Evidence of meeting #103 for Natural Resources in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was project.
A video is available from Parliament.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
We have the financial data that allows us to determine whether it will be...the net present value of future cash flows, taking into account construction costs so far. We have that. Some of it is commercially sensitive, so we can't disclose the details.
What we don't have is the detailed breakdown of the construction costs and the reasons for the change in construction costs versus the 2018 estimates, the 2020 estimates and the 2022 estimates.
Conservative
Shannon Stubbs Conservative Lakeland, AB
Okay. Is it fair to say that it will be very unlikely that the government does finally keep its commitment to Canada and divest of this pipeline, which, by the way, at least a minimum of three indigenous-led groups are interested in purchasing, despite the testimony earlier?
Would it be fair to say that it is very unlikely that the government is actually going to be able to recoup the costs it has wasted to get a pipeline constructed that's now full and actually won't fully capture the value of Canadian energy exports for our economy and for every community in this country?
Is it fair to say that the government is not going to be able to make taxpayers whole with the divestiture, if that ever actually happens?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Based on our 2022 analysis, we found that the net present value of the pipeline was negative, and that was when construction costs were at $20 billion or slightly more than that. With construction costs having increased to $34 billion, we still have to complete the analysis, but it suggests that, as Ms. Levin indicated in her opening remarks, tolls will have to increase or the sale value will have to be less than the construction costs and the net present value of future revenues.
Liberal
The Chair Liberal George Chahal
Thank you, Mr. Giroux.
Thank you, Ms. Stubbs. Your time is up.
We will now proceed to Mr. Jowhari for six minutes.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
Thank you, Mr. Chair.
Mr. Giroux, welcome to our committee. It's good to see you, and it's good to start this session with you as a witness, getting some insight into the TMX.
First of all, thank you very much for the report that you did in 2022. It established a good mid-baseline before we get the final report, where all the information will be available. I'm personally looking forward to reading your report. I believe it will be very comprehensive.
I want to go back to the 2022 report. You qualified that in your opening remarks. A number of times you talked about assumptions. My understanding is that you used five key assumptions to measure the value of the pipeline project. Can you kindly elaborate on those five key assumptions?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Sure. First, we have a reference scenario. The other assumptions are an increase or decrease in construction costs. We also have assumptions regarding lower or higher utilization rates. We also have a discount rate that varies, lower or higher. We have the service and tolling framework after the 10-year contracts expire.
These are the main assumptions that we use to determine how the value of the pipeline could vary according to variations in these various parameters.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
On those specific...I do acknowledge that you've said that, after the completion, there are more variables that you're going to look at, and I'll come to that. Going back to those five assumptions, how many of them have proven to be aligned with the project as you know it now, and how many of them have changed, aside from the cost. We know the cost went from $7.5 billion to $35 billion.
Aside from those, the other four—
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The in-service date has been postponed by several months. The construction costs, as you've alluded to, have increased significantly. I don't think the rest have changed significantly. The discount rate has gone down, as you would expect with a construction project that has some uncertainties. We get rid of these uncertainties as the construction is finalized, and the discount rate goes down. I don't think the pipeline utilization rates and the service and tolling frameworks after the 20-year contracts expire have changed significantly at this stage, yet.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
It's not too bad. Three seem to be.... You're doing a good job on coming up with the assumptions for your calculations.
Would you consider the same assumptions, or would you expand your assumption base when you look at the new valuation as well as the divestment, which I'll get to, in your upcoming report? Will you keep the assumptions to five, or will you increase them?
If you're going to increase them, what assumptions would you add?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
We will certainly remove the in-service date, because the pipeline is currently in service. There is no need to vary the in-service date. We are still in the process of determining which other factors we will be using. Construction costs are also probably a given, unless there are changes. Jason is not kicking me under the table, so that seems to be okay. The rest are probably going to remain as the assumptions could change.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
Will you look into, for example, the economic benefits from this revenue, the jobs created, the downstream jobs created, the increased factor and other expert testimonies regarding your assessment? Are we going to go from...? We're dropping two of the five, so three are going to remain. You're adding how many more, five more, six more, one more?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
We have looked, in the past, at the economic impacts of the construction phase, so the thousands of jobs that have been created and their impact on the GDP during the construction phase. We have also indicated potential benefits with respect to a narrowing of the gap between Western Canada Select and WTI. We mentioned that every five dollars of narrowing the gap between Canadian oil and oil on the world markets at that time was $6 billion.
