complete it by 2027. So, are you already starting to sense there’s going to be a big push to get stuff through to get stuff done like a boom?

Mike Carr:

Well, yeah, it’s an interesting dynamic. I will say that the commence construction addition that you mentioned where there’s a year to commence a project, that happened at the very last minute that was something that we were very, very concerned that had been left out. And the reason we were concerned about the so-called placed in service deadline is just the way the market functions in the United States. Developers have to get into interconnect queues in order to bring their projects online, they have to do permitting, they have to do a number of things. And that process is typically 3 to 4 years from acquiring the land or acquiring the lease to build your project, to finally getting it placed in service. And importantly, a big piece of that, particularly the interconnect queue is beyond your control as a developer. So you don’t know when your project will be placed in service, and you really don’t have a lot of influence over when it’ll be placed in service.

And that has massive implications when it comes to financing your project. So if you want to put a 500 megawatt project on the grid in, let’s say, the MISO service area, you have to get into that queue and you hope that they will do their reviews, their grid interoperability reviews, and that they will allow you to be placed in service. Because it has been so long, historically, banks are very leery they won’t take on that risk that you will actually be able to place it in service by the end of 2027. So as a result, our analysis, and I think the way the market has generally reacted to it, that place in service state effectively means if you’ve not already commenced construction before the passage of this bill, and therefore, sort of grandfathered in under the commenced construction standard, there will be no new acquisition of incentives.

Or put another way, the banks won’t finance under the assumption that you’re going to regain any of the incentives because they don’t have any way of knowing that you’re actually going to be able to place it in service. So effectively, commenced construction is the whole ball game. And so we have got a year to commence construction, and then you are grandfathered in, it’s under the normal IRS published rules which allows you essentially four years to place it in service after that commenced construction. And so from a manufacturing perspective, that means we have the domestic content bonus in effect for a year. The rest of this year, it’ll be 45% domestic content to gain that 10%, and then next year it’ll be 50% domestic content to gain that 10%. And that has been a huge driver to buy the domestic product from these factories that are being established.

There is some tale to that, and I’ll try to explain that, in that if you achieve commenced construction, you have a safe harbor to put that into place and service for four years. And in order to achieve that, you have to make a certain amount of investment, do some activities on the land, have the land acquired and the like, or have the options on the land. But then you can take delivery of the product, the solar panel in this case some years down the road. So, we do think there is likely to be a rush for developers who think they can achieve that four year placed in service period for a year to try to get those credits in place and to place orders for product that can come off those assembly lines in two or three years.

Peter Tertzakian:

Well, let me ask you something else though. I mean, if you’re a manufacturer or operator or whatever and you’ve just gone through this roller coaster, you say there’s this most policy uncertainty fatigue, you just can’t count on any of this stuff.

Mike Carr:

Yeah, I think it’s a real risk. We were talking earlier about the uncertainty and the sort of loss of credibility of reversing policy in quite the way that they have done in this bill. I think you’re exactly right, it does make investors nervous. It makes it difficult to make new investments. For example, there are factories that were ready to break ground at the beginning of this year when the domestic content regulations were finally finalized. And so people knew the value of producing in the United States. There were some wafer factories, for example, very, very high CapEx, multi-billion dollar factories that were ready to go. Investments were finally lined up and this seemed like the environment was certain enough. Those investments, I think, are going to have a very difficult time. The investors now look at that and they say, “Boy, I don’t know that it’s really going to come together.”

It seems like the government has reversed course. Fortunately for solar, there are factories that had gotten substantially past that stage gate. We have large investments companies such as Silfab, Q Cells, such as Hemlock, Corning had made major investments and had already begun construction of their factories and are nearing completion of those factories now. For those people, I think they are in a position to credibly produce product in the next 3 to 4 years when we do expect there will be sort of a maintenance of demand and maybe significant demand if it can all get permitted into that commenced construction phase can probably absorb those products. So it’s going to keep those factory doors open for those that have really gotten pretty near the finish line. But for those that were sort of stuck at the starting gate or were just getting out of the starting blocks, I think there’s a very rough road ahead.

Jackie Forrest:

Now beyond that four years, there’s a lot of outlooks for very rapid growth in US electricity load and a concern that it’s going to be very hard to keep up with that. Natural gas will be part of it, but maybe can’t meet it all because there’s constraints in natural gas equipment. So, do you think beyond these subsidies that you could just see these projects go forward and yeah, the price for electricity is going to be higher because they don’t have subsidies anymore. In that case, do you see a role for domestic product? Because I know you still have the tariffs that are protecting these developers not having to face the Chinese competition directly.

Mike Carr:

Yeah, we could spend a whole hour, I think, talking about sort of whack-a-mole nature of tariff policy and how difficult it is to sort of track these factories down, and how quickly they move and how long trade cases take to process. But suffice it to say, I think there’s a very broad consensus that tariff policy alone can’t really meet the need of protecting American manufacturing. But I think to get to your point, there is accelerating demand for solar power. It is a global phenomenon. It really doesn’t have a lot to do with subsidies. And because it is such an intense need and there’s such intense competition to put solar on the grid, I think one thing it’s important to recognize is these subsidies don’t, generally… The value of them is not really being captured by the developers very much. A lot of it is being passed through to the eventual consumers, keeping costs down.

And so I think that’s a core point you were making, Jackie, because there is so much demand for solar, we will see the PPA prices around those tick up because nobody will be gaining the credit effectively after this period after a year. What we’ll likely see is pretty much a wholesale move to Chinese products for projects where they will effectively be taking advantage of the subsidies that China is putting on those products and keeping those prices low. I think it really does fundamentally come down to, do you want the panels in those and the inverters and the like? Do you want them to be from a domestic source or not? And I think the environment we’re now seeing as a result of this bill is starting in August of 2026. We’ve now removed any incentive for those to be domestic products versus Chinese products.

Jackie Forrest:

So maybe some changes there still coming once they see that reality. Well, let’s come to the last question, Mike. This has been a fascinating conversation, and you’ve really highlighted many times throughout this conversation the problem with China. How can we compete against a country that has such scale that is subsidizing these businesses, and in every area of clean energy, it pops up as an issue? And it got me thinking like maybe we’re doing it the wrong way. We’re always doing fast following, right? We’re trying to build the batteries just like they are, the same chemistry and try to do it better. Well, how can we do it better when they’ve got such massive scale? And could we actually try to leapfrog them by just developing brand new technologies? And I know there’s some exciting companies out there in the US, but is that maybe the better approach at this point because they’re so far ahead?

