The Trans Mountain pipeline expansion could hit $34.5 billion, but CEO Mark Maki says Canadians should still expect to recover their money.
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The final price tag on the Trans Mountain pipeline expansion could creep up another half-billion dollars to $34.5 billion, but Canadians should still expect to recover their money, says chief executive Mark Maki.
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“When the time is right, Canada can sell and the outcome that they should expect is a recovery of the taxpayer’s capital, and that’s the only thing the Trans Mountain leadership team is interested in: the taxpayer gets back their value,” he said to a parliamentary committee on Monday.
Questioned about the contentious project’s ballooning price tag, he acknowledged the forecasted price to complete the pipeline expansion could increase by between $200 and $500 million on top of the $34 billion projected earlier this year as remediation work continues.
The federal Standing Committee on Natural Resources is studying the project, which expanded the existing 980-kilometre pipeline and effectively tripled crude volumes from Alberta to British Columbia’s coast when it went into service last May. Ottawa purchased the Trans Mountain pipeline in 2018 from Kinder Morgan Canada Inc. for $4.5 billion.
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Maki, who took over as CEO of the government-owned Trans Mountain Corp. in September, said the pipeline has increased access to world markets for Canadian crude and helped narrow longstanding discounts on Western Canada Select (WCS) heavy crude compared to oil in the United States by as much as $10 per barrel.
“This project was worth the cost and it will continue to demonstrate its benefits to Canadians for decades to come,” he said.
Between 18 and 20 tankers per month since June have set sail from the Westridge Marine Terminal in Burnaby, B.C., carrying Trans Mountain barrels to ports in California, China, Washington, Korea, Brunei and Alaska, according to an analysis by Royal Bank of Canada.
The average WCS discount to U.S. benchmark West Texas Intermediate (WTI) has ranged between around US$11 and US$16 per barrel since TMX began operations on May 1, according to a September analysis by Platts, part of S&P Global Inc.
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However, some shipments of Canadian crude destined for Asian refiners sold at roughly a US$2-to-US$3 per barrel discount to WTI in the second quarter this year, significantly narrower than the US$13.50 differential for WCS sold at the Hardisty terminal in Alberta (a key hub for crude exports to the U.S.), according to research by Eight Capital Corp.
RBC has described TMX as a “tailwind” that is set to improve the fundamentals for Canadian oil production and export capacity into 2027.
Canadian crude oil production is up on a yearly basis, averaging more than five million barrels per day so far this year, according to the Canada Energy Regulator (CER), compared to around 4.9 million in 2023.
Maki said taxpayers should expect to recover their investment as long as Ottawa does not rush to sell while a number of issues remain unresolved, including a potential Indigenous stake in the project and an ongoing dispute over tolling, also known as the rates producers agree to pay to ship on the line.
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Canadian oil producers have complained about the expensive tolls on Trans Mountain compared to other pipeline routes. The producers have argued that the interim rates, set last year by the CER, are almost twice the amount that was floated in 2017.
Trans Mountain, however, has indicated it would like to further boost the pipeline’s fixed toll in order to cover the project’s substantial cost overruns. At Monday’s committee meeting, Maki said Trans Mountain is seeking to hike tolls by about 50 cents per barrel.
All these issues, he said, must be resolved before Ottawa can hope to find a buyer offering a good price for Trans Mountain.
“What the government needs to be here is a disciplined seller. You do not act in a hurry. You take your time. There are a number of uncertainties around the business that we need to clarify for the capital markets,” he said.
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“There is a rate case ongoing that has to be behind us. There is the concept of Indigenous equity participation or economic participation in Trans Mountain. For a buyer, that’ll be important to understand how that works.”
The CER is set to hold a hearing on the matter of tolling on May 14, 2025.
Maki pointed out that some of the factors that contributed to the project’s staggering cost increases, from roughly $5 billion in 2013 to more than $34 billion today, were beyond the company’s control, including COVID-19 and a three-month shutdown caused by unprecedented flooding in 2021 in B.C., which added around $9 billion in costs.
But Trans Mountain also suffered from delays and gaps in permitting, which forced workcrews to hop around and prevented efficiencies or economies of scale that would have been possible through a continuous, linear build.
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“Instead, it was having to build, pick up, move, build, go back, fill in, pick up, move …” Maki said.
He said evolving and additional compliance requirements added around $5 billion in costs, and another $2.3 billion was required to address important First Nations concerns (including a key rerouting near Merritt, B.C.) and $3.5 billion for stakeholder engagement and compensation. Unforeseen challenges that slowed construction once it had already begun, particularly in urban areas, added another $7.2 billion.
Maki said the delays and hurdles that plagued the pipeline are also likely to hamper proposed gas, hydrogen and electricity transmission projects.
“The unfortunate reality now is that when I look at other projects that are proposed for construction in Western Canada, they cost about the same per kilometre as this one did,” he said. “That’s not a good sign. Something is not right. We need to find a way to do big infrastructure projects more efficiently than what we are.”
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mpotkins@postmedia.com
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