(Calgary) A group of oil shippers is calling on the Canada Energy Regulator to require the company behind the Trans Mountain pipeline expansion to provide a full, detailed breakdown of construction costs growing of the project.
The shippers – which include Canadian Natural Resources, Suncor Energy, Cenovus Energy, PetroChina Canada and Marathon Petroleum Canada – are seeking an order from the regulator requiring Trans Mountain Corp. provides more information on why project costs soared to more than $30 billion, compared to an estimate of $7.4 billion in 2017.
“The stakes are high: billions of dollars are at stake, with Trans Mountain’s (costs) having more than quintupled since 2017 – and its costs continue to rise by billions, seemingly unchecked,” the oil companies pointed out in a request filed with the Canada Energy Regulator earlier this week.
“Yet Trans Mountain refused to respond to inquiries from most participating shippers and inappropriately dismissed most requests as irrelevant “fishing expeditions.” »
The Trans Mountain pipeline, purchased by the federal government in 2018, is Canada’s only pipeline to the West Coast. Its nearly completed expansion project will increase the pipeline’s capacity by 590,000 barrels per day to a total of 890,000 barrels per day, improving access to export markets for Canadian oil companies.
But Trans Mountain Corp. and its oil company clients are currently engaged in a dispute over tolls, the term for the fees the pipeline company will charge to ship oil through the expanded pipeline.
In its latest update, provided last month, Trans Mountain said it now has reason to believe project costs will be approximately $3.1 billion higher than the May estimate of $30.9 billion. 2023. She said a final tally won’t be available until after the project is completed, scheduled for this spring.
Oil companies are worried about rising costs because they will have to pay some of it in rising tolls.
Although about 70% of the project’s cost overruns will be borne by Trans Mountain, the remaining third – more than $9 billion – are considered “uncapped costs” that increase tolls, according to a formula agreed to by shippers and approved by the regulator more than a decade ago.
But oil shippers say the new benchmark fee Trans Mountain wants to charge is nearly twice as high as a 2017 estimate, and say more information needs to be provided in order to prove the project’s price hike is both reasonable and necessary.
They say they have asked Trans Mountain to provide a more detailed breakdown and are seeking an order from the regulator because they are not satisfied with the company’s response.
The Canada Energy Regulator has already authorized Trans Mountain to charge higher fees on an interim basis, but has not yet made a final decision.
For its part, Trans Mountain Corp. – which is a Crown corporation – said 70% of the project’s cost overruns would be borne by the pipeline company and would have no effect on tolls.
The company also previously said that due to the project’s cost overruns, it expects only “modest returns” on its investment during the first years of operation of the expanded pipeline. It states that any fee level lower than that requested by Trans Mountain “could impact Trans Mountain’s ability to meet its financial obligations.”
In December, Trans Mountain Corp. submitted written evidence to the regulator in which it explained that the pipeline expansion project had been affected by “extraordinary” factors that include changing compliance requirements, accommodation measures to take into account the concerns of indigenous groups, stakeholder engagement and compensation requirements, extreme weather conditions and the COVID-19 pandemic.
The company said in its filing that the project’s cost overruns were “reasonably incurred and justified.”
Construction of the Trans Mountain Pipeline Expansion Project began in 2019.