Mike Carr:

This has been a debate in energy policy for a few decades now. I think it is an interesting point, and it’s an attractive idea that we can just sort of leapfrog ahead, as you said, create a new technology that can get ahead of the curve. I guess, I would say, we’ve tried that a lot, and I hate to raise the specter of this, but Solyndra was an example of a technological leap forward. It was a thin film technology produced in an environment where silicon… All these silicon prices were very, very high. And the idea was, “Oh, well, these will never become cheap enough for us to displace it, so we’ll leapfrog ahead to thin film technology.” And they had an expensive process, obviously. But basically, I think we have found again and again, that manufacturing prowess is rules the day. A lot of these technologies, for example, the lithium iron phosphate batteries that we see CATL and BYD dominating in today, were actually developed in the United States.

And I think the challenge that we need to recognize our R&D complex, I think in North America, I would include Canada in this is really second to none. And we do develop these new technologies, we throw them off all the time. But the environment that we see again and again is when the technology is ready to move from the lab into the commercial space, the manufacturing prowess simply isn’t here anymore to actually turn those into viable technologies. And so to the extent that there is a leapfrog available, those companies, A123 was a good example of the earliest iteration of this leapfrog technology of lithium ion phosphate batteries. Eventually, that company went bankrupt because we didn’t have enough support for them in the United States, and they were sold to a Chinese company, and now they’re bringing that technology back to us. I think we’ve seen that movie a few times at this point, and it really does…

You have to advance both policies at the same time. You have to build a manufacturing base to really turn these into commercially viable technologies. Certainly, we never want to be in the position of fast following, but we do want to be in the position of having enough manufacturing capacity that that leapfrog technology is available to us. And in solar, the example that everybody cites to is tandem technology. So our expectation is that perovskite layers will be deposited on top of silicon layers to dramatically increase efficiency.

The entire industry knows that this is the next generation. Perovskites are very cheap. We have a technological advantage in perovskites, but what we hear from the perovskite companies when you go talk to them is, “Well, we need a manufacturing partner in order to bring this to market, and we don’t have the capacity here in the United States.” So that’s exactly what we’ve been trying to address for the last few years through this industrial policy. I think the end state ends up exactly as you outlined, Jackie, where we do have a leapfrog technology, but we got to have at least enough ability to manufacture the existing product to make sure that that doesn’t follow the same path to China as we’ve seen in the past.

Peter Tertzakian:

Yeah. I mean, as I’m listening to the conversation and thinking it’s the only thing we can predict, for sure, is there are going to be more policy surprises coming, I think. And I think there’s going to be more technological surprises both on the product innovation and the necessary manufacturing process innovations as well. Well, Mike Carr, executive director at the Solar Energy Manufacturers for America, otherwise known as SEMA Coalition. Thanks so much for joining us, and helping us at least momentarily understand American energy and industrial policy. We’ll see how it changes that goes forward. But for now, thanks very much for joining us.

Mike Carr:

Thanks again for having me. I appreciate the time. I had a good time.

Jackie Forrest:

And thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you listened to and tell someone else about us.

Announcer:

For more ideas and insights, visit arcenergyinstitute.com.

July 7, 2025 Charts

July 7, 2025 Charts

Produced by wp_user | by
Shipping Canadian Oil to Tidewater: What’s Next for Trans Mountain

Shipping Canadian Oil to Tidewater: What’s Next for Trans Mountain

Produced by ARC Energy Research Institute | by

This week, our guest is Mark Maki, Chief Executive Officer of Trans Mountain Corporation. The original Trans Mountain pipeline was built in 1953, and the Expansion Project was completed just over one year ago, nearly tripling the pipeline’s capacity to 890,000 B/d (from 300,000 B/d).

Here are some of the questions that Jackie and Peter asked Mark: How much do you expect to pay your shareholder (the Canadian Government) in 2025 and 2026? What are the logistics of moving the oil by tanker? Where are the tankers going, and what type of crude is shipped in the pipeline? How has the pipeline improved Canadian oil prices? What is the expected timing for a resolution on the tolls, as a Canadian Energy Regulator (CER) hearing is currently underway that could adjust the cost for shipping oil? What is the potential to increase pipeline flows, and is there potential for a northern leg as proposed in the early days of the expansion? The Federal Government has stated it plans to sell the pipeline; do you have any updates on that and the potential timing? What are your thoughts on Bill C-5 and the potential for this type of legislation to avoid the high costs and many delays faced by the Trans Mountain Expansion?

Content referenced in this podcast:

Please review our disclaimer at: https://www.arcenergyinstitute.com/disclaimer/

Check us out on social media:

X (Twitter): @arcenergyinst
LinkedIn: @ARC Energy Research Institute

Subscribe to ARC Energy Ideas Podcast
Apple Podcasts
Amazon Music
Spotify

Episode 290 transcript

Disclosure:

The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.

Announcer:

This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.

Jackie Forrest:

Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forrest.

Peter Tertzakian:

And I’m Peter Tertzakian. Welcome back. So Jackie, newsflash. The first LNG tanker is apparently arriving in the West Coast.

Jackie Forrest:

Very soon according to the media reports.

Peter Tertzakian:

What is it? June 29th.

Jackie Forrest:

29th, it’s expected. So it’s been a long time waiting for this first commercial shipment from LNG Canada.

Peter Tertzakian:

Yeah.

Jackie Forrest:

And pretty exciting. And actually, this is the timeline. They always said it was going to be mid-2025. They hit the mark exactly.

Peter Tertzakian:

Wow.

Jackie Forrest:

The end of June.

Peter Tertzakian:

I don’t know. Like I’ve been working on the LNG beat since the early 2000s when we were looking at exporting LNG off the East Coast. And then, it migrated to importing. And then, importing off the West Coast. I don’t know. It was like 12, 14 years ago, there was 14 or 17 projects.

Jackie Forrest:

Yeah. Well, actually, you and I did a trip to visit Kitimat in-

Peter Tertzakian:

Yeah.

Jackie Forrest:

… 2014. And that’s when they were like, “14 projects’ going to be built.” Remember we actually got a helicopter ride-

Peter Tertzakian:

We did.

