Cost of Trans Mountain expansion soars to $12.6B
Figure includes $1.1B already spent on construction by previous owner of the project, Kinder Morgan
Trans Mountain CEO Ian Anderson announced Friday that the cost of building the pipeline expansion has soared from an initial estimate of $7.4 billion to $12.6 billion.
In a conference call with reporters, Anderson said increased material and labour costs are to blame for the cost overruns, along with years-long legal troubles and renewed Indigenous consultation efforts that also added to the final total.
Despite the sizeable increase from the initial 2017 cost estimate, Anderson said the project will be profitable because much of its capacity has already been sold to major oil producers like Suncor and Cenvous on 20-year contracts. He said the project will generate $1.5 billion a year in cash flow when it's fully operational.
While the project is owned by the federal government, Anderson said he's running the company as it were a private entity and the cost overruns would be incurred by any proponent building the expansion.
Anderson said recent legal victories at the Supreme Court of Canada and the Federal Court of Appeal have given the project greater legal certainty.
"I believe there's a path and that path is getting clearer each day," he said. "I'm confident the project itself remains very, very strongly economically viable.
"There isn't anyone who could picture the journey we've been on to get this project started and what it will take to get it constructed."
That $12.6 billion construction cost figure includes $1.1 billion already spent on construction by the previous owner of the project, Kinder Morgan, before Ottawa bought the project amid legal uncertainty.
Ottawa already spent $4 billion to buy the line
The construction cost is in addition to the more than $4 billion the federal government spent to purchase the existing pipeline and the expansion plans, and another $600 million Ottawa set aside for contingencies (called a reserve fund for "cost impacts"). Those sums bring the total cost of taxpayers' investment in Trans Mountain to more than $16 billion.
The August 2018 Federal Court of Appeal ruling that quashed cabinet's approval of the project was source of cost overruns.
As a result of that ruling, the government had to make a number of accommodations to Indigenous communities along the route and meet additional environmental standards — changes that added roughly $3 billion to the construction price tag.
"The project that we're all working on building today is not the project we originally envisioned and introduced in 2012," Anderson said.
Anderson said the project has more support from Indigenous communities than it did when it was first proposed. Fifty-eight Indigenous communities along the project's route have signed impact benefit agreements with the Crown corporation that cover financial incentives, job training, bursaries, pensions for Indigenous elders and funds for community infrastructure upgrades. These agreements will cost the proponent about $500 million.
The company also is running fibre optic cable along the pipeline's route to detect spills or other safety issues — which means its also bringing internet connections to communities that don't already have access.
Beyond Indigenous-related costs, Anderson said a new labour agreement with trade unions cost the project an additional $100 million a year, steel-related costs have spiked by $120 million, robust security along the route will cost an additional $190 million and state-of-the art spill-response technology will set the project back another $70 million. Financing the project will cost another $1 billion.
The company estimates the expansion will be up and running by December of 2022.
Finance Minister Bill Morneau said in media statement Friday that the project is still "commercially viable." He said Canada needs the expanded pipeline to get Alberta oil to lucrative markets in Asia where it can fetch prices closer to the going world rate.
"We believe Canada should get a fair price for its resources. Currently, almost all of our energy exports go to the United States and producers often have to sell at a discounted price," Morneau said.
He said the project will employ 5,500 at the peak of construction and will provide tens of millions of dollars in economic support to Indigenous communities.
During the federal election, the Liberals pledged to invest corporate tax revenue from the pipeline into cleaner sources of energy and projects that pull carbon out of the atmosphere — a promise Morneau reaffirmed Friday.
"The Trans Mountain expansion project will be an important driver in Canada's transition to a cleaner economy. Every dollar the federal government earns — from the annual corporate tax revenue estimated at $500 million as well as any profit from an eventual sale — will be invested in clean energy projects that will power our homes, businesses and communities for generations to come," Morneau said.
Opposition MPs weren't happy with the project's rising cost.
"It didn't have to be this way. It's ridiculous. Not a single tax dollar should have been spent on the Trans Mountain expansion," said Conservative MP Shannon Stubbs, who called on the government to file monthly reports on the project's costs and progress.
"Because they, as of their own fault, made Canadians the owners of the pipeline. So it's on them to tell Canadians exactly how it's going to be built, when it's going to be in service, how much it's going to cost and who is going to own it in the long run."
NDP MP Alexandre Boulerice said the price is "unacceptable" and the project should be scrapped.
"It's a really bad investment because this is the kind of oil that has no future. So we are investing in something that in 10 years or 20 years will not run again," he said in an interview.
"We're asking the Liberals to change their mind and to come to the earth and to invest that kind of money to create good jobs in renewable energy."
The International Energy Agency projects that — if governments follow current stated policies — demand for oil will increase each year until it plateaus in the mid-2030s. By contrast, the IEA also projects that under a sustainable development scenario needed to avoid the worst effects of climate change that demand could drop off much quicker.
The federal government purchased the existing Trans Mountain pipeline for $4.5 billion in May of 2018, after the original proponent, Kinder Morgan, pulled out because of increased political and environmental opposition to the project.
The expansion would twin the existing pipeline, which runs more than 1,000 kilometres between Edmonton and Burnaby, B.C. It would triple the amount of bitumen flowing through the pipeline to nearly 900,000 barrels a day.
The project is also set to expand the terminal in B.C. and, as a result, tanker traffic is expected to increase by nearly seven-fold a month.
According to the federal government, the pipeline and terminal would produce 400,000 tonnes of greenhouse gas emissions a year, create 15,000 jobs during construction and generate about $47 billion in revenue for different levels of government over the first 20 years of its operation.
- This story has been updated from a previous version that referred to an International Energy Agency projection that would see oil demand increase until the mid-2030s and then plateau. The story has been edited to note that this scenario is based on current stated government policies and is only one scenario considered by the IEA.Feb 11, 2020 4:42 PM ET