The financial benefits of new pipeline capacity will far outweigh the carbon costs outlined in last year’s federal-Alberta memorandum of understanding, according to new modelling from Clean Prosperity. 

In their agreement the two governments committed to add at least one million barrels per day in new bitumen pipeline capacity and increase the minimum effective carbon credit price in Alberta to $130 per tonne. 

Clean Prosperity modelled the impact of these two provisions of the agreement on the profitability of four oil sands facilities, representing a range of emissions intensities. Together the four facilities account for one-quarter of total bitumen production in Alberta. 

Clean Prosperity’s work draws on facility-level operational finance modelling by Rory Johnston of Commodity Context.

Key findings

Clean Prosperity finds that new pipeline capacity that enables an increase in Canada’s oil exports and production growth in the Alberta oil sands would also result in a sustained reduction in the price differential between Alberta’s Western Canada Select (WCS) crude blend and the benchmark West Texas Intermediate (WTI). As a result of this reduced price differential, and assuming carbon credit prices of $130 per tonne, modelling shows that: 

1. The four facilities analyzed by Clean Prosperity would see an increase in per-barrel profitability of 30% to 91%, net of carbon costs.

2. This increase in profitability would allow most oil sands facilities to quickly recoup all their additional carbon costs incurred between the implementation of the agreement and the opening of a new pipeline. Three of the four facilities analyzed recoup all their additional costs within one year of the pipeline opening and lowering the WCS-WTI differential.

3. Net profits at the four facilities would increase by $3.16 billion in the 15 years following the opening of new pipeline capacity. Alberta government royalties would increase by $957 million in the same period. 

“Clean Prosperity’s modelling shows that the federal-Alberta grand bargain is not just a climate breakthrough, but can also deliver a massive economic tailwind.”

Benjamin Dachis, vice president of research and outreach, Clean Prosperity, and report co-author

“Clean Prosperity’s modelling shows that the federal-Alberta grand bargain is not just a climate breakthrough, but can also deliver a massive economic tailwind,” said Benjamin Dachis, Clean Prosperity’s vice president of research and outreach and co-author of the new research. 

“Even with higher carbon costs, improved pipeline access helps oil producers grow profits by getting the best price for increased exports. This deal leads to investment, jobs, and increased public revenues. At the same time, it supports the growth of Alberta’s low-carbon economy.”

Read the research

_{Photo credit: Syncrude Canada}