Jackie Forrest:

… over the Douglas Channel.

Peter Tertzakian:

Yeah.

Jackie Forrest:

You took some great photos, and there was going to be so many projects built. 11 years later-

Peter Tertzakian:

And we were just pointing at the old Methanex site at the time, which is where the new facility is now at. And this new tanker is expected, so that’s amazing. I think there will be some sort of fanfare, I’m sure, when that tanker arrives and departs with its first cargoes to Asia. I mean, speaking of exports off the West Coast. I mean, this is part of the building up of infrastructure. Well, we’ve got a new bill, C-5.

Jackie Forrest:

So Bill C-5, I think is an important bill, because a lot of the problem and why we haven’t got all those LNG projects built, it just takes a long time and there’s a lot of uncertainty in terms of building major projects in this country. We saw that with the Trans Mountain. I mean, the pipeline had to be owned by the government because it was too risky for private capital. So I do think this Bill C-5 is going to create the circumstances that private capital can invest in this country.

Peter Tertzakian:

Yeah. Well, I think it overcomes the first stage gate question that the country has to acknowledge and that is, do we want to build energy infrastructure? And I think we can agree for the past decade, decade and a half, it was sort of a lukewarm maybe, and there was a lot of rules and regulations and all sorts of other issues that precluded the building up of energy infrastructure. So we’re through the first stage gate. And I think C-5 is an important milestone in answering the question, “Do we want to build energy infrastructure?” And the answer now is, yes.

The next phase is going to be, “Well, what do we want to build, and what priority order, and what will the federal government and the provincial governments backstop or otherwise support through regulatory reform?” And then, we’re going to move on to the third stage gate, which is, “Okay. Well, how do we finance and build all this stuff?” And we’ll have many podcasts on that I am sure. And also, many podcasts on the, what do we want to build? But I want to go back to the West Coast. I want to go back to building infrastructure because that is going to be topical.

And no doubt, B.C. will be part of many of the energy projects built. But I’m holding in my hand a new book, Building A Legacy: The Historic Expansion of the Trans Mountain Pipeline, which is a welcome gift that I just received. And you got a copy too as well, Jackie. And why I love this book is because I have the original one as well. That was done when the pipeline was built in the late ’50s. So the gift was given to us by none other than the CEO of Trans Mountain, Mark Maki. And we’re delighted to have him in the studio to talk about the expansion and even more expansions, potentially as a consequence of Bill C-5. So welcome, Mark.

Mark Maki:

Well, thank you, Peter. I appreciate the opportunity to be here with you and Jackie. Looking forward to the conversation.

Jackie Forrest:

Well, we last talked about the Trans Mountain when Dawn Farrell joined us in May 2024 at the exciting time of the startup of the expansion. And for those listeners that forgot, the original pipeline was 300,000 barrels a day, expanded to 890,000 barrels a day. And then not long after that startup, Mark, you were announced as the CEO. So tell us a little bit about your journey to becoming the CEO of Trans Mountain Pipeline.

Mark Maki:

Well, I’ve been in this sector a really long time. So I started working in industry and business in the mid ’80s with another big infrastructure company here in town. And I actually started out of the US, which is Enbridge or what is now the Enbridge Companies. And so I’ve been a part of the oil pipeline space for a very long time. And as I got towards the end of career at Enbridge, it was just time to do something different. And I know Dawn talked about service to country in her podcast a year ago. I would say my wiring was similar.

I wanted to do something that mattered to a sector I’ve been a part of for a really long time, and be part of something that was good for the base and good for the country. A country that had adopted me along the way, which was kind of nice. Going to work for Trans Mountain felt like the thing I needed to do. And so, came into Trans Mountain as CFO. And after a long history with Enbridge in the US and Canada, it was a chance to help make a difference. And so, I’m thrilled to be here and thrilled to have the position. I am following some incredibly talented people, Ian Anderson and Dawn Farrell. And I hope I hold the same standard that they did.

Peter Tertzakian:

Well, that’s wonderful. I call it the People’s Pipeline now because we, as Canadians, own it. And I don’t say that facetiously. I think it’s incredibly important that we have this strategic piece of infrastructure. Many countries in the world where strategic infrastructure is actually owned by the state. Certainly, many of the power lines and stuff in this country are, so why wouldn’t the pipeline? Now, the pipeline is also making some pretty important contributions financially now. Isn’t that right, Jackie?

Jackie Forrest:

Yeah, so we’ll ask you about this. This is a Globe and Mail article. I didn’t read all your detailed results, but it talks about the Trans Mountain paying roughly 1.25 billion over the course of the year in 2025, with expectations of more in 2026. So these are profits that are coming from the pipeline that are going back to the government. So maybe explain that and explain why maybe it could go up in 2026.

Mark Maki:

Sure. A few reasons for that. I mean, first off, now that we’re running and we’re operational, and instead of having money come into the system to pay the bills for construction, we’re actually, the customers are moving barrels off of our system into the markets in North America. Then, also in Asia, and we’ll get to that I’m sure a little later. We have a line of credit with the government, so we’re paying them interest on that, and then they are the shareholders. So you mentioned Canada is a shareholder. Big round numbers. There’s 40 million of them.

Although citizens of Canada effectively own, have an interest effectively in the company, that’s how we like to think about it. And so, we’re paying a dividend upstairs to the owner. So first quarter, between the interest and dividends, 311 million. About 148 was interest. The balance 163-ish was a dividend that we expect will repeat the rest of the year. That’s the 1.25 billion. And this year, we’re still finishing up some of the construction work on the expansion. And so, that’s taking some of the money that we’re generating, and that will disappear in 2026 largely. And so, that gives us more room to pay more dividend upstairs to the owner. So it should go up.

Jackie Forrest:

Well, and we’re going to get to it. That’s not the only economic benefit to the country because it has seriously improved pricing for Western Canadian crude oils. Because now, those folks in the Midwest, well, there’s scarcity. They have to compete for our barrels and pay us higher prices. So we’re going to get to that part, but I also wanted to talk about benefits to Indigenous communities. Do you have any information on that?

Mark Maki:

Oh, for sure. Whether you think about employment or the mutual benefit agreements that Ian helped to put into place and Dawn helped complete, and now we’re operating under those. So mutual benefit agreements with the Nations, 69 agreements. I think it’s 81 different Nations that are covered by that. As far as contracting, roughly $6 billion. In fact, it might be an excess of $6 billion of contracts to either Indigenous owned or Indigenous partnerships. So that was a huge benefit.

