Price of Trans Mountain pipeline expansion climbs to $21.4 billion

Content of the article

The projected final cost for the Trans Mountain pipeline nearly doubled from its previous projections, from $12.6 billion to $21.4 billion, while the completion date was pushed back to late 2023 .

Advertising

Content of the article

Trans Mountain Corp., the company overseeing the expansion project, released the update Friday morning, citing delays caused by BC flooding, wildfires and the pandemic as reasons for the high price.

“At every step of the process, we found solutions and responded to them,” said Ian Anderson, president and CEO of the company, in a press release. “As a result, the project is moving forward with significantly improved safety and environmental management, and with a deep commitment to ensuring this project is built the right way.”

Trans Mountain Corp. did not make anyone available Friday to comment for this story.

The new estimate includes the costs of all improvements, modifications, delays and financing of the project.

Advertising

Content of the article

The federal government bought the pipeline for $4.5 billion in 2018, saving the project from scrap at the last minute. At the time, the expansion was expected to cost $7.4 billion and increase capacity from 300,000 barrels per day to 890,000 barrels per day from Edmonton to the Port of Vancouver.

The federal government still owns the pipeline and Finance Minister Chrystia Freeland has said there will no longer be public funds invested in the project, but instead the government will look to private investment and financing .

Ottawa has been working with Indigenous groups for two years regarding the financial benefits available through the project to those communities and potential investments. She said they would announce plans to divest from the pipeline once additional risks are removed from the project.

Advertising

Content of the article

Freeland said it was assured of the continued viability of the pipeline by TD Securities and BMO Capital Markets.

“This project is in the national interest and will make Canada and the Canadian economy more sovereign and resilient,” she said.

Added to the cost overruns are $2.3 billion in project improvements; $2.6 billion in schedule constraints; $1.7 billion due to measures related to COVID-19, extreme weather conditions and related productivity declines; $1.7 billion in increased financing costs and $500 million in additional safety and security costs.

Eugene Kung, a lawyer with West Coast Environmental Law in Vancouver, said the price increase has pushed the project beyond viability and expects the final tally to be even higher than that estimate.

Advertising

Content of the article

He said it would be prudent for the federal government to pause and conduct a full financial study of the project, adding that this is why Kinder Morgan was about to sell the project.

“Major capital projects like pipelines often take 40 to 50 years to pay for themselves,” Kung said. “We have 20-year contracts which will produce revenue for the project, but the reality is that it will most likely become a stranded asset. This is especially true as governments around the world, not to mention financial institutions, are beginning to take the reality and cost of climate inaction more seriously.

However, Cenovus and Suncor released separate statements Friday saying they still believe the project is viable and necessary, despite likely increased costs to them as users.

Advertising

Content of the article

“We continue to fully support this world-class infrastructure project that is essential to Canada’s economic success and long-term energy security,” said Mark Little, Suncor’s president and CEO in a statement. “The 2021 floods in British Columbia have served as a reminder of how critical this energy infrastructure is to securing energy supplies for British Columbians and accessing Canadian resources to global markets.

The price of oil and oil production reinforces optimism in the project. The price of oil rebounded to its highest level since the 2015 low, while production in Canada exceeded pre-crash levels by nearly a million barrels a year.

Dennis McConaghy, a retired Canadian oil executive and industry commentator, said rising costs still made sense for Canadian oil companies, many of which have become much more efficient in production in recent years.

Advertising

Content of the article

He said overtaking, while unfortunate, requires context.

“The overshoot is not a positive, but it’s still something the current economics of oil sands production can probably accommodate,” he said. “Once this thing is built, I expect the Canadian government to be able to monetize it, because there’s a stable cash flow that will be paid out to a certain class of investors who want that stable cash flow. from the oil that will move through the system and onto the tankers.

Kevin Birn, an analyst for IHS Markit, said the need to get oil to tidal waters in Canada hasn’t diminished.

Where Canadian oil has been devalued through the United States is in the bottlenecks and disruptions south of the border. A reliable route to the west coast of Canada eliminates much of this dependency and lost revenue.

Advertising

Content of the article

Birn also said that despite the political shift in environmental policy, global demand for fossil fuels is not decreasing and will not decrease for some time.

“Not all pipelines are equal,” he said. “We have a lot of pipelines going out of western Canada in different directions. Thanks to the energy transition, these refining centers that we have today will change, evolve and adapt, and our infrastructures point to refineries on the North American continent. The pipeline to the West Coast that TMX can deliver points to the world.

Kinder Morgan originally filed its application for the pipeline expansion in December 2013, and if completed by the end of 2023, as currently expected, that would mean the project took a full decade.

Advertising

Content of the article

Birn said an infrastructure project like this would previously have taken four to five years, but with the additional layers of government and bureaucracy now involved, not to mention the past two years of the pandemic and other challenges, the The extension of this schedule was not unexpected. Manitoba Hydro’s Keeyask Dam and Bipole III projects took 15 years to complete and cost the province $13.4 billion.

In a separate move, Anderson also announced he was stepping down from the company, effective April 1. Anderson works for Trans Mountain Corp. and before that Kinder Morgan for 40 years.

McConaghy said Anderson had done a lot to move this project forward under difficult pandemic circumstances and complicated government structures.

“He’s done an incredible job of perseverance considering all the ways this job has evolved,” he said.

The board of directors of Trans Mountain Corp. has not announced a replacement but will immediately begin the search for his successor.

[email protected]

Twitter: @JoshAldrich03

Advertising

comments

Postmedia is committed to maintaining a lively yet civil discussion forum and encourages all readers to share their views on our articles. Comments can take up to an hour to be moderated before appearing on the site. We ask that you keep your comments relevant and respectful. We have enabled email notifications. You will now receive an email if you receive a reply to your comment, if there is an update to a comment thread you follow, or if a user follows you comments. Visit our Community Rules for more information and details on how to adjust your E-mail settings.

Eleanor C. William