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Canada’s $26 Billion Investment In Trans Mountain Pipeline May Not Pay Off

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The Trans Mountain Expansion Project promised in the 2010s to help Canada’s oil sands producers get their crude to the Asian markets from the Pacific Coast. After years of delays and enormous cost overruns, the expanded oil pipeline currently owned by the federal government of Canada is about to enter into service early next year.

The government has never intended to keep its ownership in the project that carries crude from Alberta’s oil sands to British Columbia on the Pacific Coast and which will triple the capacity of the original pipeline to 890,000 barrels per day (bpd) from 300,000 bpd.

Canada has started talks with indigenous groups interested in buying ownership of the expanded project. But pipeline operators and institutional investors are not too keen to buy the Trans Mountain Expansion Project, analysts tell Reuters, because of the high costs of financing for companies and because many investment funds prefer not to sink money into fossil fuel projects these days.

An ongoing dispute over the proposed shipping tolls of the pipeline amid the huge construction cost overruns is also muddying the waters for potential buyers.

All these hurdles suggest that the federal government of Canada may never fully recover the more than a dozen billion U.S. dollars of costs to have the project up and running.

At the start of the project, fierce opposition in British Columbia forced Kinder Morgan to reconsider its commitment to expand the Trans Mountain pipeline. So the Government of Canada reached an agreement with Kinder Morgan back in 2018 to buy the Trans Mountain Expansion Project and related pipeline and terminal assets. That cost the federal government $3.3 billion (C$4.5 billion) at the time. Since then, the costs for the expansion of the pipeline have quadrupled to nearly $22.6 billion (C$30.9 billion) and could continue to increase.

At the end of September, Trans Mountain received a ruling from the Canada Energy Regulator (CER) that approved its proposed deviation to pipeline routing within the previously agreed to the right-of-way on Stk’emlúpsemc te Secwépemc (SSN) lands near Pipsell (Jacko Lake), BC. The approved change of route in the section means that the pipeline could be fully completed and in service in early 2024.

 

The project remains in the $22.6 billion (C$30.9 billion) “range,” and only 16 kilometers of pipeline are left to lay, Trans Mountain CEO Dawn Farrell told Calgary Herald’s Chris Varcoe last week.

Trans Mountain targets to have first oil to the Westridge Marine Terminal by the end of the first quarter of 2024, Farrell said in an interview with Calgary Herald.

A sale of Trans Mountain could be completed in late 2024 or early 2025, Farrell said, adding that finding a buyer of a project of more than $22 billion would take time.

Indigenous-led group Project Reconciliation and Chinook Pathways, a partnership between Pembina Pipeline and Western Indigenous Pipeline Group (WIPG), are interested in bidding to own the whole or part of Trans Mountain.

But other potential buyers, which years ago may have been interested in getting their hands on such a large energy infrastructure project, may stay away. High financing costs with the high interest rates and the reluctance of many institutional investors to be associated with fossil fuels is limiting the pool of possible new owners of Trans Mountain.

The dispute over shipping tolls also creates uncertainties. Cenovus Energy and other companies say that parts of the proposed shipping toll are too high. Final tolls are to be established after the expanded pipeline enters into operation, so uncertainties over how much a new owner would be receiving from shipping fees are still high.

The Commission of the Canada Energy Regulator (CER) said this week it expects to take a preliminary decision on interim tolling this autumn to ensure tolling is in place when the line becomes operational.

“Trans Mountain indicates that it will file for approval of its final tolls once as-built costs are known, following the project’s completion,” CER says.

Based on several factors, including proceeds from tolls, Trans Mountain has been valued at up to $18 billion (C$25 billion) by five analysts and investors in a Reuters survey.

With costs running much higher than originally expected, Canada could struggle to recover all the money it has sunk into the pipeline expansion project.

By Tsvetana Paraskova for Oilprice.com

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Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

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NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 100 points, U.S. stock markets mixed

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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S&P/TSX up more than 200 points, U.S. markets also higher

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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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