Who will pay for Canada’s proposed west coast pipeline?

Hello and welcome to Energy Source, coming to you from Toronto and New York today, where stocks are surging and oil prices are sliding following an agreement between Iran and the US to reopen the Strait of Hormuz.

Investors are betting the deal will reverse a sudden surge in energy prices that has hit a wide range of industries since the war began at the end of February. The price of Brent crude has fallen about 30 per cent since peaking at $119.50 on March 9 at the height of the conflict.

Optimism around the prospects for a deal and the reopening of the strait, through which about a fifth of oil and liquefied natural gas flows, had begun to push down petrol and diesel prices over the past week.

The US average price of petrol has fallen more than 9 cents over the past week and stands at $3.99 a gallon, according to GasBuddy, which tracks pricing data from petrol stations. The average price of diesel fell almost 12 cents to $5.18 a gallon over the past week.

This is good news for consumers, industry and Donald Trump, whose approval ratings have hit record lows amid a cost-of-living crisis that has squeezed American consumers.

But questions remain over the durability of an agreement, which my FT colleagues have labelled a “truce of convenience” for the US president, who at one point pledged there would be no deal with Iran except “unconditional surrender”.

Tehran has proved its ability to close the strait and its capacity to strike with precision against Gulf states and US bases in the region. It will go into talks with Washington on its nuclear programme with leverage that in the past was a war-game theory rather than an established fact.

For the oil and gas industry an end to the conflict is welcome despite falling prices and concerns there could be a glut of crude hitting markets over the coming months. The longer the Middle East crisis continued and the strait remained shut, the greater the likelihood that consumers would switch to alternatives to fossil fuels such as electric vehicles.

One of the big questions posed by the war is whether policymakers will accelerate energy transition policies to reduce their reliance on oil and gas from the Middle East. This is something that will resonate in Canada, where our correspondent Ilya Gridneff has investigated plans by Alberta’s premier to build a new pipeline to the west coast to ship oil to Asia — a project that would reduce its reliance on the US market.

Thanks for reading, Jamie

Canada plans a new pipeline proposal

Alberta’s premier Danielle Smith wants to begin construction of a new oil pipeline to the west coast of Canada by September 2027 but faces the major challenge of finding someone to pay for it.

Prime Minister Mark Carney struck a deal with the oil-rich province last month on industrial carbon pricing, laying the groundwork for a new oil pipeline aiming to send up to 1mn barrels a day to Asia.

Canada sends nearly all of its oil to the US, supplying about 60 per cent of American oil imports, or about 4mn b/d. Most of it comes from the giant bitumen-rich oil sands of northern Alberta, home to the world’s third-largest reserve of oil, regarded as some of the “dirtiest” to process.

But despite Ottawa’s numerous regulatory concessions, the oil and gas industry remains hesitant to fund a new pipeline because of remaining environmental regulations, carbon pricing, the cost of a carbon capture facility and First Nations’ opposition.

The cost of constructing a new pipeline and carbon capture facility while expanding new oil sands fields could reach $100bn, according to Eric Nuttall, partner at Ninepoint Partners in Toronto.

“The oil sands account for 0.1 per cent of global emissions and a completely ineffective and unnecessary [carbon] cost only serves to voluntarily abdicate market share to countries whose environmental stewardship and track record are far, far inferior,” he said.

The industry is also shifting away from a carbon capture and storage mega-project that they promoted under the name of the Pathways Alliance, since rebranded as the Oils Sands Alliance. The project is estimated to cost about C$20bn (US$14.3bn) to build and needs huge sums to operate. 

This comes as the Canadian Climate Institute reports the country is not on track to meet its commitment under the Paris accord to cut emissions by up to 45 per cent below 2005 levels by 2030 or the long-term goal of net zero by 2050.

Rory Johnston, founder of Commodity Context, an oil research business, said the significant investment proposition may require “public capital to catalyse action”.

“The question was which shovel hit the ground first?” he said. “It seems like the prioritisation is shifting towards the pipeline and the challenge is getting an actual proponent to put the capital into putting that shovel in the ground.”

Last week Calgary hosted the Global Energy Show where Smith said Alberta plans to create an “energy corridor” that can help the province double oil production — already at record levels — by 2035.

While several routes are being considered, Smith told the conference Alberta is considering a general path to the north-west British Columbia coast near Prince Rupert with no specific route detailed until they consult Indigenous communities.

Another suggestion has been to bypass British Columbia and route the pipeline through Washington state in the US. Regardless of the plan, the province aims to send a pipeline proposal to the federal government by July 1.

Alberta’s energy minister Brian Jean told reporters “several proponents” are willing to pay for a new pipeline. But Jean would not say who, or whether they would be part of next month’s application.

Canadian oil exports have received a boost from the Trans Mountain Expansion pipeline, which enabled crude to flow from Alberta to the west coast for sale to Asian markets. The pipeline opened in May 2024 after a decade of delays and at a total construction cost of C$34bn

One proposed pipeline route piggybacks off the TMX but First Nations communities in British Columbia fear more oil passing through their land makes them vulnerable to an environmental disaster.

“There is no technology that can clean up an oil spill at sea, and one spill could destroy our way of life,” said Marilyn Slett, the elected chief of the Heiltsuk Nation on British Columbia’s central coast.

Enbridge, which oversees North America’s largest system of oil pipelines, has echoed industry calls for changes to policy and environmental regulations. “Not only for a new pipeline to be considered, but for producers to have confidence to increase production,” it said.

Sending more oil and gas south to the US is another proposal that could appeal to US President Donald Trump, who has shown interest in reviving the ill-fated Keystone XL pipeline proposal.

But Johnston said this option only reinforces Canada’s over-reliance on US markets. “(But) Canada gets the immediate benefit of strategic leverage upon completion of a west coast pipeline,” he said. (Ilya Gridneff)

Power Points

• Iran and US agreed a deal to reopen the Strait of Hormuz and extend a ceasefire.

• US investment groups are racing to capitalise on Trump’s ousting of communist leader Nicolás Maduro in Venezuela in January, setting up funds and targeting underutilised oilfields in the Latin American nation.

• Suppliers to the nuclear fusion industry are expanding capacity as they bet a race to build reactors and power plants will create a lucrative market long before the technology delivers on its promise of abundant electricity.

Energy Source is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Rachel Millard, Malcolm Moore, Ryohtaroh Satoh and Stephanie Findlay with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.