Trans Mountain Expansion Costs Surge

Trans Mountain Corporation has completed a full review of its project schedule and cost estimates, which show costs of the expansion project nearly doubling.

With all work fronts now active, mechanical completion of the project is anticipated to occur in the third quarter of 2023. The total project cost has increased from $12.6 billion to $21.4 billion.

This estimate includes the costs of all known project enhancements, changes, delays and financing, including impacts of the COVID-19 pandemic and the substantial preliminary impacts of the November 2021 B.C. 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, who is to retire in April. “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.”

Notwithstanding the cost increase and revised completion schedule, the business case supporting the project remains sound, said the company.

“Canada will benefit from the economic and tax contributions made by the project once it is in operation. Trans Mountain will pay billions in taxes and royalites to the federal and provincial governments through the construction and operation of the project over the next 20 years.

“In addition, Trans Mountain will make payments to British Columbia of between $25 million and $50 million annually, for a total contribution over a 20-year period of up to $1 billion. These funds are to be used by the BC Clean Communities program to fund local environmental projects in the province.

“In addition, Trans Mountain has negotiated agreements with local governments across B.C. and Alberta dedicating more than $16 million to community legacy projects such as trails and recreational infrastructure improvements that will have positive and lasting impacts on the lives of thousands of Canadians.”

Through job creation, procurement opportunities, partnerships, and involvement in the environmental management and oversight process, long-term legacy and economic benefits for Indigenous peoples are being created, said the company.

Approximately 11 per cent of the project workforce is Indigenous and Trans Mountain has close to 4,000 contracts with Indigenous businesses and partnerships worth over $2.7 billion. Route changes and new construction techniques have been undertaken as a result of continuous Indigenous engagement and the project now has Mutual Benefit Agreements (MBA) with 69 Indigenous communities.

The overall change in project costs is summarized by the following material impact areas: Project enhancements, scheduling pressures, safety and security requirements, financing costs, as well as other external challenges including the COVID-19 pandemic and the impacts of the 2021 B.C. flooding.

"I want to assure Canadians that there will be no additional public money invested in Trans Mountain Corp.," Canadian Finance Minister Chrystia Freeland said following the company's announcement.

Freeland said Trans Mountain will instead secure the necessary funding with third-party financing, with public debt markets or financial institutions.

The government has engaged BMO Capital Markets and TD Securities to provide financial advice.

"Their analyses confirm that public financing for the project is a feasible option that can be implemented swiftly. They have also confirmed that the project remains commercially viable," Freeland added.

Freeland reiterated that the Canadian government did not plan to be the long-term owner of the pipeline, and would launch a sale process in due course.

The Trans Mountain expansion project is a critical infrastructure initiative for Canada and the industry to ensure diverse market access for its production, according to Cenovus Energy Inc.

“We remain committed to the project and look forward to the pipeline being safely completed and coming online in late 2023,” Cenovus president and CEO Alex Pourbaix said in a prepared statement. “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.

“We believe the business case for this pipeline remains sound. Getting this pipeline built will provide a significant boost to the Canadian economy while helping to solidify investor confidence in our oil and gas industry.

“Our goal is to make Canadian oil production the most sustainable in the world. The Trans Mountain expansion will play an important role by helping to ensure the long-term future of our industry, while also allowing us to continue making a significant contribution to government revenues through taxes and royalties as well as providing well-paying jobs for Canadians.”

“While like everyone we are disappointed in the increased costs and schedule of the Trans Mountain project, we remain fully supportive of this world-class infrastructure project which is vital to Canada’s long-term economic success and energy security. The 2021 B.C. floods were a reminder of how critical this energy infrastructure is to both the security of energy supply to British Columbians and access for Canadian resources to global markets,” added Mark Little, Suncor Energy Inc. president and CEO.

Cost detail

Project enhancements total approximately $2.3 billion of the increase. This includes a substantial increase in trenchless construction activity, significantly more MBAs with Indigenous communities that provide enduring economic benefits, the installation of advanced leak detection systems, and new unplanned scope and route changes that avoid culturally and environmentally sensitive areas.

Schedule pressures total approximately $2.6 billion of the increase and include permitting processes required for the several thousand permits that are required for the Project, and significant construction challenges in both marine and difficult terrain which have extended the schedule into late 2023.

The project has had to contend with generational events such as the COVID-19 pandemic and recent extreme weather in B.C. These events, combined with contractor productivity shortfalls in some areas, have resulted in a $1.7 billion increase. The combined effects of extreme weather and COVID measures is approximately $1.4 billion.

Safety and security requirements total approximately $500 million of the increase. These cost impacts include the voluntary two-month stand-down across the project in late 2020, including the related termination and replacement of a major construction contractor; additional safety and security measures across the project; and worker safety measures during the extreme heat and fires in B.C. last year.

Financing costs have increased by approximately $1.7 billion. The increase in financing costs will be incurred due to the increased cash expenditure required to construct the project, and the extended construction schedule. Financing costs include interest paid to Trans Mountain’s owner for money borrowed for the project as well as an imputed non-cash cost of equity capital provided by the owner of the project.

-with files from Reuters

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