The other thing I really want to comment on is that the quality of the work that was done by the Indigenous contractors is A1. And in fact, it isn’t so much that they’re Indigenous contractors as much as they’re really good at what they, do and that’s why you hire them. So there’ll be ongoing relationships there now for the decades to come. Finally, employment. More than 10% of the workforce that worked on the project was identified as Indigenous. And I think that’s tremendous, and I think that really, again, helps open doors in the energy community to opportunity for the Nations.

Peter Tertzakian:

Yeah, I think the statistic is that broadly speaking, in Canada, the Indigenous participation in… Call it corporate Canada or work or however you want to do it, is about 2%. So 10% is very high.

Mark Maki:

Yeah, we’re very proud of that and the country should be as well.

Peter Tertzakian:

Mm-hmm.

Jackie Forrest:

All right. Well, we’re going to get to the potential sale and maybe potential for Indigenous ownerships at some point, but let’s talk about the operations of the pipeline. I think a lot of our listeners would be interested in the logistics of moving oil. Once you move the oil to the tankers, how do the tankers get out? Are they piloted? Are the pilots helicoptered back? Just explain all the logistics of getting crude moving on to tidewater.

Mark Maki:

Okay. I grew up in a port. And family, either railroad people or tied to the port. So this stuff is, first off, it’s cool to me. And dad was a Navy guy, so all of that. So when I go onto the dock, I start to vibrate because it’s incredibly fascinating, the operation that we have at Westridge. But the tankers, when you stand up alongside one of those things, you realize how big they really are. But the care that is taken to bring the ships in and to have them leave is tremendous. So first off, as ships come in now, they’re unladen, and they can only come in during the daylight hours into the port. They have guide tugs that help bring them in. There’s guide tugs that help take them back out of the port.

They leave the port when they’re loaded really only on slack, high tide. And so, there’s only certain number of windows in any given day for ships to come in and go out. Now, eventually there are going to be improvements in the port that allow unladen nighttime transits in, and that’ll help the logistics. Think of it like dancing elephants. That’s what they are. But that’ll help smooth the logistics out. One of our really big tests this year was our first winter with the new facilities up and running. And so, one of the things we were wondering about was how much would weather impact loading and so forth. And actually, things went incredibly smooth.

And using month of March as an example, it was our peak month. We had 29 ships leave the facility. If I remember correctly, on the split, there was two Panamax, which is a little bit smaller ship, and the balance were Aframax, which are larger, and everything worked really well. So the logistics of the port operation, the logistics of our facility, the people that work there, and they’re incredibly proud. You go into the control center, and you look out over the bay, and you look at three ships loading. And I was down there a couple of weeks ago, and they were like, “We got three going today, Mark.” They were excited, they were happy, they were proud of what they were doing for the country.

Peter Tertzakian:

So logistically, the biggest constraint factor or the vulnerability is the Lions Gate Bridge. Is that the issue?

Mark Maki:

Really, the bridge is around the Second Narrows and the CN Bridge that goes up and down.

Peter Tertzakian:

Okay.

Mark Maki:

That really is the primary logistical consideration. And then, there’s clearance. Clearance issues on the Lions Gate Bridge. So a much larger tanker than Aframax won’t work.

Peter Tertzakian:

Right. Just because when the tide is down, it’s not down enough for the top of the tanker to clear.

Mark Maki:

Clearance is an issue. Yep. So Aframax fits well. And one of my colleagues describes that Aframax is like the F-150 of the truck world. So common, very versatile tank.

Peter Tertzakian:

Just for context, so there’s Panamax, which is slightly smaller. It can go through the Panama Canal, therefore, the name. Aframax, it can, I guess, go to Africa. Is that where it comes from?

Mark Maki:

Yeah, not Africa. It’s a standard, but yeah.

Peter Tertzakian:

Some standard.

Mark Maki:

Yeah.

Peter Tertzakian:

Okay.

Mark Maki:

Yeah, yeah.

Peter Tertzakian:

And then, there’s the-

Mark Maki:

The acronym, I forget. I’m sorry, Peter.

Peter Tertzakian:

That’s okay.

Mark Maki:

I’ll look it up, and send it to you.

Peter Tertzakian:

And then, the largest is the ULCCs. I don’t know what they call them.

Jackie Forrest:

VLCCs.

Peter Tertzakian:

Yeah.

Jackie Forrest:

The very large carrier.

Peter Tertzakian:

Very large. Isn’t there a ULCC?

Mark Maki:

There’s a UL.

Jackie Forrest:

Okay.

Mark Maki:

That’s just the super big.

Peter Tertzakian:

Ultra large.

Mark Maki:

Yep.

Peter Tertzakian:

Super big, but those don’t fit.

Mark Maki:

Those don’t fit probably pretty much anywhere, and there’s very few of those left in the fleet. So ULCC is the biggest. VLCC, Suezmax, Aframax, and there’s big and small Afras, and then Pana.

Peter Tertzakian:

And then, Panamax.

Jackie Forrest:

Yeah, so we’re on the smaller end. And it’s worth probably just clarifying that when these tankers have to navigate these bridges and things like that, they have local pilots on that are familiar. So the person who maybe if the ship is flagged Panama, or wherever it’s flagged, they actually have a Canadian pilot who’s familiar with these areas that has to drive the boat out. And there’s tugs on all corners, right? To make sure that it has a lot of control.

Mark Maki:

Well, and stern in. Yeah, the ships are piloted by people that understand everything feels different. Like on the Mississippi River, you have Mississippi River pilots because they know how the river behaves. Same thing would apply here in Vancouver Harbor. Tides are strong, and so people that are familiar with the harbor, and have years and decades of experience are making sure the ships go in and out safely.

Peter Tertzakian:

Right.

Mark Maki:

And high standard is applied to any ship that calls, and our facility has to meet very strict requirements. And we have rejected ships, just said, “Nope, that one doesn’t fit the bill.” A ship calling on our facilities is very, very carefully looked at.

Peter Tertzakian:

Right. So where do the tankers go now that we’ve established the port? And how’s the operations work there?

