Billions in cost overruns mean Trans Mountain purchase hasn’t panned out for the feds: Strategist
New documents suggest the Crown corporation behind the Trans Mountain pipeline expansion is facing an uphill battle to finish the project on schedule in spite of mounting internal and external pressure to do so.
The Trans Mountain pipeline is Canada's only pipeline system transporting oil from Alberta to the West Coast. Its expansion, which is currently underway, will boost the pipeline's capacity to 890,000 barrels per day (bpd) from 300,000 bpd currently.
Trans Mountain Corp. has long stated its target date for the mechanical completion of the project is sometime during the third quarter of this year (which ends Sept. 30), with the pipeline's in-service date expected in early 2024.
But last week, the corporation filed for regulatory approval to modify the route of one of the remaining stretches of pipe yet to be completed, saying it has run into a construction-related hurdle that could delay the project's progress.
Now, new regulatory filings by a First Nation in B.C. reveal the extent of the deadline pressure facing the pipeline company.
In a letter to the Canada Energy Regulator dated Aug. 28, a lawyer for the Stk'emlupsemc te Secwepemc details a meeting the First Nation's leadership had with Trans Mountain executives about the proposed route change.
According to the First Nation's filing, Trans Mountain CEO Dawn Farrell said engineering difficulties related to the drilling of a tunnel in B.C. mean the corporation can no longer complete the pipeline section in question using a trenchless construction method as promised.
"I know that it’s not your concern that this is taking longer and that it’s causing problems with the schedule and all the rest of it but it is," the First Nation quotes Farrell as saying in the meeting. "Significantly.
"We are constrained to options that are economic and feasible within the remaining time frame."
The Stk'emlupsemc te Secwepemc's letter also says Trans Mountain never said its originally proposed construction method was impossible, only that it couldn't be done in time to meet a Jan. 1, 2024, in-service date for the pipeline.
"We’ve come to a conclusion that we aren’t going to be successful in completing that tunnel in time to meet the requirements and bring this project online," the First Nation quotes Trans Mountain as telling them.
"And, at this point in time, bringing the project online is something that we need to do. The executive made that clear, the board of directors made that clear. It’s an expectation of … the contracts we have in place."
The section of pipe in contention is a proposed 1.3-kilometre stretch yet to be built in the Jacko Lake area, near Kamloops.
The Stk'emlupsemc te Secwepemc state in their regulatory filing that the area has "profound spiritual and cultural significance" to their people, and that they only consented to the pipeline's construction with the understanding that Trans Mountain would minimize surface disturbances by implementing specific trenchless construction methods.
"Trans Mountain has failed to demonstrate that the trenchless construction methods within the Pipsell (Jacko Lake) Corridor approved under the Previous Deviation Application are no longer a viable method of construction," the First Nation states.
"Trans Mountain has made it clear that financial considerations ... and Trans Mountain’s preference for a Jan. 1, 2024 in-service date are the rationale for submitting the Deviation Application."
The Trans Mountain pipeline project has been plagued by difficulties. The pipeline 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 regulatory hurdles.
Its projected price tag has since spiralled, first to $12.6 billion, then to $21.4 billion and most recently to $30.9 billion (the most recent capital cost estimate, as of March of this year).
The federal government has already approved a total of $13 billion in loan guarantees to help Trans Mountain secure the financing to cover the cost overruns.
Trans Mountain Corp. has blamed its budget problems on a variety of factors, including inflation, COVID-19, labour and supply chain challenges, flooding in B.C. and unexpected major archeological discoveries along the route.
This most recent construction hurdle does not bode well for the corporation's schedule or budget, said Richard Masson, executive fellow with the University of Calgary's School of Public Policy.
"It sounds to me quite bad," Masson said in an interview on Tuesday.
"It’s unlikely, in my opinion, (that) you’re going to get a quick deviation approval on something you made a commitment to a First Nation on."
He added that while Trans Mountain waits for the regulator to make a decision on its request to move the pipeline route, its labour costs will continue to rise.
And the federal government, which is seeking to divest the pipeline and has entered negotiations with several interested Indigenous-led buyers, will be unable to sell until a final construction cost and in-service date is determined.
In the meantime, Trans Mountain has filed for regulatory approval for the tolls it wishes to charge oil shippers when the pipeline begins operations. But oil companies, frustrated by the higher tolls Trans Mountain says are necessary due to the pipeline's ballooning price tag, are pushing back.
The Canada Energy Regulator has yet to make a decision on the tolling issue, and has agreed to give shippers until Aug. 30 to file written statements. But shippers also need the pipeline to be completed on schedule to meet their obligations to customers.
"They've got a commitment to ship the oil, they've got to be ready to execute on that. So a delay complicates that," Masson said.
"And of course the federal government will need to put in more loan guarantees to keep this thing afloat until the tolls start coming. It all adds up to bad news for everybody."
This report by The Canadian Press was first published Aug. 29, 2023.