RBC warns Canada's energy sector faces risk of costly overruns in $100-billion build-out

Canada’s oil and gas sector risks a return to painful cost overruns unless it co-ordinates supply chains and labour for more than $100 billion in proposed energy infrastructure, Royal Bank of Canada warns.

The next three years could mark the start of several major projects, from production to pipelines and carbon capture, the bank said in a report released Wednesday.

“Canada is about to find out whether it can still build,” the report said.

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Getting major projects built has been a high priority for Prime Minister Mark Carney as the country looks to reduce its reliance on the United States for energy exports.

The federal government recently tabled legislation to speed up development approvals and announced tax breaks for companies building assets.

Last week, Ottawa deemed the Pacific Link oil pipeline a project of national importance to accelerate its approvals.

The last oil sands construction boom between 2006 and 2014 saw labour and materials costs soar, leading to overruns and delays.

The RBC report said the looming build-out is not necessarily a bigger version of that boom, but a 15-year nation-building effort spanning various commodities, with much construction in British Columbia.

By 2040, an expanded oil and gas industry could add $44 billion more a year to Canada’s GDP, a nearly 50 per cent increase from its current contribution of $95 billion, according to the report.

The road includes building two new liquefied natural gas terminals, two oil pipelines, a carbon capture facility and initial phases of oil sands expansions.

If built, Canadian energy exports to non-U.S. countries, primarily in Asia, could rise from roughly $10 billion in 2024 to about $100 billion by 2040.

But construction stimulus “is a double-edge sword” that requires optimizing benefits while minimizing strain on infrastructure, materials and labour.

Otherwise, the country risks a repeat of recent Western Canadian megaprojects that were slower and far more expensive than planned.

The report pointed to the last oil sands boom, which cost far more than forecast, and the Trans Mountain pipeline expansion, which ballooned from $5.4 billion to $34 billion.

The challenge is that energy projects would tap the labour market around the same time as other large-scale projects across the country, including data centres, nuclear sites, and mining and hydrogen development.

Getting all those projects built “will require an all-of-Canada approach,” the report said.

It noted the need for raw materials like rolled steel comes “at a time when these sectors are reeling from U.S. tariffs and market uncertainty.”

Enabling domestic capacity for steel and aluminum production will be “critical to optimizing the benefits of energy investment,” the report said.

Training skilled workers will also be crucial, with the federal government estimating more than 1.4 million new trades workers needed by 2033 due to retirements.

The report said a “nimble and market-driven immigration system” could help, as might a program that encourages people to “come work for, and build, Canada.”

Yadude Books reported in September that Enbridge expanded its U.S. footprint with a $2.55 billion acquisition of Tallgrass Energy oil assets.

With files from The Globe and Mail