Trans Mountain’s expansion pipeline costs continue to rise and are now at $30.9 billion
The cost of the Trans Mountain expansion project has risen to $30.9 billion, according to Crown Corporation, which is behind the pipeline project.
Trans Mountain Corporation pointed to several factors behind the rise in costs, including global inflation and supply chain challenges, as well as severe flooding in British Columbia.
It also pointed to unexpected archaeological discoveries, challenging terrain and “unanticipated” water disposal costs in the Sumas Prairie.
The project’s new price is higher than its previous estimate of $21.4 billion in early 2022. A previous estimate had put the price at $12.6 billion.
“Canada has one of the highest standards in the world for protecting people, the environment and indigenous participation in the construction of major infrastructure projects,” said Dawn Farrell, CEO of Trans Mountain Corp., in a news release Friday.
“By incorporating these commitments into project planning and development from the beginning, we have ensured that the project will continue to bring economic benefits to Canadians in the future.”
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 planned pipeline expansion project amid opposition from environmentalists and political uncertainty.
The 1,150-kilometer Trans Mountain Pipeline transports 300,000 barrels of oil per day and is Canada’s only pipeline system transporting oil from Alberta to the West Coast.
Its expansion, currently under construction, will essentially double the existing pipeline and increase daily production to 890,000 barrels per day to support Canadian crude oil production growth and ensure access to global energy markets.
For Trans Mountain Corp. is a big reason why rising costs are so problematic that she has no way of recouping them.
Due to existing contractual agreements with shippers, only 20 percent of the increased capital costs can be passed on to the oil companies in the form of increased tolls. (Tolls are the fees oil companies pay to move product down a pipeline, and that’s how the pipeline company makes money).
A report by the House Budget Officer last June found that the federal government would lose money on its investments in the pipeline and suggested that the government would have to write off more than $14 billion in assets if the project went ahead time would be aborted.
The federal government has indicated it does not want to be the long-term owner of Trans Mountain and intends to begin a divestment process after the expansion project is “further de-risked.”
Several Indigenous-led initiatives have previously stated their intention to pursue ownership of the pipeline.
Trans Mountain Corporation announced Friday that construction on the project is nearly 80 percent complete. The pipeline is expected to be operational in the first quarter of 2024.
Richard Masson, an executive fellow at the University of Calgary’s School of Public Policy, said the increase in the project’s new price tag was surprising.
“We knew things weren’t going to be easy after the BC floods,” Masson said.
“These things are sometimes unexpected, but the scale of this increase is very large and I don’t think anyone expected it.”
Masson expects the federal government to take a large write-down on the value of its investment, adding he doesn’t think Ottawa will be able to recoup all of the additional costs.
“At the end of the day, it’s going to be very expensive for taxpayers,” he said.
However, there’s no point halting construction on the project now after spending so much money, said Masson, who is also chair of the World Petroleum Council in Canada.
“It has always been strategic for the country to get more oil into a port so we can ship it around the world to get the full market price for the oil,” he said.