An eye-popping 70 per cent increase in the projected price tag for the Trans Mountain expansion was met Friday by jeers from environmental groups and a pledge from the federal government to put no additional public money toward the project.
But Canada’s oil and gas industry remains staunchly behind a project it says remains essential to the national interest, in spite of newly disclosed budget overruns that peg the new cost of the Trans Mountain expansion at $21.4 billion, up from an earlier estimate of $12.6 billion.
“We remain fully supportive of this world-class infrastructure project which is vital to Canada’s long-term economic success and energy security,” said Suncor Energy Inc. chief executive Mark Little, in a statement released just hours after federal Crown corporation Trans Mountain Corp. released its new cost projections for the project.
“While no one wants to see cost increases, they are often a fact of life with projects of this size and in this case were largely beyond Trans Mountain’s control,” said Alex Pourbaix, CEO of Cenovus Energy Inc., in a separate statement.
The 1,150 km Trans Mountain pipeline carries 300,000 barrels of oil per day, and is Canada’s only pipeline system transporting oil from Alberta to the West Coast.
Its expansion, for which construction is currently underway, will essentially twin the existing pipeline, raising daily output to 890,000 barrels to support Canadian crude oil production growth and ensure access to global energy markets.
Trans Mountain was bought by the federal government for $4.5 billion in 2018, after previous owner Kinder Morgan Canada Inc. threatened to scrap the pipeline’s planned expansion project in the face of environmentalist opposition.
On Friday, Trans Mountain Corp. blamed the surging cost projections for the project on the COVID-19 pandemic and the effects of the November 2021 flooding in British Columbia, as well as project enhancements, increased security costs, route changes to avoid culturally and environmentally sensitive areas, and scheduling pressures related to permitting processes and construction challenges in difficult terrain.
The company also pushed back the projected completion date to the third quarter of 2023. The pipeline expansion was originally expected to be complete sometime this year.
Following the company’s update, Deputy Prime Minister Chrystia Freeland said that Trans Mountain Corp. will need to secure third-party funding to complete the project, either through banks or public debt markets.
“I want to assure Canadians there will be no additional public funding for TMC,” Freeland told reporters in Ottawa, adding the government has engaged BMO Capital Markets and TD Securities to provide financial advice on the project and has been assured by both parties that the project remains commercially viable.
Freeland said the federal government still believes the Trans Mountain expansion is a “serious and necessary project.”
“This project is in the national interest and will make Canada and the Canadian economy more sovereign and more resilient,” she said.
Oil and gas industry representatives were quick to defend Trans Mountain on Friday, arguing the project’s operators have been hit by a whammy of misfortune they could not have predicted — everything from supply chain and inflation issues triggered by COVID-19 to weather-related catastrophes like wildfires and flooding.
“It’s very easy to just look at the numbers and look at the figures, but you have to actually put it in context,” said Tristan Goodman, president of the Explorers and Producers Association of Canada. “Overall, we’re actually still very confident that this is moving in the right direction.”
But environmentalists were quick to use words like “white elephant” and “boondoggle.” Keith Stewart of Greenpeace Canada pointed out that this is not the first time the budget for the Trans Mountain expansion has ballooned — back in 2015, Kinder Morgan estimated the project would cost $5.4 billion, and that rose to $7.4 billion in 2017 just before the Trudeau government bought it.
“This project was crazy from a climate perspective when it was supposed to cost $7.4 billion, but at $21.4 billion and rising it is now economic madness,” Stewart said.
Sven Biggs, Canadian oil and gas program director for Stand.earth, said the Trans Mountain pipeline expansion is a threat to the climate and the federal government should cancel it.
“Ironically, the latest delays (to project construction) were caused in large part by the recent flooding in B.C., which has been linked to climate change,” Biggs said in an emailed statement.
Spiraling construction costs mean more borrowing and higher interest costs, which will make the pipeline less profitable to an eventual buyer, said Richard Masson, executive fellow with the University of Calgary’s School of Public Policy.
That’s a problem, Masson said, because the federal government has indicated it does not want to be the long-term owner of the pipeline. On Friday, Freeland said the government will launch a divestment process”in due course.”
A number of Indigenous-led initiatives have already come forward saying they will seek an equity stake in the project.
Masson added that while Canada’s energy industry can get by without the added pipeline capacity for now, thanks to the addition of Enbridge Inc.’s Line 3 replacement project that came online last fall, the Trans Mountain expansion is still sorely needed in the long-term.
The newly announced budget overruns and cost increases, he said, are just the latest example of how difficult it is to complete major infrastructure projects in this country.
“Canada’s got a lot of resources, the world needs our resources, but we’re just having so much trouble actually developing them in a cost-effective way,” Masson said.
Also on Friday, Trans Mountain Corp. announced the retirement of president and CEO Ian Anderson, effective April 1.
“Ian led a project that continues to progress while setting new standards for major pipeline project execution, including unprecedented levels of involvement from Indigenous Peoples and communities,” board chair William Downe said in a news release.
Anderson, who has been with Trans Mountain and its predecessor companies for 40 years, was previously president of Kinder Morgan Canada.
Amanda Stephenson, The Canadian Press
Like us on Facebook and follow us on Twitter.