Mark Maki:

Yeah, this is really interesting. And there’s some really cool things we’ve learned through this. Once the tanker and flange from our pipeline meet, we don’t control once it’s on the ship and where it goes, but we are very interested for lots of reasons. What’s the market it’s going to? A little more than half of the ships that leave Westridge are bound for Asia. And broadly, China’s by far the largest taker. But other locations include Japan, Korea, Singapore. We’ve seen some ships go to India and Brunei. That’s the typical market for oil leaving that’s going to Asia. On the North American side, interestingly enough, some ships leave the harbor and go down into effectively Puget Sound into the US. So they offload at the Washington Refining Complex.

So some go there. A lot go to California. And the reason for that is California is a heavy oil market. It’s a natural place for Canadian barrels to go. And then, we’ve had a couple tankers that found their way up to Alaska, which is again, I think quite interesting given Alaska’s an oil producer. So we have been very, I wouldn’t say surprised, but very happy. The thesis that was there at the beginning of the pipeline was, it was going to diversify markets for Canadian oil. And that has been very true, and it shows up in the numbers. Yesterday, I spent a little time with Bank of Canada. We’re actually talking about this as well, and just they’ve commented, “This pipeline, and what it does shows up in the GDP for the country.”

Peter Tertzakian:

Well, it does because you get higher prices, you get global prices. So the profitability all the way back up the pipe to the producers. I mean, we saw it in the prices coming up.

Jackie Forrest:

And this is the thing that’s important. It’s not just the 890,000 barrels a day that goes down the Trans Mountain. It actually affects the price for all crude in Western Canada. So we produce like 5.5 million barrels a day of crude. All of it gets lifted by this pipeline, because now, it creates scarcity in the market. And in the past, buyers knew we had very few options for our product, and therefore, they would offer us low prices. Now, with the Trans Mountain, we have places to put our barrels. And now, they have to pay us a more fair price.

So I did a little back of the envelope. And every $1 per barrel higher price adds about $2 billion in annual revenue to the oil and gas industry. For lights and heavies, it’s been different, but they both narrowed. But I think you could argue at least $3. So we’re talking of at least $6 billion a year of additional income. I don’t know, Mark, I’m sure you’ve got more accurate numbers on that.

Mark Maki:

I think those are good working numbers, and we try to be understated in our business and don’t talk too much on that. But yeah, we think it’s made a difference to the differential. And if you look back over history, and I know you touched on this in the podcast with Dawn, there’s times the differential’s been $30 a barrel.

Peter Tertzakian:

Yeah.

Mark Maki:

And whenever the pipeline network gets constrained, and you saw this in the ’18-ish timeframe before line three came online on Enbridge, differentials blew out. And throughout history, in my time in the space, we would build infrastructure to catch up with supply. And then, the differential would come in. And then as production increased, it would blow back out again.

So now for the first time in a while, we’ve got a little bit of slack in the system, and I think that has helped for sure on the differential. But the other thing that’s really helped is the market diversification. And I’ve got lots of stories from ancient history that I’m happy to go into. I know you love history.

Peter Tertzakian:

Yeah.

Mark Maki:

About views on differentials. But we look at that $9 differential now, and go, “It feels like we did something that mattered.”

Peter Tertzakian:

That’s huge.

Jackie Forrest:

I mean, it’s typically even, on average, been 15. So there’s $5, so maybe it’s more like $10 billion annually.

Peter Tertzakian:

It flows all the way through to taxes, royalties, and everything.

Jackie Forrest:

By the way, just that money was money that was transferring from our economy to, I would say, a lot of US refiners.

Peter Tertzakian:

Right.

Mark Maki:

Yes.

Jackie Forrest:

They were getting the-

Peter Tertzakian:

The benefit.

Jackie Forrest:

… economic benefit. And now by building this pipeline, that’s shifting back over the border to Canadians getting a better price for their crude oil.

Peter Tertzakian:

Right. So in actual fact, the dividend that you talked about earlier that the Crown Corp is paying back to the people is augmented and amplified by the increase in corporate taxes and royalties that are also being paid. So it’s really, you got to include that in the calculus.

Mark Maki:

Yep.

Peter Tertzakian:

Now, you mentioned that we’re not constrained, which is a good thing because we don’t have the differential. The March data suggests that it’s about 89% full with a bit about 10% room. On May 15th, the Financial Post reported that Minister Guilbeault, who used to be the Minister of Climate Change Canada, he’s now a Minister of Canadian Identity and Culture, he said that the Trans Mountain pipeline was not fully used, only about half used. It’s actually 89%. And therefore, Canada does not need additional pipelines. So how do you respond to that?

Mark Maki:

Oh, just with the numbers. So in the first quarter, it was 85% utilized overall. In the month of March, as you pointed out, 89. So we ran about 790,000 a day in the month of March. Seasonal maintenance on the oil sands will bring it back down a bit in Q2, and Q3. And then Q4, we expect we’ll be back in that, you know?

Peter Tertzakian:

Right.

Mark Maki:

90%-ish range. Longer term, I expect will fill up. Now, that could be as soon as late ’26. Our talking kind of view has been ’27, ’28. But I’ve heard others in this sector talk about the network being full again by the end of ’26. Mr. Guilbeault’s comments, I try to make sense of it. And I know people get lots of numbers in their head. I think maybe he was talking about the amount of spot space being utilized was around 40%. That’s the closest I can come up with.

Peter Tertzakian:

So the spot, just to be clear, so there’s what they call firm.

Mark Maki:

Mm-hmm.

Peter Tertzakian:

Which is the contracted capacity of the pipe.

Mark Maki:

Yes.

Peter Tertzakian:

So these are long-term contracts that the producers buy and they fill. And then the spot, or otherwise known as the interruptible, is a small section of what’s remaining in the pipe that you can sort of put your barrels on as a producer at any time without having a long-term contract.

Mark Maki:

Right.

Peter Tertzakian:

Right. And so, perhaps he was just focusing in on the narrow slice.

Mark Maki:

Yes.

Peter Tertzakian:

That was not fully contracted.

Jackie Forrest:

And is that about 10% of the total capacity or…

Mark Maki:

The system has, round a little bit here, it’s not as precise. Well, this is supposed to be precise, 707,500. 707,500 is the contracted space in the system out of the 890. Then, the balance is spot. And when you look at how utilized it was in the first quarter, it was around that 40%-ish of spot was utilized. He may have had that in his head. So I’m trying to justify the number. But the overall system, the way to think about it is 85. And that little bit of capacity that’s left over, that is going to get soaked up pretty quick.

