Pipeline costs ballooning
Indigenous-led groups go ahead with plan to acquire stake despite overruns
Indigenous-led groups remain committed to pursuing ownership of the Trans Mountain pipeline, even as cost overruns for the pipeline expansion project soar.
Last month, the federal Crown corporation that owns the pipeline revealed estimated construction costs of the expansion have ballooned by 70 per cent to $21.4 billion, up from an earlier estimate of $12.6 billion.
Trans Mountain Corp. also pushed back the estimated completion date of the project from sometime this year to the third quarter of 2023.
In an email Monday, Trans Mountain Corp. confirmed that due to existing contractual agreements with shippers, only 20 to 25 per cent of the increased capital costs can be passed on to oil companies in the form of increased tolls.
That means that about $7 billion in cost overruns must be absorbed by Trans Mountain itself, ultimately eroding the project’s returns.
But escalating costs aren’t deterring Indigenous-led initiatives like Nesika Services, a non-profit organization that is working to help Indigenous communities along the pipeline’s route acquire a stake in Trans Mountain.
“It means obviously the entire pie for the project is smaller,” Nesika Services executive director Paul Poscente said in an interview.
“But we’ve done some modelling based on the publicly available information, and it’s absolutely still viable. We still believe that Canada can sell a portion of this pipeline to Indigenous communities on a commercial basis. “We have been urging Canada to start a negotiation.”
Project Reconciliation, another Indigenous-led initiative that is seeking 100 per cent Indigenous ownership of Trans Mountain, recently sent a letter to Prime Minister Justin Trudeau to indicate it is still “ready, willing and able” to purchase the pipeline.
“We’re anxious to sit down and have conversations more formally on that,” Project Reconciliation managing director Stephen Mason said.
Still, he acknowledged that the new $21.4-billion capital price tag for the project is higher than his group had anticipated.
“We had re-run our financial expectations about four or five months ago, assuming $17 billion,” Mason said, adding the ultimate selling price for the pipeline will only be what a prospective buyer is willing to pay, and will therefore reflect the anticipated return on investment.
“Whether it’s us buying this asset or a big pipeline company coming in to buy it they’re only going to pay a price that will be supported by the tolls. It has to be supported by a revenue model.”
The 1,150-km Trans Mountain pipeline carries 300,000 barrels of oil per day, and is Canada’s only pipeline system transporting oil from Alberta to the West Coast.