South Bow Corp. says it is close to committing to the US$2.1-billion Prairie Connector pipeline, a project that would expand Alberta oil exports to the United States, after the federal government introduced a new tax break and highlighted the project at last week’s Canada Investment Summit.
On an investor call late last week, executives at the Calgary-based company said Ottawa’s planned “mega deduction” on asset investments strengthens the financial case for the proposed 380-kilometre pipeline. The project would partly revive the Keystone XL expansion, which was cancelled after then-U.S. president Joe Biden withdrew a key permit.
South Bow chief executive officer Bevin Wirzba and other company leaders told investors they are exploring multiple ways to finance the pipeline, including selling a stake to private equity fund managers, some of whom attended the investment summit held last Monday and Tuesday. The upbeat comments came days after the federal government featured the Prairie Connector in a summit pitchbook distributed to major institutional investors.
The Tax Break Behind the Pitch
At the summit, Prime Minister Mark Carney announced a corporate tax measure that would let companies immediately write off the full cost of acquiring or building assets, an effort to give Canada one of the lowest corporate tax rates in the world. The government specifically cited pipeline investment as an area the measure is intended to support. Ottawa has estimated the change would cost $36-billion in foregone tax revenue over the next five years.
The summit pitchbook also showcased three other projects aimed at moving Canadian oil and gas to Asian and European markets, including a $35-billion West Coast Oil Pipeline proposal that would carry one million barrels of oil a day to the Robert Banks Terminal near Vancouver.
Analyst Maurice Choy of RBC Capital Markets, who hosted the investor briefing, said in a report published Monday that the “Productivity Mega Deduction should be meaningful” for South Bow’s expected returns on the Prairie Connector. He added that company management is “cautiously optimistic” about reaching a final investment decision by mid-2027, while noting that the pace of negotiations could be affected by the broader U.S.-Canada trade relationship.
Financing Options and Project Details
To reduce the cost of debt for the project, South Bow executives said they are negotiating loan guarantees with the U.S. Department of Energy as well as the federal and Alberta governments. The company is also weighing a stock sale to help fund construction; peer company Enbridge Inc. recently sold $3-billion in shares to finance acquisitions and new projects.
South Bow said it expects to reach a final decision on the Prairie Connector by the middle of next year. The pipeline would run from Hardisty, Alta., to the Canada-U.S. border, connecting with the proposed 1,050-kilometre Bridger Expansion project backed by Bridger Pipeline LLC. If built, the Prairie Connector would reuse about 150 kilometres of previously installed Keystone XL pipeline along with two pump stations.
RBC’s Choy noted that fund managers such as KKR & Co. Inc., Apollo Global Management Inc. and Brookfield Corp., which often invest on behalf of insurance subsidiaries with lower target returns than traditional private equity, could provide lower-cost capital for the project. South Bow described insurers as a “viable option” for financing. KKR and Apollo recently invested a combined $2.7-billion in a British Columbia natural gas pipeline owned by Enbridge.
Capacity and Export Implications
South Bow, which was spun out of TC Energy Corp. in 2024, owns the Keystone pipeline system, a 4,900-kilometre network that moves 1.25 million barrels of oil daily from Alberta producers to refineries and export terminals on the U.S. Gulf Coast. Its customers include major producers such as Suncor Energy Inc. and Canadian Natural Resources Ltd.
The Prairie Connector would initially add 600,000 barrels a day of capacity, with total capacity eventually expected to reach one million barrels a day. In May, South Bow said it had secured binding 20-year customer commitments for 465,000 barrels a day on the planned pipeline.
The U.S. currently buys roughly four million barrels of Canadian oil each day, and the Prairie Connector would increase that volume by 25 per cent. U.S. President Donald Trump has said he wants to replace some Canadian oil imports with crude from Venezuela, though industry analysts anticipate continued growth in demand for Canadian heavy oil. Venezuela exports about one million barrels of oil daily, and its energy infrastructure has suffered from years of underinvestment and poor maintenance.
A spokesperson for South Bow declined to provide further comment on the Prairie Connector.
This article is for informational purposes only and does not constitute financial, investment, or legal advice. Consult a licensed financial advisor before making investment decisions.
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