The last section of pipeline is assembled on the Trans Mountain pipeline expansion project near Laidlaw, B.C., on Feb. 18.Chris Helgren/Reuters
Richard Masson is an executive fellow at the University of Calgary school of public policy and is the former chief executive of the Alberta Petroleum Marketing Commission.
The Trans Mountain pipeline expansion (TMX) has commenced commercial service, increasing the capacity to move crude oil 1,150 kilometres from Edmonton to Burnaby, B.C., from where it is exported to global markets. The additional 590,000 barrels a day essentially triples the line’s capacity.
The TMX helps reverse the current situation: too much oil production relative to too little transportation capacity to reach markets. Lower industry revenues resulted in lower tax and royalty revenues for Canadian governments, reduced capital investment, and fewer jobs and business opportunities.
But while the commercial startup of TMX is an important step forward, it has been a tortuous journey to reach this point, and significant challenges remain to see the pipeline operate safely at its design capacity and resolve its ownership structure.
TMX is currently estimated to cost $34-billion, about 6.3 times the initial estimate of $5.4-billion put forward by former owner Kinder Morgan and supported by shippers in 2013. It is also starting operations years later than originally planned.
Tolls for shippers were initially estimated at $4.33 a barrel, but are now expected to be more than $10.88/bbl, with even this higher toll excluding about half of the capital cost increase, or about $16-billion. This portion of the cost overrun will likely be written off by the federal government, which now owns the project, because there is no business case for upping the toll even further to support it. (The federal government acquired the pipeline from Kinder Morgan in 2018 for $4.5-billion as the company decided it was unwilling to proceed with the project owing to the opposition it was receiving from the government of British Columbia and other stakeholders.)
Many factors have been cited for the cost increases experienced on TMX. These include the challenges associated with the COVID pandemic, flooding, fires and regulatory delays that were experienced during the development phase.
In comparison, the Coastal Gas Link pipeline was recently completed by TC Energy, and will move natural gas 670 kilometres from Dawson, B.C., to the LNG Canada facility at Prince Rupert, B.C. It was constructed on a similar time frame and had a similar scope. It experienced a cost increase of 2.3 times as its cost grew to $14.5-billion from the initial estimate of $6.2-billion. While this is a large cost increase, it is far from the increase experienced by TMX.
Given the experiences with TMX, it seems unlikely that similar major new projects will be proposed any time soon. And this is more than just a problem for oil.
In a recently published interview Trans Mountain’s CFO, Mark Maki, suggested that the TMX experience might become the “new normal” for large-scale linear infrastructure projects in Canada. If that is the case, it may be very difficult for new infrastructure projects to be developed in this country, lowering our overall competitiveness.
Major infrastructure projects that cost multiples of their original budgets and start up years late make it more difficult for Canada to address its investment and productivity issues. As we work to transition our energy system there will be a great need for large scale linear electricity transmission lines, in addition to pipelines for liquids such as oil, natural gas, CO2 and hydrogen. Canada needs to identify and address the issues that caused the massive overruns on TMX in order to attract infrastructure capital going forward.