The expected final cost for the Trans Mountain Pipeline has almost doubled from its previous projections, jumping from $12.6 billion to $21.4 billion while the completion date has been pushed back to late 2023.
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Trans Mountain Corp., the corporation overseeing the expansion project, released the update on Friday morning, citing delays caused by the B.C. floods, wildfires and the pandemic as reasons for the steep price tag.
“At every step of the way, we have found solutions and responded,” said Ian Anderson, president and CEO of the corporation, in a press release. “As a result, the project is advancing with significantly improved safety and environmental management, and with a deep commitment to ensure this project is being built the right way.”
Trans Mountain Corp. did not make anyone available Friday for comment on this story.
The new estimate includes the costs of all project enhancements, changes, delays and financing.
The federal government bought the pipeline for $4.5 billion in 2018, saving the project from the scrap heap at the last minute. At the time, the expansion was expected to cost $7.4 billion and increase capacity from 300,000 barrels a day to 890,000 barrels a day from Edmonton to the Port of Vancouver.
The federal government still owns the pipeline and Finance Minister Chrystia Freeland said there will be no more public funds put towards the project, but instead government will look towards private investment and financing.
Ottawa has been working with Indigenous groups for two years regarding financial benefits available through the project for those communities and potential investment. She said they will announce plans on divestment in the pipeline once further risk is taken out of the project.
Freeland said she has been assured of the continued viability of the pipeline by both TD Securities and BMO Capital Markets.
“This project is in the national interest and will make Canada and the Canadian economy more sovereign and more resilient,” she said.
Adding to the cost overruns are $2.3 billion in project enhancements; $2.6 billion in schedule pressures; $1.7 billion due to COVID-19 measures, extreme weather and related productivity shortfalls; $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 out of Vancouver, said the increase in price has pushed the project beyond viability and expects the final tally to be even higher than this estimate.
He said it would be prudent for the federal government to hit pause and conduct a full financial study of the project, adding this is why Kinder Morgan was set to sell off the project.
“Large capital projects like pipelines often require 40 to 50 years to pay themselves off,” said Kung. “We have 20-year contracts that will produce some revenues for the project, but the reality is that it most likely will become a stranded asset. That’s especially true as governments around the world, not to mention financial institutions, are starting to take the reality and the cost of climate inaction more seriously.”
However, both Cenovus and Suncor released separate statements on Friday saying they still believed the project was viable and needed, despite a likely increase in costs to them as users.
“We remain fully supportive of this world-class infrastructure project which is vital to Canada’s long-term economic success and energy security,” said Mark Little, Suncor president and CEO in a statement. “The 2021 B.C. floods were a reminder of how critical this energy infrastructure is to both the security of energy supply to British Columbians and access for Canadian resources to global markets.”
Boosting optimism in the project is the price of oil and oil production. The price of oil has rebounded to its highest point since the bottom fell out in 2015, while production in Canada has surpassed its pre-crash levels by almost a million barrels a year.
Dennis McConaghy, a retired Canadian oil executive and commentator on the sector, said the increased costs still makes sense for Canadian oil companies, many of whom have become much more efficient in production in recent years.
He said the overruns, while unfortunate, require context.
“The overrun is not a positive, but it is still something that today’s economics of oilsands production can probably accommodate,” he said. “Once this thing is built, I have every expectation the Canadian government will be able to monetize it, because there’s a steady cash flow that will be paid to a certain class of investors who want that steady cash flow from the oil that will be moving in the system and onto the tankers.”
Kevin Birn, an analyst for IHS Markit, said the need to get oil to tide water in Canada has not diminished.
Where Canadian oil has been devalued by going through the U.S. is in bottlenecks and disruptions south of the border. A reliable route to Canada’s west coast removes much of that reliance and revenue loss.
Birn also said that despite the political shift in environmental policy, the world demand for fossil fuels is not diminishing and will not for some time.
“Not all pipelines are equal,” he said. “We have a lot of pipelines that leave Western Canada in different directions. Through energy transition those refining centres that we have today are going to change and evolve and adapt, and our infrastructure points to refineries in the North American continent. The pipeline to the west coast that TMX can provide points to the world.”
Kinder Morgan originally filed their application for the expansion of the pipeline in December 2013, and if it is completed in late 2023, as currently projected, it would mean the project’s taken a full decade.
Birn said an infrastructure project like this previously would have taken four to five years to complete, but with the extra layers of government and red tape now involved, not to mention the past two years of pandemic and other challenges, the extension of this timeline 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 retiring from the company, effective April 1. Anderson has been with Trans Mountain Corp. and before that Kinder Morgan for 40 years.
McConaghy said Anderson has done much to move this project forward in difficult pandemic circumstances and complicated governmental structures.
“He’s done an amazing job of perseverance given all of the ways this job has evolved,” he said.
Trans Mountain Corp. board of directors did not announce a replacement but will immediately beginning the search for his successor.
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