Trans Mountain oil pipeline expansion opens soon, but questions remain (2024)

After billions of dollars’ worth of cost revisions, several protests from environmentalists and the discovery of about 250,000 artifacts during construction, Canada is just a week away from the commercial start of a new pipeline that was initially proposed 12 years ago to provide oil producers access to better prices and newer markets.

Oil is already flowing in some sections of the 1,150-kilometre pipeline owned by the federal government’s Trans Mountain Corp., but all shippers will be subject to the new tariff and tolls starting next month for the pipeline connecting Alberta and British Columbia with a capacity of 590,000 barrels per day.

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It’s been a topsy-turvy ride for Trans Mountain pipeline and the significance of the long-awaited opening, scheduled for May 1, isn’t lost on chief financial and strategy officer Mark Maki.

“The whole employee population here at Trans Mountain is super excited about the start-up of the line,” he said. “I ran into a fellow in the elevator today and he was talking about where the oil column was in terms of the system. So, everybody is very attuned to what’s going on.”

The new pipeline is part of the company’s expansion project, which will twin with an existing line built in 1953 that already transfers about 300,000 barrels of oil per day.

But as Trans Mountain nears the end of construction on a project that has been more than a decade in the making, plenty of questions remain about its next steps and the future of Canada’s oil industry.

The “new normal”?

The cost to build the new pipeline was initially estimated in 2017 to be around $7.4 billion. Since then, the cost has ballooned to about $34 billion, leading to some criticism from the industry. For example, Tristan Goodman, who heads the Explorers and Producers Association of Canada association, in February said the increase was “ridiculous” and a failure of the government’s approach.

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“The government’s intentions are right to have good oversight, but they haven’t figured out how to get that oversight to be efficient and cost effective,” he said. “It is ridiculous to have this pipeline costing $31 billion — that is obscene.”

But Maki said Trans Mountain’s experience might become the “new normal” for large-scale linear infrastructure projects in Canada.

“Unfortunately, to do a project right in the days that we live in now, this is a reality that people are going to have to confront,” he said. “I would certainly wish it was less, but it is what it needed to be in terms of how things got done and where they got done — especially, the how. I think this is the new normal.”

It is ridiculous to have this pipeline costing $31 billion — that is obscene

Tristan Goodman

Maki said social-distancing procedures in the middle of construction during the pandemic affected efficiencies, and flooding delayed some key activities by about a year and made things more expensive the following year.

But the big difference was how the company decided to construct the pipeline compared to the originally conceived approach.

“The really important thing with any long linear infrastructure here in Canada is recognizing the people that were here first and they have to be part of the economic equation,” Maki said. “That’s a big thing with this project. Engagement with Indigenous nations, Indigenous contractors, partnerships and, ultimately, Indigenous ownerships.

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During the course of construction, the company recovered and returned about 250,000 artifacts to Indigenous communities from about 350 archaeological sites along the pipeline system. A tremendous amount of time and attention was spent on such activities, Maki said.

Another new pipeline?

Some analysts initially expected the Trans Mountain expansion would meet the demands of Canadian oil producers for about five years. But the industry has been pumping more oil in anticipation of better prices due to the new pipeline. Now, industry insiders expect the pipeline to be saturated within two years, so some expect more pipelines will be needed in the future.

Calgary-based Tamarack Valley Energy Ltd. chief executive Brian Schmidt, in an interview with Bloomberg this week, described the new pipeline as a “good stopgap,” but that Canada would ultimately need more capacity to satisfy future growth.

Maki, though, was more cautious about calls for more pipelines. He thinks it is something that should be explored, but believes existing pipelines can be optimized or “tweaked” to get a “little bit more” out of them.

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“What every operator should (ask) first before they talk about building a whole new pipeline is: What can I do to the existing network I have? What can I do to make it run better?” he said. “For example, more horsepower on the system or some modifications to the pumps. All of that doesn’t involve adding a whole bunch of pipes or a new pipeline.”

Maki added it would be “tough to see” new pipelines being constructed in the current environment.

Who’s going to buy it?

That the federal government considers the Trans Mountain pipeline as one of its more important projects is obvious.

Deputy Prime Minister Chrystia Freeland, in her budget speech last week, took a shot at her critics by saying that for “those who claim that the only thing government can do when it comes to economic growth is get out of the way, I’d like to introduce them to the talented tradespeople and brilliant engineers who, last Thursday, made the final weld — the Golden Weld — on a great national project: the Trans Mountain pipeline.”

Freeland said the project will add an estimated 0.25 percentage points to the country’s gross domestic product — which measures the value of goods and services produced during a specific time frame — in the second quarter.

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The Liberals have made it clear that they don’t intend to own the pipeline in the long run. But analysts say that selling it at a profit won’t be easy considering the government has spent billions more than it initially expected on the project.

Maki is not in control of when the government plans to sell the project or who it is likely to sell it to, but as a veteran in the field and as a taxpayer, his advice to the government is to not be in a hurry to sell it.

“While it doesn’t want to be a long-term holder, it can certainly benefit by taking its time in monetizing its interest,” he said. “It should harvest some returns for a period of time and, during that period of time, also relieve some of the uncertainties around the system … like what is the revenue line.”

The more uncertainty that’s removed from the project, the more value there is for the buyer, he said.

For the next few months, though, the government-led company will be focused on “tweaking the system” to ensure a smooth beginning to the pipeline’s operations.

“I don’t think it will take long at all to get it lined out,” Maki said.

• Email: nkarim@postmedia.com

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