We will—
Liberal
Majid Jowhari Liberal Richmond Hill, ON
I'm sorry, but that's exactly where I wanted to go.
What was the gap before? I understand that the gap was about $15.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The gap varies significantly based on world market conditions.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
However, we indicated, for illustrative purposes, that if the gap between WCS and WTI goes down by five dollars, it was, at the time, from 2019 to 2023, a $6-billion annual benefit to the Canadian economy. If Canadian oil producers can sell their oil less cheaply or at a significantly lower discount so that they can get a better price for their commodity, then there is a benefit of about $6 billion per year.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
If we're selling it down south—because we couldn't sell our oil internationally—we're hit with a $15-per-barrel discount, which we had to do with this. Now, not only have we maximized, but we have also recovered $15 billion. That's a three-factor...times $6 billion. Now we are talking about $18 billion. Is that correct?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It depends on your assumption.
We didn't imply that the completion of the pipeline would necessarily reduce that discount by five dollars. It was just for illustrative purposes because other factors—
Liberal
Majid Jowhari Liberal Richmond Hill, ON
I'm over my six minutes.
Thank you very much for your indulgence, sir.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Thank you.
Liberal
The Chair Liberal George Chahal
Thank you.
We'll now proceed to Monsieur Simard for six minutes.
Monsieur Simard, the floor is yours.
Mario Simard Bloc Jonquière, QC
Thank you, Mr. Chair.
Thank you for being here, Mr. Giroux.
I want to start by putting things in perspective.
In 2018, the government bought the pipeline for $4.5 billion. According to Kinder Morgan's analysis of the pipeline expansion, it would cost $7.4 billion. In 2020, the value of the expansion was already estimated at $12.6 billion. In 2022, it was estimated at $21.4 billion, in 2023, at $30 billion, and in 2024, the final cost is estimated at $34 billion.
You have already appeared before this committee to say that we should probably dismiss the government's scenario where profits from the pipeline would be invested in clean energy projects.
I would like to draw your attention to something quite simple. In its 2023 budget, the government presented what it calls “a bold grand plan for the energy transition”, worth $40 billion, which would extend to 2035. That $40 billion would be used not only for clean electricity, but also for carbon capture and storage projects, which must benefit the oil and gas sector.
I see that you've put a price on the analysis you've done on carbon. If I look at all of this from the outside, I have to come to the conclusion that the government has spent a lot of resources on oil and gas projects and that, conversely, we are going to miss the target when it comes to clean energy projects.
Would you say my analysis is coherent?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Your analysis seems quite coherent.
On the one hand, a pipeline was purchased and the adventure continued with an expansion of that pipeline being built, with the total cost likely to exceed $34 billion.
On the other hand, the various tax credits that have been announced in recent budgets will amount to tens of billions of dollars. I don't have the exact figures, but we seem to be getting close to the same amounts.
The only caveat I would put to that analysis is that the government could decide to sell the Trans Mountain pipeline and its expansion and presumably reap the benefits of that sale. Will those benefits be more or less than the cost of acquisition and expansion? We think they're probably going to be less, so we would suffer a loss. However, the purchase and expansion costs must also be considered in relation to the profit from the sale, if there is a sale, at some point.
Bloc
Mario Simard Bloc Jonquière, QC
Okay. I find what you are saying very interesting.
If we look at the possible scenarios, you are telling me that there is the sale scenario, and there is one that we can rule out right off the bat—you can tell me if you agree with me—and that is that there will never be any reinvestment related to operation Trans Mountain to support clean energy projects.
In your opinion, can we dismiss this scenario and assume that it won't happen?