Trans Mountain drama entering final episode
I THINK WE’RE GOING INTO A WORLD WHERE THE BACK HALF
OF THIS YEAR IS LIKELY TO SEE A RATE CUT — MAYBE TWO — IN
THESE MAJOR DEVELOPED ECONOMIES LIKE EUROPE, CANADA
AND THE UNITED STATES. — CIBC CEO VICTOR DODIG
Like some sort of pipeline telenovela, the decade-long story of the Trans Mountain expansion always seems to have another unexpected plot twist at the end of each episode.
It’s come with public hearings and high-profile protests, regulatory reviews followed by stunning legal setbacks.
Add in government privatization, federal-provincial squabbling, a pandemic and staggering cost overruns.
And drama — plenty of drama. “Somebody joked one day that the last thing that can happen would be locusts,” Ian Anderson, the former CEO of Trans Mountain Corp., said in an interview in 2022 as he prepared to retire after years of guiding the project.
Coming next: the final weld as the end of the construction now appears at hand.
The federal Crown corporation that owns and operates the pipeline confirmed Wednesday it will commence commercial operations May 1.
The last leg of the construction, a horizontal drill between Chilliwack and Hope in the Fraser Valley, is largely complete. Work on that segment started almost two years ago.
“That pipe now has been threaded through the mountain, but it needs to be tied into the pipe on both sides of the mountain, so that’s the remaining piece of construction,” Trans Mountain Corp. chief financial officer Mark Maki said in an interview Thursday.
“The golden weld — that will be here in a couple of weeks ... It is effectively the culmination of over a decade of construction, a decade of permitting, a decade of challenges.”
Meanwhile, filling the pipeline with oil is already underway and the process will continue into May.
Maki said some valves still need to be powered up, and there will be ongoing remediation and cleanup work along the pipeline’s right-of-the-way over the next year.
“The May 1 date is very significant. It provides some certainty,” said Tristan Goodman, president of the Explorers and Producers Association of Canada.
“Given the difficulties that are in Canada now around building large infrastructure, there is always a little bit of suspicion. But, generally, I think this is going to get done on this date.”
Trans Mountain officials believe this week’s announcement represents an inflection point.
Commercial commencement means the facilities will effectively be available for service. The first shipments from the expanded pipeline will take place next month.
“It isn’t quite like flipping a light switch. There’s a long ballroom dance process here to get everything up and running,” Maki added.
Hopefully, as the project shifts into a commercial endeavour it will no longer be seen as a symbol of Canada’s wrenching debate over energy developments. However, any future sale of the project by Ottawa will likely define the discussion.
The existing 1,150-kilometre pipeline, built in 1953, ships oil from the Edmonton area to a terminal in Burnaby, B.C.
The expansion will almost triple its capacity to 890,000 barrels per day. Moving more oil and refined products to the Pacific Coast for export will give shippers access to new markets in Asia.
When Anderson announced the expansion project in 2012, the pipeline was owned by Kinder Morgan. Since then, the capital costs have increased from $5.4 billion to exceed last year’s estimate of $30.9 billion. (That figure will likely be about 10 per cent higher, according to recent regulatory filings.)
The project was approved by the national energy regulator and the Trudeau government in 2016, but faced intense opposition from environment groups, B.C. municipalities and some Indigenous communities.
The B.C. government of John Horgan also pledged to use every tool at its disposal to sidetrack the development.
By the spring of 2018, a beleaguered Kinder Morgan set a deadline, saying it was prepared to walk away from the expansion unless governments resolved the impasse.
The federal government did so by acquiring the existing pipeline and expansion for $4.4 billion.
Construction began in the summer of 2018, then stopped after the government lost a critical legal challenge, but was restarted in late 2019.
Then the pandemic hit, followed by several large cost increases.
In the past year, as construction has marched on, the focus has turned to the final leg of work in B.C. At the end of February, there were still almost 8,600 people working on the expansion.
Energy economist Peter Tertzakian said Wednesday’s announcement is important. The project will give Canadian producers more control and alternatives than shipping all their crude into the U.S. market, he noted.
“It brings resolution to a 12-year project that has been highly controversial and subject to all sorts of delays — and cost escalations as of result of the delays — and the polarization in our energy narrative,” said Tertzakian.
“This is not just a Trans Mountain story. If we’re going to decarbonize by 2050, we need to learn the lessons of Trans Mountain and apply it to the nuclear industry, the renewables, everything,” he added.
Meanwhile, the price differential between U.S. benchmark crude and Western Canadian Select heavy oil has narrowed this year.
A new report by Scotiabank Global Equity Research forecasts the annual heavy oil price differential will drop from US$18 a barrel over the past three years to around $13 to $15, because of additional pipeline capacity.
“The project is basically doing what it’s supposed to do, which is get the Canadian producer in the country a better price for its resource,” Maki added.
“Because of how important this is to the producing community, how important it is to the country, whenever there’s a twist or a turn, it’s going to get a lot of attention.”