*

Canada sends 90% of oil exports to US refiners

*

Two east-west pipeline projects canceled in last decade

*

Overruns pushed Trans-Mountain expansion costs to C$34 bln

By Amanda Stephenson

CALGARY, Feb 26 (Reuters) - The Canadian government

would have to play a significant role in any project to build

new oil pipelines in Canada to overcome regulatory, financial

and political hurdles and activist opposition, industry experts

said.

With U.S. President Donald Trump threatening tariffs on

Canadian oil exports, several Canadian politicians have called

for new pipelines to coastal export terminals to reduce

dependency on the U.S. market.

Oil is the most valuable export of Canada, the world's

fourth-largest oil exporter which pumps 4 million barrels per

day (bpd) over the border to U.S. refiners. That is about 90% of

Canada's oil exports.

Canada's Liberal Energy Minister, the Conservative

opposition leader and several provincial premiers have all

called for new pipelines to take crude to Canada's west, east

and north coasts. Yet no private company has expressed recent

interest in taking on such a multibillion-dollar project, which

experts say could take a decade to complete.

Two big east-west projects have been canceled in the last

decade, and a Canadian company also lost billions when former

U.S. President Joe Biden revoked permits for the Keystone XL

pipeline project to the U.S. in 2021.

Trump on Monday said he wanted Keystone XL built and pledged

easy regulatory approvals. But on the same day, he said tariffs

on U.S. imports from Canada and Mexico would proceed in March.

Tariffs would make Canadian crude more expensive for U.S.

refiners or cut margins for Canadian producers, hurting demand

for the pipeline.

Even without tariffs, building pipelines poses too many

risks for Canadian companies, said Dennis McConaghy, a former

executive with TransCanada Corp., now TC Energy ( TRP ). He worked on

that company's ill-fated Keystone XL project.

"If I were on the board (of a pipeline company), I would find

these risks very difficult to rationalize taking on," McConaghy

said in an interview.

Canada's current option to bypass the U.S. is the Trans

Mountain pipeline system, running from the oil-producing

province of Alberta to the British Columbia west coast. Crude

can then be shipped to overseas markets. An expansion of the

line was completed last year by Kinder Morgan ( KMI ), seven years after

the company threatened to cancel it due to heavy environmental

and Indigenous opposition.

Ottawa bought the Trans Mountain system for C$4.5 billion

(US $3.15 billion) in 2018 to finish the expansion. Construction

delays and budget overruns pushed its price tag to C$34 billion

over four years.

"The fact that the cost overruns were so massive, that's

a really strong signal to the private sector," said Kent

Fellows, an energy economist at the University of Calgary's

School of Public Policy.

Canada's energy sector has long complained of lengthy

permitting times and regulatory uncertainty slowing projects and

scaring potential investors.

Companies would be unwilling to consider a new pipeline

proposal unless the federal government quickly amends the Impact

Assessment Act, said Martha Hall Findlay, a former Liberal

Member of Parliament and Suncor Energy Inc. ( SU ) executive, now

director of the University of Calgary's School of Public Policy.

The act, effective in 2019, required social and cultural

assessments of pipelines as well as environmental impacts. Since

then, only one project - the Cedar LNG project - has

successfully completed the process, and that took 3-1/2 years.

"Working collaboratively with the provinces will be key -

and will take some serious political leadership," Hall Findlay

said.

Canadian pipeline operator Enbridge ( ENB ) would not consider a

Canadian pipeline project absent a reversal in Ottawa's policy

toward energy infrastructure, CEO Greg Ebel said on a recent

conference call.

He said the country needs permitting reforms, elimination of

the proposed cap on emissions from oil and gas production, and

expansion of federal and provincial loan guarantee programs

allowing Indigenous communities to become equity investors in

pipeline projects.

"We would need to see real legislative change at the federal

and provincial government level that specifically identifies

major infrastructure projects ... as being in the national

interest," Ebel said.

Companies also need confidence that Canada's oil sands

industry could increase output to fill a new pipeline. Oil sands

producers took years to ramp up to hit record production last

year to fill the Trans Mountain expansion.

A report last year by S&P Global Commodity Insights said

Canadian oil sands output rose by 1.3 million barrels per day in

the last decade, and could rise an additional half-million bpd

by 2030.

OIL SANDS GROWTH UNCERTAIN

Canada has committed to reach net-zero greenhouse gas

emissions by 2050, a goal at odds with any dramatic increase in

oil output.

A 2023 forecast from the Canada Energy Regulator suggested

that to reach the country's net-zero target, oil sands output

would likely decline by 30% by 2050.

The S&P Global report predicts declines in production

beginning as early as 2035.

For now, threatened tariffs have tilted the scales away from

climate and toward building pipelines, said Hall Findlay.

"I do think in Canada, this has caused some reflection on

whether, perhaps in some areas, we are too dependent on

infrastructure in particular that flows only through the United

States," Energy Minister Jonathan Wilkinson said this month at

an event in Washington, D.C.

Alberta Premier Danielle Smith has called for federal and

provincial governments to build multiple oil and gas pipelines

to the "east, west and north coasts of Canada."

Hall Findlay said if federal and provincial governments were

to support a pipeline through a public-private partnership or

some form of financial backstop, that might attract private

capital.

A change in government could also boost confidence in

Canada's energy sector, said Kevin Birn, chief Canadian oil

market analyst for S&P Global.

Opposition leader Pierre Poilievre told reporters this month

that a Conservative government would "repeal anti-energy laws"

and "build pipelines."

Even then, there would be no long-term guarantee, Birn said.

He noted that the Keystone XL project was rejected by former

U.S. President Barack Obama's administration. It was revived by

Trump during his first term before being revoked by Biden and

now is being encouraged again by Trump.

"Part of the problem is that the development of

infrastructure now has to be thought of in terms of political

cycles," Birn said in an interview.

"If you're looking to build large infrastructure in North

America, you now need to ask, 'can I get this done in one term

of office?'"