Canada Halts Pipeline Expansion Funding
The government of Canada recently announced that it plans to stop public funding for the Trans Mountain oil pipeline expansion, following a company release stating that its project costs have increased 70% than originally anticipated.
Trans Mountain Corporation also announced in its expansion update that project completion has been delayed nine months, due to impacts from the COVID-19 pandemic and extreme weather in British Columbia in November.
Expansion Plans, Cost Increase
The Government of Canada approved the Trans Mountain Expansion Project in June 2019, subject to 156 conditions enforced by the Canada Energy Regulator. These conditions include regulations regarding engineer and safety; environment; multidisciplinary; people, community and lands; and regulatory, economic and financial oversight.
Canada govt to stop funding Trans Mountain oil line project as costs soar 70% https://t.co/ZPDRNY3agN pic.twitter.com/PNyvJbwqtM— Reuters (@Reuters) February 19, 2022
The expansion is expected to add approximately 980 kilometers (about 609 miles) of new pipeline, of which 73% of the route will use the existing right-of-way, 16% will follow other linear infrastructure such as telecommunications, hydro or highways and 11% will be new right of way.
In addition, 193 kilometers (about 120 miles) of pipeline would also be reactivated. Officials were also planning to build 12 new pump stations and 19 new tanks at existing storage terminals.
According to Trans Mountain, independent estimates conclude oil producer revenues will increase by $73.5 billion over 20 years of operations and Canada will earn $46.7 billion in additional taxes and royalties to federal and provincial governments. It will nearly tripled the capacity of the pipeline to 890,000 barrels per day.
The company completed a full review of its project schedule and cost estimates when the expansion project entered its second half of construction. Mechanical completion is anticipated to occur in the third quarter of 2023.
Additionally, the project cost has increased from 2020’s estimated $12.6 billion to $21.4 billion. Trans Mountain notes that this includes costs of all known project enhancements, changes, and any delays and financing resulting from the pandemic or 2021 floods in the Hope, Coquihalla and Fraser Valley areas.
“The progress we have made over the past two years is remarkable when you consider the unforeseen challenges we have faced including the global pandemic, wildfires, and flooding,” said Ian Anderson, President and CEO of Trans Mountain Corporation, in a release. “At every step of the way, we have found solutions and responded. 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.”
Project cost increases are reportedly due to:
Following this announcement, the Canadian Government told Trans Mountain that it will need to secure financing from public debt markets or financial institutions, as it will be halting any further public funding for the project.
“I want to assure Canadians that there will be no additional public money invested in TMC,” said Finance Minister Chrystia Freeland.
To provide financial advice, the government has engaged BMO Capital Markets and TD Securities. Freeland added the two advisers confirmed the project remains commercially viable and public financing for the project is a feasible option.
According to reports, the government does not plan to be the long-term owner of the pipeline and expects to launch a sale process when deemed necessary.
About Trans Mountain
Owned by Canada Development Investment Corporation (CDEV)—also known as the Crown corporation—the pipeline currently moves roughly 300,000 barrels of crude per day and stretches 1,150 kilometers (roughly 715 miles) from Edmonton, Alberta, to the West Coast of British Columbia in Burnaby.
There are 23 active pump stations between both locations. Trans Mountain reports that its pipeline consists of 827 kilometers of 24-inch pipe, 150 kilometers of 36-inch pipe and 170 kilometers of 30-inch pipe. Although, where the system connects with the Trans Mountain Puget Sound Pipeline at the Sumas delivery point, the infrastructure is made up of 16 to 20 inch pipe and runs for 111 kilometers.
In 2018, energy infrastructure company Kinder Morgan announced the suspension of all non-essential activities and related spending connected to the Trans Mountain pipeline expansion project. At the time, the CA$6.8 billion ($5.09 billion) Trans Mountain Pipeline Expansion was still in progress and hadn’t reached Burnaby.
The decision stemmed from British Columbia’s resistance to the project, along with Kinder Morgan unwillingness to saddle shareholders with the additional risk that comes with construction costs ramping up from $200 million to $300 million a month.
At the time, Alberta Premier Rachel Notley indicated that her government was open to buying the pipeline to ensure the project was completed. Previously, Kinder announced delays in obtaining permits for the project in 2017.
By June 2018, the Canadian government followed through on its interest in purchasing the pipeline and bought the infrastructure from Kinder Morgan for $3.47 billion deal that Prime Minister Justin Trudeau hoped would expedite the project’s completion.
The following year, Trudeau announced that pipeline project had been approved once more, emphasizing that money made from the pipeline would be reinvested into green energy endeavors. The expansion is also a move to reduce dependency on selling petroleum to the States, as the pipeline will move product to the Pacific for delivery to Asia.
“Take a look at my record, and you’ll see that I’ve talked about the importance of developing our resources for a long time,” Trudeau said at the time, adding that “in order to get the job done, Canada needed to have its act together on the environment.”