Thank you, Mr. Chair and members of the committee, for the opportunity to speak with you today about the Trans Mountain pipeline expansion.
I'm going to focus my comments today on the financial and economic implications of the project. This expansion was a considerable undertaking that took about 11 years from initial application to completion, more than six years behind schedule. It also came with significant cost overruns, rising from an estimated $5 billion in 2013 to about $34 billion today.
It's such a high price tag that the question really is: Was it worth it? In my view, the answer is clear: Yes, it was, and it's not even close. There are really two key reasons why I say that.
First, taxpayers are not on the hook for the pipeline in the way that many fear. I'll clarify that in a moment. Second, the pipeline's broader economic benefits to Canada far exceed its costs.
Let me start with the impact on taxpayers. There has been widespread concern that taxpayers will suffer significant losses from the government's ownership of the pipeline given those cost overruns, but recent financial data suggests otherwise. Oil producers will cover a material portion of the cost overruns through higher tolls of roughly now about $11 per barrel. While that's much higher than initially expected, to be sure, it's still better than relying on more expensive rail transportation options, which were the alternative.
Also, much of the cost overruns for the project were financed through debt, and that's important for two reasons. First, any future buyer of the pipeline would not need to literally pay the full $34 billion to prevent taxpayers from losing money. The buyer instead could assume those debt obligations. Second, the interest on this debt is manageable relative to the pipeline's projected future revenues. It's anticipated to generate about $3 billion in annual revenue soon, with operating expenses well below $500 million. Even after covering the $1.6 billion in interest, there is still enough left over to start paying down that debt. Over time, interest rates will fall, revenues will rise, and the pipeline's profitability will increase for many years to come.
In valuing the pipeline today, I think we need to account for the time value of money. If we apply, say, a discount rate of 8% on future projected earnings from the pipeline's recent financial filings through the CER, it suggests that earnings—depending on the scenario that you look at over the next 20 years before depreciation and interest—are valued at between $26 billion and $38 billion. If you subtract expenses, interest payments, debt repayments and so on, it leaves you with a residual of between about $4.2 billion at the low end to $8.6 billion at the high end at the end of that 20-year horizon. Again, that's in present value terms.
There are risks with any forecasts, of course, but even with the cost overruns, the pipeline could quite easily, depending on the scenario, be worth more than the $4.5 billion that the government paid for it in 2018.
The broader economic benefits of the pipeline for Canada are also substantial. As a piece of critical infrastructure, these broader economic benefits cannot be neglected. For oil producers, the advantages are obvious. The expected pipeline can now transport nearly 900,000 barrels per day, and that's the equivalent of about 1,300 railcars. That provides lower-cost access to international markets, and that tends to boost prices for Canadian producers.
Even producers not directly using the pipeline will benefit from the narrowing of the price differential between Canadian oil and global prices, and it's difficult to say exactly by how much. I'm not going to provide my own estimates here, but recent analysis from the CER estimated that adequate pipeline capacity could shave about $9 per barrel off that differential. Given Canada's daily oil production, these gains add up fast.
Using the 2016 energy future report, for example, from the CER, you can estimate that, between now and 2040, the cost to Canada's economy would be nearly $240 billion in today's dollars if we hadn't expanded pipeline infrastructure, so projects like Trans Mountain avoid those large costs. These economic gains suggest that the pipeline will more than pay for itself in terms of higher GDP, and those benefits accrue far beyond Alberta as well.
In closing, Mr. Chair, I'll note that none of what I've said here justifies the major cost overruns, and investigations into the causes to avoid repeating the same mistakes are important to undertake. Despite the delays and added costs, the pipeline remains an incredibly valuable asset and a crucial piece of infrastructure for Canada's economy.
Thank you. I look forward to the questions and conversations to come.