Peter Tertzakian:

But in some ways, we don’t want it to get it fully soaked up because then we run into constraints again.

Jackie Forrest:

Right.

Mark Maki:

Differential just go out. Yes.

Jackie Forrest:

Well, but there’s maybe some potential for expansion, and we’ll get to that. But I wanted to ask you one final question here. There is this CER hearing on the tolls for the pipeline with the shippers seeking lower tolls. Maybe you can just tell us now. What are the tolls? What’s the process to get certainty on this situation? I see this is pretty critical too. We’re going to talk about maybe a potential sale. But if you don’t know what you’re going to charge for tolls, it’s a big unknown for a buyer.

Mark Maki:

Yeah, that’s a good comment, for sure, and a great question. And it’s one that probably got sidestepped a bit, because in the process of litigating that in front of the regulator. But this would be pretty normal stuff in our space, if you’re a utility. The customers want to take a closer look at the rates, that’s their right. And so, there’s a process for it. We’ve been going back and forth with evidence, and questions, and so forth.

That’s where we are effectively, big picture, in the process. We’ll go to hearing now currently in November. And then probably by the second quarter of ’26, a decision will come back from the regulator as to how should the rates be adjudicated. So that’s probably as much as I want to go into today on that. And that, again, it’s normal. Painful as the process is, there’s a reason the process exists.

Jackie Forrest:

Right. Well, I got involved in one of those hearings, and I know they take a long time, but it is good that you have that system for people to put forward their arguments. And it takes a while, but I think it’s a good process

Mark Maki:

Yeah. It’s an interesting one, this one too for us, and without getting too much into it. But you’ve got the shippers, of course, would want the rates lower for obvious reasons. We want the rates at a particular place because we think that’s the right number. And there’s another party in the case who wants the rates higher because they think the rates that we’re charging is a subsidy to industry. So CER is going to have a lot to sort through on this one, and it will be interesting. But it’s a different dynamic than what I’m normally used to, which is where you got the pipeline wants something, the customer base wants something different. It’s two parties at it, and here you got three.

Peter Tertzakian:

At the end of the day, does it not also have to be competitive with other outlets like the main line that goes to the United States, and…

Mark Maki:

Yes. Our assessment is that if you look at where product ends up off of Trans Mountain, especially if you tanker it to California or tanker to Asia, we are competitive with the alternative.

Peter Tertzakian:

Okay.

Mark Maki:

Yep.

Peter Tertzakian:

I want to ask you one more question before we get into the next phase of potential development. And that is, what is being transported on this pipe? Is it just diluted bitumen or is there light oils? What sort of liquids are being transported on this pipe?

Mark Maki:

It’s a little bit of everything. Refined products. Some refined products move in the system. Gasoline and diesel to lower mainland, and that’s for the local consumption in B.C. Light oil, which is also used in the B.C. market. Some light oil is exported, some light oil goes into Washington state.

Peter Tertzakian:

Yeah.

Mark Maki:

Some heavier oils may find their way into Washington state where they’ll blend. And a lot of different types of heavy oil really are moving on the new line, and that largely goes then to export.

Peter Tertzakian:

Yeah. So help us visualize how this works because this is kind of fascinating. You have gasoline and diesel, which is a refined product. It goes in big slugs. And then, you follow it through with heavier stuff, and they know how to off-take it at the back end.

Mark Maki:

This is fascinating stuff. But what we’re trying to do is basically, think of it like rail cars almost without a physical barrier. But basically, a rail car is moving down inside the pipeline. So you have a rail car full of light oil next to, say, a rail car full of diesel, next to a rail car full of unleaded gasoline. And so, that will be your train effectively moving through the pipeline.

And if you maintain certain pressure and certain conditions, it’s in a state called turbulent flow, so you don’t get a lot of mixing. The box cars don’t run over each other, so they stay separate. And there’ll be a little bit of mixing at the interface, and you deal with that, but where you cut the batches. Line one is light oil and refined products, some synthetic oil. Line two is largely heavy, different types of heavy oil.

Jackie Forrest:

Yeah, so you have to just kind of switch the tank you put it in when-

Peter Tertzakian:

Yeah. No, it’s fascinating.

Jackie Forrest:

You need a lot of tanks to handle all those different products at the end of the line, I suppose.

Mark Maki:

You do. Yeah, we have a certain kind of suite of cocktails, for lack of a better way to put it, that we move through the system.

Peter Tertzakian:

It is fascinating, because I’ve always viewed rail cars a unit train of oil as a pipeline on wheels. And so, now we have a pipeline that is, I don’t know, rail car’s metaphor as well.

Mark Maki:

Yes. Yeah, exactly.

Peter Tertzakian:

Okay.

Mark Maki:

Yep, yep.

Jackie Forrest:

All right. Well, another thing that could enhance the value of the pipeline is if it could even move more hydrocarbons through it. So tell us about, you came up with some news that there is potential to increase the Trans Mountain pipeline capacity. And this all happened back in February when we were going to get those 25% tariffs on oil, and there would’ve been a lot of incentive to move more oil through the Trans Mountain and even greater economic benefits to the country. But tell us what are the short and long-term options to add capacity?

Mark Maki:

Sure. Now, that you’re done with the pipeline, and again, having been in the sector a long time, the first thing the pipeliner does, it goes, “Okay, what can I do to it now to make it run better?” And so, that really is where our minds turned shortly after the completion of the pipeline. Well, okay, what’s next? So obviously, we’re focusing on running the system well and making all the parts, you know? The symphony hum.

But where we can go first, and we’re evaluating this now, but it’s using drag-reducing agents in the pipeline. That’s a common strategy used by pipeline companies too. It’s a chemical. You mix in with the oil. And as we talked about those batches of oil moving through the system, it makes them move easier through the pipe.

Peter Tertzakian:

So it can go faster?

Mark Maki:

It reduces friction.

Peter Tertzakian:

Right.

Mark Maki:

And therefore, less energy and you can move more and more and more product through the system. So we’re going to evaluate that, and are well on the path of that. That could be in service as early as the end of ’26. And so, we’re going through basically, right now, some testing of it on the system. Trying it out in different segments to see how the pipeline behaves. The next logical thing after that that we’re evaluating is adding some horsepower to the existing pipeline.

