Alberta on edge about TMX delay; expansion would support exports

Suddenly faced with a possible two-year delay in completion of the massive expansion of the Trans Mountain pipeline from the Alberta oil sands to the British Columbia coast to open the door to a possible 600,000 barrels per day of exports to Pacific Rim markets, Alberta crude producers and the provincial government are on edge.

"There's no other way to describe the prospect of a delay in TMX other than 'preposterous,'" said Tristan Goodman, head of the Explorers and Producers Association of Canada.

"We are still hopeful that it won't work out to a two-year delay, but it's quite serious," said Goodman.

Alberta Premier Danielle Smith told the Calgary Herald that the prospect of a delay on bringing the first phase expansion of TMX from 290,000 bpd to 900,000 bpd starting this spring has her "very concerned because there is so much pent-up demand" for additional pipeline capacity out of Alberta.

Concerns over cost recovery

The expansion has been in the works since 2013, an 11-year span that ballooned pipeline costs from an initial estimate of C$7.4 billion to a projected C$30.9 billion, with some recent estimates easily topping C$40 billion, although a new filing by Trans Mountain (the federal government agency that owns the pipeline) has insisted that 70% of the project's cost over-runs will be borne by the pipeline company and will have no effect on pipeline tolls.

A Canadian Energy Regulator filing in early December by Trans Mountain gave rise to concerns about what the company has in mind to recover its costs, including altering the size of the pipe for a section in British Columbia. Trans Mountain has warned it may have no choice but to delay completion of the project by another two years, adding to Trans Mountain's long series of costly delays that have included a First Nations' blockade of construction and protracted environmental hearings.

Trans Mountain has called the mounting capital costs of the pipeline "reasonably and justifiably incurred."

"Over the last several decades, Canadians have placed greater emphasis on environmental and regulatory oversight, rights of Indigenous peoples, mitigation of socio-economic impacts and landowner rights when building a major project," said Trans Mountain, hinting at looming additional costs that could only be recovered from TMX users through higher tolls.

Trans Mountain has already indicated it wants to charge TMX users a benchmark toll that is nearly twice a 2017 estimate it submitted to the Canadian Energy Regulator, noting that it expects only "modest returns" on its investment in the first few years of the expanded pipeline's operation.

Kevin Birn, Standard and Poors chief analyst for Canadian oil markets, said his firm still sees the need for TMX to come online in 2024, given its expectation that oil supply in Western Canada will increase by 230,000 bpd this year and could peak in late 2024-25 at 5.2 million bpd.

--GARY PARK

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