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Alberta West Coast Oil Pipeline Unlikely to Be Needed, IEEFA Says

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Alberta's proposed West Coast Oil Pipeline is unlikely to be needed to meet future crude export capacity requirements, analysts at the Institute for Energy Economics and Financial Analysis said in a Tuesday note.

The 1-million-barrel-per-day pipeline, proposed to transport crude from Alberta to the British Columbia coast, would only be required under the Canada Energy Regulator's Higher Scenario, IEEFA analysts Mark Kalegha and Will Scargill said.

Existing pipelines and lower-cost brownfield expansions would provide sufficient capacity under the other scenarios outlined in the CER's Canada's Energy Future 2026 report, they said.

IEEFA said slowing global oil demand growth, coupled with rising adoption of electric vehicles and other clean technologies, makes the long-term oil prices underpinning the CER's Higher Scenario increasingly unlikely.

The analysis also concluded the pipeline could impose substantial costs on the oil industry. Assuming a tolling structure similar to the Trans Mountain Expansion project, initial tolls could range from 18.70 Canadian dollars ($13.46) to 23.70 Canadian dollars per barrel.

Even if Pacific Coast crude exports command a premium over US prices, IEEFA said that premium would likely be insufficient to offset the pipeline's transportation costs. Long-term committed shippers could receive $5 to $8 less per barrel exported in most scenarios than they would without the project, according to the analysis.

That could amount to an annual drag of 2.2 billion Canadian dollars to 3.2 billion Canadian dollars on the industry over a 20-year contract period, based on 2025 dollars, IEEFA said.

The project also faces significant execution risks, including potential delays and cost overruns. Governments could ultimately own about 90% of the pipeline under current proposals, leaving the public sector exposed to much of the project's financial and construction risk, IEEFA said.

The institute concluded that committing capital to the pipeline could weaken rather than improve long-term returns for investors as the global energy transition reshapes oil markets.

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