Alberta’s West Coast Pipeline Gambit: Economics, Routes and the China Wild Card Shaping Canada’s Oil Future

Alberta is set to unveil route and project details for a proposed million-barrel-a-day oil pipeline to the West Coast, a project tied to an agreement signed last November by Alberta Premier Danielle Smith and Prime Minister Mark Carney, and formally submitted to the federal Major Projects Office by a Canada Day deadline. At the same time, the United States-Mexico-Canada (USMCA) trade review is underway and the Iran-Hormuz ceasefire remains fragile, injecting fresh uncertainty into global crude markets. We see these three threads as deeply interconnected signals for Canadian producers and global oil traders alike. Click here to listen to the full interview.

The Route Question: Why the West Coast Pipeline Hangs on One Decision

Before any serious economic analysis can begin on Alberta’s proposed West Coast pipeline, the province must answer one foundational question: which route? The choice of corridor determines everything downstream, from construction costs and indigenous consultation timelines to toll structures and the likely opposition the project will face from communities and regulators. Without a confirmed route, the numbers remain too soft to draw firm conclusions.

The contrast with the Prairie Connector Pipeline (sometimes called the ‘not Keystone XL’ pipeline) is instructive. Prairie Connector is already progressing, with the third and final leg connecting Guernsey, Wyoming, to Cushing, Oklahoma, now announced. Our base case assumes a completed Prairie Connector project provides sufficient takeaway capacity to absorb the oil sands growth volumes we currently model. The West Coast pipe must therefore compete against an already-moving target, and its promoters will need to demonstrate a pricing and volume argument that goes beyond what the existing southern corridor can deliver.

The Pathways Carbon Capture Link: A Strategic Bet With an Unknown Price Tag

Alberta’s proposed pipeline is explicitly conditioned on the Pathways Alliance carbon capture project advancing. That link introduces a cost layer that could make per-barrel tolls expensive, with some analysts suggesting the all-in shipping cost could approach parity with rail, historically one of the most expensive options for moving crude. The province and federal government have not yet disclosed whether green tax credits or carbon offset mechanisms will be layered in to close the gap between the West Coast toll and the Prairie Connector toll. 

We do not believe Ottawa or Edmonton would formally designate this a national project of interest without a credible pathway to economic competitiveness. The open question is the mechanism: subsidies, preferred financing or carbon credit monetization. Until those details are public, producers will struggle to make forward-looking shipping commitments. The next months of negotiation will be critical in converting political intent into a bankable project structure.

Trade Levers and the USMCA Review: Energy as Canada’s Negotiating Card

The USMCA trade review, formally launched this week, is primarily focused on autos and lumber. The review’s direct near-term impact on energy is limited. However, the removal of a legacy export mandate clause, which previously required a defined volume of Canadian crude to be delivered into U.S. markets, changes the strategic calculus. Canada now has full discretion over where its barrels flow, and that flexibility has obvious value at the negotiating table. 

We view energy as a latent leverage tool in the USMCA negotiating process: not yet activated, but potentially significant if talks intensify. A legitimate West Coast pipeline that can redirect Canadian heavy crude toward Asian buyers adds credibility to that leverage. The political logic of the pipeline announcement may be partly rooted in this dynamic, even if the economics are still being worked out.

Iran, the Strait and the China Anomaly: Why Product Prices Are Not Following Crude

The fragile Iran ceasefire has returned to the headlines, but our attention remains fixed on a data point that matters more than counting ships transiting the Strait of Hormuz. Chinese crude imports have dropped by about 5 million barrels per month as of June, falling from a peak of around 12.5 million barrels per day. Saudi Arabia and the UAE have partially compensated by rerouting some of their oil production through pipelines, creating a near-balanced physical market in some periods. That balance, however, is a stopgap measure rather than a structural solution. 

The critical disconnect that keeps us constructive on oil prices is in refined products. A barrel of gasoline in New York is still trading at roughly $130, and diesel prices remain firmly in triple digits, even as WTI and Brent have retreated to the $70s, near pre-conflict levels. Refiners are still earning unusually large profits on each barrel they process, a signal that supplies of gasoline and diesel remain tight. If China resumes buying at even a fraction of its prior pace, the thin buffer of rerouted Saudi and UAE volumes disappears and the feedstock market catches up to where products are already priced.

Outlook: What We Are Watching in the Second Half of 2026

Three things will determine whether the bull case for crude holds through year-end. For the West Coast pipeline announcement, route clarity and backer disclosure will tell us whether this project can credibly advance on a subdecade timeline or whether it remains an aspirational policy signal. Chinese crude import data for July and August are important markers to watch. Sustained drawdown in imports maintains the current product-market tension, while any recovery in Chinese buying rapidly tightens the physical balance. Last, the USMCA review and any formal use of Canadian energy supply as a trade lever could reshape North American pipeline economics overnight. 

Producers are watching all three variables. Our base case remains constructive on crude, driven primarily by the product-side signal, but we acknowledge the Iran ceasefire introduces downside risk if a durable deal removes the Hormuz uncertainty premium from the market. Precision on route, costs and trade positioning will define the second half.

Key Takeaways

Why could the West Coast pipeline cost as much as rail to ship through? 

The proposed pipeline is conditioned on the Pathways carbon capture project advancing, and that linkage adds a material cost layer to every barrel shipped. Some preliminary estimates suggest the combined toll, including the carbon capture surcharge, could approach rail-equivalent economics. Whether provincial or federal green credits can offset that premium is the central unanswered question. 

What significance does the drop in Chinese oil imports have for global crude prices? 

China’s reduction of approximately 5 million barrels per month has temporarily cushioned what would otherwise be a severe Hormuz-driven supply shock. Saudi and UAE pipeline reroutes have filled part of the gap, creating surface-level market balance. But this buffer is not permanent, and product inventories in gasoline and diesel remain at levels that would normally signal a tighter crude market ahead. We regard Chinese import behavior as the single most important variable to watch. 

What factors are preventing Canadian crude from being used as a formal lever in the USMCA trade negotiations? 

The removal of the legacy export mandate clause has cleared the legal path for Canada to redirect crude away from U.S. markets, but no formal trade policy mechanism has yet been activated to operationalize that flexibility. The review of the trilateral trade deal is currently focused on autos and lumber. Energy remains in the background as a latent tool, and its formal deployment would likely require an escalation in trade tensions that has not yet materialized.