The full capability of what we just built is closer to 800,000 versus 540. And so, that is one of the other things that we’re going to evaluate. So more horsepower on the system, maybe a little bit of pipe. We have to see, but we’re going to evaluate that as well. And so, that’s more like a ’29-ish timeframe. And that fits pretty well with one of the things the Prime Minister has talked about is projects that make a difference in, say, the next five years, and that one can.

Jackie Forrest:

Okay, so that would include some new construction because you’d have to add some pumping and maybe some pipe. And would it add, was that 300,000 of additional capacity or so?

Mark Maki:

About 250, big round numbers.

Jackie Forrest:

Okay, 250 or so.

Mark Maki:

Yep.

Jackie Forrest:

Now, that will cost money. And you’re going to have to get some shippers to sign on to that additional capacity. Do you have any concerns that shippers would support an expansion? And we’re going to get to the Bill C-5 soon, but I’m just looking at it in terms of long-term contracts. We have this oil and gas emissions cap, which is creating some uncertainty in terms of the amount of supply growth. And do they feel comfortable committing barrels to a pipeline when they’re not certain if they can grow with a policy like that?

Mark Maki:

Well, that’s where you got to start. I think at the highest level for us to optimize the kit that we have and for other pipelines to optimize the kits that they have, you have to see that there’s going to be interest to contract for the space. And so, we would go through a process when the time comes. And if the time is right, we’ll go through an open season process and look for contracts. That’ll only be successful if the producers see we’re going to increase production. There’s a natural amount of growth that seems to be there from… And they become really good. And I know Peter is an economist and Jackie is an economist. You watch this stuff with laser focus.

But they have become extraordinarily successful over the decades at getting a little bit more out of their systems, and doing it more efficiently at lower costs. And so, you’re going to see with some capital investments, some growth. And the pipeline system is still tight, so it won’t take much. So you have to look at these little optimizations, like I mentioned, DRA at the end of ’26. That could be a just-in-time delivery of a really important layer of capacity. And then, you get to the pumping addition, and other pipelines are looking at similar things. And so, we can ratchet up to a point. And then, you hit hydraulic max on the systems. And then, you really need another barrel.

Jackie Forrest:

Right. And then, you need probably a bigger commitment of new supply to go for a greenfield. And I did want to talk about this article in the Financial Post in February, that talked about the potential for a northern leg to the Trans Mountain pipeline that would take crude oil to Kitimat, B.C. This was apparently envisioned in the early days of the pipeline, but was never actually filed with the regulator as the plan. Can you just talk about what the benefits of that would be or over just maybe expanding the pipeline into the existing Burnaby Port?

Mark Maki:

Yeah, the thought at the time when the original designs for Trans Mountain were done, and I think one of the former CEOs, it was Ian who was talking about this idea, and it was a great idea. It was a concept they had at the time where, think of it like a Y. You had a part of the system that went north to Kitimat, and part of the system that went south to Burnaby. And so, they would’ve altered the pipe size after it left the fork in the road, so to speak. When the Trans Mountain Expansion project was completed, that fork in the road, the provision for that really isn’t there any longer.

We did effectively the same pipe size all the way down to Burnaby, because going to Kitimat would’ve been incredibly expensive, and just there wasn’t the appetite for a facility as you know from the Northern Gateway plus other things that happened in the background. So the feasibility of the northern leg today, it probably isn’t there. If you’re going to think about something like that, first thing you do is optimize what you have. So we always start there. But if you’re thinking about another fork in the road, you would do another pipeline to some other location.

Peter Tertzakian:

So does that mean, is there another location in between Burnaby and Kitimat just a bit further north?

Mark Maki:

Again, subject to all kinds of things, but there would have to be commercial support. But Kitimat, Rupert, maybe point north of there. The other thing that’s been in the dialogue of late has been Churchill too as another thought. Different market, different ocean, effectively that you’d access through Hudson’s Bay. It’s an interesting idea because you’re not getting to a pipeline kind of vibrate. That’ll be interesting.

But you have to think, is there a market? Is there supply to fill the pipeline? There’s a lot of things you got to get over first. And so, I think you got to start first with some of the policy things you were talking about, which is, okay, what is the carbon regime and what can we do to make that work? And then, incentivize investment. We need investment in the sector to drive enough volume to support a pipeline.

Jackie Forrest:

To do a big greenfield pipeline, you have to have a view that there’s projects coming along. And there’s nothing, no big greenfield projects coming along that make you think supply is going to grow at a really rapid pace. So that’s a concern, I think, in terms of building a big pipeline is getting some of those policies like the oil and gas cap, which create uncertainty for people to move forward with some of these bigger projects.

Mark Maki:

Yeah, I think that’s the message I’m sure the administration has heard loud and clear from the industry side, that there’s this overarching policy things. And we have to see certainty to invest, because it’s a long-term investment. And the rules can change five years later. Or six years later, someone else comes in, and they got a different view of the world. So they’re trying to invest into that. The advantage the oil shale people have in the States is they get their cash back quick.

And oil sands play is a much longer play. It’s a great investment, but it takes time. And so, they have to know that they’re going to get recovery of capital and return on capital across that period. You know the production decline curve’s like a bowling ball went out a window on the oil shale stuff. And so, there’s a real advantage to the Canadian production. Longevity is one of them and certainty.

Jackie Forrest:

But you also have to have certainty that you’ve got 10 or 20 years here of a horizon, and not have policies like the oil and gas cap. We could beat that one up all day though.

Peter Tertzakian:

Yeah. As I’ve long argued on the podcast, the oil and gas cap is just one of a whole suite of policies. We need a holistic review of all the carbon policies. Actually, even carbon plus, fiscal plus regulatory reform in general. And it’s not just for oil pipelines, it’s for any kind of energy infrastructure that needs reform. But that’s a whole other subject and topic. But actually, one more thing. I mean, we also need the certainty on those tolls, right?

Mark Maki:

Mm-hmm. Yes.

Peter Tertzakian:

Sort of like the tolling regime. Because within the absence of understanding what it costs to move, what it costs to produce, and the time it would take to build new projects as a consequence of the permitting process, et cetera, et cetera, all these things have to come into place before we really think about how to build infrastructure, which as I said at the beginning of the podcast is sort of like that phase three. Do we want to build? Yes, we do. What do we want to build and what rank order priority? Okay, we’re in that phase now. The third phase is the most difficult. Well, how are we going to do it and how are we going to pay for it?

