{"id":28689,"date":"2026-07-10T16:08:53","date_gmt":"2026-07-10T16:08:53","guid":{"rendered":"https:\/\/www.rbc.com\/en\/thought-leadership\/expect-more-elbows-fewer-handshakes-as-cusma-talks-heat-up\/"},"modified":"2026-07-10T17:21:47","modified_gmt":"2026-07-10T17:21:47","slug":"the-costs-and-the-economic-prize-of-the-west-coast-oil-pipeline","status":"publish","type":"rbc_tl","link":"https:\/\/www.rbc.com\/en\/thought-leadership\/the-trade-zone\/the-costs-and-the-economic-prize-of-the-west-coast-oil-pipeline\/","title":{"rendered":"Trade Zone: The costs\u2014and the economic prize\u2014of the West Coast Oil Pipeline"},"content":{"rendered":"\n
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As debate continues over the costs of building Alberta\u2019s proposed West Coast Oil Pipeline (WCOP), there is a question of how Canadian heavy crude can compete with the Persian Gulf and ever-rising Venezuelan grades that already serve the Asian market. There are several key elements that need to hold for the economics of the proposed pipeline to work\u2014and none are guaranteed.<\/p>\n\n\n\n

Canada\u2019s transportation costs challenge<\/h2>\n\n\n\n

A Canadian barrel costs roughly twice what a Gulf barrel costs to land at the same refinery\u2014the arithmetic of being 1,200 kilometres from tidewater. On delivered cost alone, any case for the pipeline must explain what offsets a gap that wide.<\/p>\n\n\n\n

A Competitive Oil Market<\/strong><\/p>\n\n\n\n

Heavy sour crude delivered to Northeast Asia (C$\/per barrel)<\/p>\n\n\n\n
<\/th>WCS<\/th>Arab Heavy<\/th>Merey<\/th><\/tr><\/thead>
Delivered costs (C$\/b)<\/td>(CA)<\/td>(Gulf)<\/td>(VZ)<\/td><\/tr>
Field to tidewater<\/td>$9-$11<\/td>$2-$3<\/td>$4-$6<\/td><\/tr>
Freight to NE Asia<\/td>$4-$6<\/td>$3-$4<\/td>$4-$5<\/td><\/tr>
Delivered, all-in cost<\/td>$13-$17<\/td>$5-$7<\/td>$8-$11<\/td><\/tr><\/tbody><\/table>\n\n\n\n

Notes: Persian Gulf and Venezuelan field-to-tidewater costs are RBC Thought Leadership estimates. Western Canadian Select (WCS) costs are modelled off Trans Mountain\u2019s shipping costs to China from its Westridge Marine Terminal.  Freight rates are mid-cycle estimates.<\/em><\/p>\n\n\n\n

The tolls can be competitive\u2014if the build stays on budget<\/h2>\n\n\n\n

The new pipeline does not need to follow the same path that unfolded for the Trans Mountain Expansion Project (TMX), i.e., cost overruns that were part passed onto shippers.<\/p>\n\n\n\n

Pipeline Economics<\/strong><\/p>\n\n\n\n

West Coast Oil Pipeline (WCOP) vs. Trans Mountain (TMX) financial metrics<\/strong><\/p>\n\n\n\n
<\/th>WCOP<\/th>WCOP<\/th>TMX<\/th><\/tr><\/thead>
Pipeline Metrics (C$)<\/td>Low<\/td>High<\/td>Actual<\/td><\/tr>
Capacity, 000 bpd<\/td>1,000<\/td>1,000<\/td>890<\/td><\/tr>
Capital cost, $ billion<\/td>$35.2<\/td>$43.7<\/td>$35.3<\/td><\/tr>
Capital cost, $ per bpd<\/td>$35,200<\/td>$43,700<\/td>$59,831<\/td><\/tr>
Pipeline toll, $\/b<\/td>TBD<\/td>TBD<\/td>$9-$11<\/td><\/tr>
Freight to Asia, $\/b<\/td>$2-$3<\/td>$2-$3<\/td>$4-$6<\/td><\/tr><\/tbody><\/table>\n\n\n\n

Notes: The TMX toll reflects the revised rates as disclosed in the July 7 submission to the Canada Energy Regulator ($9.20-$11.05 per barrel). The TMX capital cost per barrel is calculated based on expansion volumes only (590,000 bpd). Freight rates are mid-cycle (normalized). All dollar figures are quoted in Canadian dollars. <\/em><\/em><\/p>\n\n\n\n

The West Coast Oil Pipeline\u2019s transportation costs should hopefully be less expensive than TMX, given the use of a larger line along a \u2018de-risked\u2019 corridor, and loading supertankers (Very Large Crude Carriers) directly rather than the mid-sized Aframaxes. The challenge would be to keep the project on budget. The $35-$44 billion estimated price tag for the project excludes escalation and financing\u2014key concerns from a competitiveness standpoint.<\/p>\n\n\n\n

What must hold for the barrel to clear<\/h2>\n\n\n\n

Western Canadian Select (WCS) trades well under global benchmarks, much of it due to captivity (as it\u2019s one and only market is the U.S.) rather than quality. While a cheaper price improves competitiveness (buyers get a similar barrel for less cost), it is less than ideal for producers and getting oil to tidewater lets the barrel escape this structural disadvantage. The Alberta government estimates WCOP could narrow the price gap between WCS and the U.S. benchmark West Texas Intermediate by up to US$3 per barrel. For reference, WCS has historically traded at a US$10-15 discount to WTI, but has at times gone in excess of US$20 per barrel.<\/p>\n\n\n\n

Buyers are hoping Canadian crude is more reliable. Cheap Persian Gulf barrels carry a Strait of Hormuz risk, while Venezuelan barrels are dependent upon an extended economic reconstruction. Canada\u2019s oil carries neither risk, with Asian buyers willing to pay for that security.<\/p>\n\n\n\n

Producer commitments are less a question of Asian demand\u2014TMX\u2019s fill rate suggests the demand is clearly there, but cost overrun concerns need to be alleviated to ensure the West Coast project\u2019s competitiveness.<\/p>\n\n\n\n

Bottom Line<\/h2>\n\n\n\n

The trade case rests on several conditions: the project is built on time and on budget, with a discount that is more structural in nature rather than subject to periodic events, and a reliability premium outlast recent disruptions. If these conditions hold, the prize is significant: roughly $20 billion in incremental annual exports (based on 1 million barrels per day at 90% utilization, and a WCS price of $60 per barrel), along with a potential US$3-per-barrel tightening in a spread across future bitumen production of between 4.5 and 5 million barrels per day by 2035, worth about $5 billion annually. Whether Canada should make this bet with public money is a fiscal judgment, particularly given the country\u2019s recent history with pipeline development, but one that seems increasingly likely with each passing day.<\/p>\n\n\n\n

–By Shaz Merwat<\/strong>, Energy Policy Lead<\/p>\n<\/div>\n<\/section>\n\n\n\n

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500 Leaders | 2 Nations | 1 Day<\/h2>\n\n\n\n

RBC brought together more than 500 business, government and policy leaders last month for the U.S.-Canada Summit, in partnership with the Eurasia Group. Ministers, governors, ambassadors, economists, investors\u2014and an astronaut\u2014gathered in one room to talk about the future of the world\u2019s most prosperous relationship.<\/p>\n\n\n\n