Trans Mountain CEO Ian Anderson announced Friday that the cost of building the pipeline expansion has soared from an initial estimate of $7.4 billion to $12.6 billion.
In a conference call with reporters, Anderson said increased material and labour costs are to blame for the cost overruns, along with years-long legal troubles and renewed Indigenous consultation efforts that also added to the final total.
Despite the sizeable increase from the initial 2017 cost estimate, Anderson said the project will be profitable because much of its capacity has already been sold to major oil producers like Suncor and Cenvous on 20-year contracts. He said the project will generate $1.5 billion a year in cash flow when it’s fully operational.
While the project is owned by the federal government, Anderson said he’s running the company as it were a private entity and the cost overruns would be incurred by any proponent building the expansion.
Anderson said recent legal victories at the Supreme Court of Canada and the Federal Court of Appeal have given the project greater legal certainty.
“I believe there’s a path and that path is getting clearer each day,” he said. “I’m confident the project itself remains very, very strongly economically viable.
“There isn’t anyone who could picture the journey we’ve been on to get this project started and what it will take to get it constructed.”
That $12.6 billion construction cost figure includes $1.1 billion already spent on construction by the previous owner of the project, Kinder Morgan, before Ottawa bought the project amid legal uncertainty.
The construction cost is in addition to the more than $4 billion the federal government spent to purchase the existing pipeline and the expansion plans, and another $600 million Ottawa set aside for contingencies (called a reserve fund for “cost impacts”). Those sums bring the total cost of taxpayers’ investment in Trans Mountain to more than $16 billion.
The August 2018 Federal Court of Appeal ruling that quashed cabinet’s approval of the project was source of cost overruns.
As a result of that ruling, the government had to make a number of accommodations to Indigenous communities along the route and meet additional environmental standards — changes that added roughly $3 billion to the construction price tag.
“The project that we’re all working on building today is not the project we originally envisioned and introduced in 2012,” Anderson said.
Anderson said the project has more support from Indigenous communities than it did when it was first proposed. Fifty-eight Indigenous communities along the project’s route have signed impact benefit agreements with the Crown corporation that cover financial incentives, job training, bursaries, pensions for Indigenous elders and funds for community infrastructure upgrades.
The company also is running fibre optic cable along the pipeline’s route to detect spills or other safety issues — which means its also bringing internet connections to communities that don’t already have access.
Beyond Indigenous-related costs, Anderson said a new labour agreement with trade unions cost the project an additional $100 million a year, steel-related costs have increased $120 million, robust security along the route will cost an additional $190 million and state-of-the art spill-response technology will set the project back another $70 million.
The company estimates the expansion’s in-service date to be December of 2022.
During the federal election, the Liberals pledged to invest corporate tax revenue from the pipeline into cleaner sources of energy and projects that pull carbon out of the atmosphere.
The federal government purchased the existing Trans Mountain pipeline for $4.5 billion in May of 2018, after the original proponent, Kinder Morgan, pulled out because of increased political and environmental opposition to the project.
The expansion would twin the existing pipeline, which runs more than 1,000 kilometres between Edmonton and Burnaby, B.C. It would triple the amount of bitumen flowing through the pipeline to nearly 900,000 barrels a day.
The project is also set to expand the terminal in B.C. and, as a result, tanker traffic is expected to increase by nearly seven-fold a month.
According to the federal government, the pipeline and terminal would produce 400,000 tonnes of greenhouse gas emissions a year, create 15,000 jobs during construction and generate about $47 billion in revenue for different levels of government over the first 20 years of its operation.
