Trans Mountain oil pipeline expansion costs surge 44% to
C$30.9 billion
The cost of the Canadian government-owned Trans Mountain oil pipeline
expansion has jumped 44% from last year's estimate to C$30.9 billion
($22.35 billion), the federal corporation building the project said on
Friday.
Trans Mountain Corp (TMC) said it is in the process of securing external
financing to fund the remaining cost of the project, which is now expected
to start shipping oil in the first quarter of 2024.
The 590,000 barrel-per-day pipeline expansion will nearly triple the flow
of barrels from Alberta's oil sands to Canada's Pacific coast, opening
access to Asian markets. It has been beset by regulatory delays,
environmental opposition and hefty budget overruns.
Prime Minister Justin Trudeau's government bought the pipeline from Kinder
Morgan Inc (KMI.N) in
2018 to ensure the expansion got built, drawing sharp criticism from
environmental groups.
Last February TMC increased
the cost estimate to C$21.4
billion, up from C$12.6 billion in 2020 and C$7.4 billion in 2017.
Following last year's jump, the Canadian government said it would halt any
further public funding for the project.
Finance Minister Chrystia Freeland reiterated government plans to sell the
pipeline once it is complete.
"As we committed to Canadians last year, no additional public money will
be invested in this project as construction is completed," Freeland said
in a statement.
"The federal government does not intend to be the long-term owner of the
project, and we will launch a divestment process in due course."
BMO Capital Markets and TD Securities have been engaged by the government
to provide advice on certain financial aspects of the project.
In a letter to the government on Friday, the banks said once the expansion
is complete TMC is expected to generate earnings before interest, taxes,
depreciation and amortization of more than C$2.4 billion a year and would
be commercially viable.
BMO declined to comment and TD did not immediately respond to a request
for comment.
Eleven oil shippers, including Canadian
Natural Resources Ltd (CNQ.TO) and
MEG Energy(MEG.TO) have
committed to long-term contracts that make up 80% of Trans Mountain's
capacity.
TMC blamed the cost increase on a number of
factors including high global inflation and supply chain issues, floods in
British Columbia, unexpected major archaeological discoveries and
challenging terrain.
The corporation also said the current cost estimate does not include
reserves for "extraordinary risks" and could change again.
"As with all projects of this size, risks to the final costs and schedule
will remain as work is completed through 2023," TMC said in a statement.
Keith Stewart, a senior energy strategist with Greenpeace Canada, said
buying and building the pipeline would go down as one of the worst
infrastructure decisions ever made by a Canadian government.
"It was always a disaster from a climate change perspective, but this is
now an economic crime that has stolen C$30 billion of public funds from
real climate solutions," Stewart said.
