After years of delays and inflated costs, the expanded Trans Mountain pipeline (TMX) is finally paying dividends for Canada’s oil industry.
According to a new study by Alberta Central, an association of credit unions, TMX has generated an estimated $10 billion CAD in additional revenues for Canadian oil producers after barely six months in service, said AC chief economist Charles St. Arnaud.
Since it was completed in May of last year, TMX has increased Alberta’s export capacity by 890,000 barrels of oil per day (bold), primarily to non-US markets. As a result, non-U.S. oil exports doubled in the latter half of 2024, reducing Canada’s reliance on its southern neighbour and diversifying its customer base.
In that regard, one of the most immediate benefits of TMX has been the narrowing of the price differential between Western Canada Select (WCS) and benchmark West Texas Intermediate (WTI) prices. With TMX, the discount has shrunk by about USD$8 per barrel, representing a major financial boon for Canadian oil producers and the government of Alberta in particular.
But despite its economic contributions, TMX’s journey to completion was fraught with financial setbacks. The pipeline’s construction costs ballooned from an initial estimate of $7.4 billion to more than $30 billion, raising questions about its cost-efficiency. Critics argue that while TMX has boosted revenues, it will take years, if not decades, to recoup the inflated expenses.
That is compounded by the threat of US tariffs and how Alberta should respond.
Premier Danielle Smith has opposed retaliatory measures like export curtailments, citing the potential fiscal impact. Oil royalties, which account for about 25% of Alberta’s government spending, would take a significant hit if exports were reduced.
That’s despite the threat of higher gasoline prices and even outright shortages in the US Midwest.
“The impact of import tariffs would be significant on both sides of the border,” St. Arnaud writes. “The question is whether refineries in less affected areas could increase refining and compensate for lost refining output in other regions.”
However, any increase in gasoline US prices are likely to be less of a hit to American motorists than the actual tariffs because of the lower WCS price and the widening of the oil price spread. Hence, US consumers are unlikely to fully pay for the tariffs as some like Ontario Premier Doug Ford suggest.
“An oft-forgotten topic regarding the economic impact of tariffs is who will ultimately bear its costs. Due to thin profit margins for manufacturing goods, importers usually pass the extra costs onto consumers. However, for Canadian oil exporters, Canada has more to lose from import tariffs on oil than the US,” St. Arnaud says.
On the flip side, the economics of the oil sands sector, with its steep upfront costs, means that Canadian oil producers remain profitable even at low oil prices. That means that a negative shock to the oil industry is unlikely to generate a bust that would plunge the Alberta economy into a recession, although government revenues would take a 25% hit.
The report suggests that an export tax on oil, with revenues redirected to Alberta, could mitigate the impact of US tariffs without severely disrupting production — as long as the revenues were redirected back to Alberta as compensation.
“We believe that imposing an export tax on oil would be a less harmful retaliatory option. Doing so could ensure that US consumers pay a greater share of the US import tariffs at the pump while minimizing the impact of a reduction in revenues.”