Jackie Forrest:

All right. Well, I think on a lot of people’s mind, and we’re going to get to the… It’s a $34 billion pipeline that the people of Canada own as Peter said. There has been an expectation set that the federal government will sell the pipeline. Any expectations in terms of the timing for that?

Mark Maki:

Yeah, I’d have a hard time commenting on timing. New administration in. But one of the things that the company has always been pretty vocal about, and I would go back to a hearing of the Standing Committee of Natural Resources that the company testified at, and I think my messaging at that was don’t be in a hurry. And the reason for that is you’re valuing a stream of cash flows over decades. And at the front end of that, there’s a little bit of uncertainty around the rate case that you mentioned earlier. So you want that behind you. The utilization system. How’s it going to perform? How’s it going to go through the first winter? Oh, that’s now history.

We’ve got a year of operating history, which is really good and clean. Can it do 890? Yes, we’ve tested at 890. And so, there’s a variety of things. As you remove that uncertainty, it becomes more of a valuing of an annuity. Now, you’re talking about the tail. What’s the longevity of the business? And so, that helps value. In the meantime, clip a coupon. So you’re a dividend holder, bring your basis in the asset down. My hands dropping down, which is meant to show, got 34 billion in, start taking some money back out of it. So time is helpful here. And the government, it doesn’t need to be in any hurry. So that’s our advice in the system.

Jackie Forrest:

Well, and you talked about the potential for expansion, and so it’s worth more money if you cannot-

Mark Maki:

Yeah, thank you. Yep.

Jackie Forrest:

… move more oil through it, right?

Mark Maki:

I missed that one. That was an important one. But yes, you make something which is a concept on a piece of paper a little more real if you’re in the permitting process and you’ve got commercial support and the rest. Now, somebody who’s looking at buying the company has got to value that, or they’re going to lose. So it’s an important thing that we can advance and add value for the 40 million shareholders in the pipeline.

Peter Tertzakian:

Well, I’m just going to chime in. As I’ve said in the podcast before. As a Canadian, I do not want this pipeline sold. We need this pipeline, and we should be happy that we bought it and built it, the expansions when we did. This is a key part of our energy security. It’s a strategic asset. And now, when we’re talking about sovereignty and all the affiliated issues surrounding that, we need to have this critical piece of infrastructure that has actually served us well in historical energy shocks, the 1970s oil shocks. We used the Trans Mountain Pipeline to fill up the Panamax type tankers to take it through the Panama Canal to serve Central Canada at a time when the world was hoarding oil. So to me, there’s no way we want to sell this.

Jackie Forrest:

That’s a good point. If you were China, would you sell this pipeline?

Peter Tertzakian:

Well, no. But I mean, we don’t want foreign interests owning the pipeline.

Jackie Forrest:

Yep.

Peter Tertzakian:

That seems absurd to me.

Jackie Forrest:

Well, no. I mean, if this was a strategic asset in some of these countries like China, they would want to control it, right?

Peter Tertzakian:

Yeah.

Jackie Forrest:

There’s some argument there, Peter, I guess too, to why it should be a national asset.

Peter Tertzakian:

Yeah, and it’s now starting to kick out good dividends, return on capital. You hold it for the long term, you expand it as a foundation. And on that note, you mentioned Churchill. But I mean, are there other potential expansion or diversification of energy infrastructure projects that Trans Mountain may be thinking of?

Mark Maki:

Yeah. Right now, we’re probably sticking closer to home. That would be kind of for the future to evaluate that. Near term, it’s optimize what we have, and we’re here to help support the owner.

Jackie Forrest:

Okay. Well, we’re running out of time, Mark, but we really want your opinion. There’s obviously a discussion in Canada now about the fast tracking and building new pipelines and new any kind of energy infrastructure, and we have this Bill C-5. Now, I just want your advice. You’ve come to Trans Mountain after the construction, but learned a lot by being there.

When you look at the delays and costs that Trans Mountain faced, and as I said, it was so bad that private investors wouldn’t support the pipeline, and you look at what’s being proposed in C-5, do you think that would help solve some of the problems that led to the cost increases and delays that we saw?

Mark Maki:

Yes, I do. I think it will help without question. I really, and whenever I get the chance to say this, I’m very optimistic about where Prime Minister is taking the country. And I think he very much understands the importance of the energy industry to Canada. I’m as optimistic as I’ve been in a long time about what’s to come. So I think C-5 is a great step in the right direction.

Again, a little bit of history. Trans Mountain was called the Anchor Loop. It was the beginnings of the Trans Mountain Expansion Project in the mid-2000s in Jasper National Park in Mount Robson Provincial Park. That project was permit filed at the NEB in February of 2006. It was approved in October of ’06. Construction was done in ’08. That’s how it’s supposed to work, not a 10-year odyssey.

Jackie Forrest:

And was it on budget?

Mark Maki:

From the original budget, it was a little bit over budget. But it was, if you look at the dollars and cents at the time, I think it was 550 million for that particular project. And a similar project today in B.C. would be about $4 billion. Okay? And that’s the effect of time. How? Which I know you talked about a lot with Dawn Farrell on the prior podcast. But the C-5 thing and the direction of the Prime Minister, I think it feels like it’s going in the right direction. And so, I’m excited and optimistic.

Peter Tertzakian:

Wow. Well, great. So you are the third in a series of CEOs from Trans Mountain that we’ve had. We’ve had Ian Anderson, we’ve had Dawn Farrell, and now you, Mark Maki, delighted to have you. You’ve taken us through the technical aspects of pipeline logistics, port operations, things I didn’t even know about.

You’ve talked us through some of the policies and the politics and the energy security and the strategic nature of this important piece of infrastructure. I’m certainly delighted you’re leading the People’s Pipeline, Trans Mountain, and hope that we see a lot more from that as it contributes to the economic and strategic benefit of our great country. So thanks, Mark. Wonderful to have you.

Mark Maki:

Jackie, Peter, thank you, and happy to come back if you need me for any particular purpose, and love to talk history. And please do flip through the book.

Peter Tertzakian:

Yep.

Mark Maki:

There are some incredible pictures in there, and you get a real appreciation for what was done here.

Jackie Forrest:

And thank you, Mark. And thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to, and tell someone else about us.

Announcer:

For more ideas and insights, visit arcenergyinstitute.com.