Crown corporation says flooding, inflation and supply chain challenges to blame for rising project costs
The cost of the Trans Mountain expansion project has grown to $30.9 billion, according to the Crown corporation behind the pipeline project.
Trans Mountain Corporation pointed to several factors for the cost increase, including global inflation and supply chain challenges, and severe floods in British Columbia.
It further pointed to unexpected archaeological discoveries, challenging terrain and "unexpected" water disposal costs in the Sumas Prairie.
The project's new price tag is up from its previous estimate of $21.4 billion in early 2022. A prior estimate had pegged the price at $12.6 billion.
"Canada has among the world's highest standards for the protection of people, the environment, and Indigenous participation when building major infrastructure projects," said Trans Mountain Corp. CEO Dawn Farrell in a news release Friday.
"By including these commitments into the Project design and development from the beginning, we have ensured the Project will provide economic benefits to Canadians well into 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 pipeline's planned expansion project in the face of environmentalist opposition and political uncertainty.
Trans Mountain pipeline, which runs 1,150 kilometres, 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 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.
For Trans Mountain Corp., a big reason why rising costs are so problematic is that it has no way to recoup them.
Due to existing contractual agreements with shippers, only 20 per cent of the increased capital costs can be passed on to oil companies in the form of increased tolls. (Tolls are the rates oil companies pay to shift product on a pipeline, and they are how the pipeline company makes money).
A report from the Parliamentary Budget Officer last June found the federal government stands to lose money from its investment in the pipeline, and suggested that if the project were cancelled at that time, the government would need to write off more than $14 billion in assets.
The federal government has indicated it does not wish to be the long-term owner of Trans Mountain, and intends to launch a divestment process after the expansion project has been "further derisked."
Several Indigenous-led initiatives have previously indicated their intent to pursue ownership of the pipeline.
Trans Mountain Corporation said Friday that construction of the project is nearly 80 per cent complete. It expects the pipeline will be in-service in the first quarter of 2024.
Richard Masson, an executive fellow at the University of Calgary's School of Public Policy, said the jump in the project's new price tag is surprising.
"We knew that things were not going to be easy after the floods happened in B.C.," Masson said.
"These things sometimes are unexpected, but the magnitude of this increase is very large and I don't think anybody was expecting it."
Masson expects that the federal government will have to take a large write down on the value of its investment, adding he doesn't believe Ottawa can recuperate all of the additional costs.
"It's going to be very costly at the end of the day for taxpayers," he said.
However, it doesn't make sense to stop building the project now that so much money has been spent, said Masson, who is also chair of the World Petroleum Council in Canada.
"It was always strategic for the country to be able to get more oil to a port to allow us to ship to the world, to get full market price for the oil," he said.
With files from Francois Joly and The Canadian Press
Credit belongs to : www.cbc.ca