‘Pain for Canadian Taxpayers’: Trans Mountain Will Not Be Profitable, Say Analysts

Construction of the Trans Mountain pipeline in Kamloops, B.C., on Sept. 1, 2020. The Canadian Press/Jonathan Hayward

The cost of the Trans Mountain expansion project has reached the point where it cannot make enough money to cover its growing debt. That’s according to several analysts who have been watching the project.

Earlier this year Trans Mountain announced that project costs had ballooned to $30.9 billion—a far cry from the $4.5 billion the federal government paid for the existing Trans Mountain pipeline, expansion project, and terminals in 2018.

And because the government now owns the project, it likely means taxpayers will be on the hook for billions of dollars.

“That is the most likely outcome as far as we can predict, which obviously means a huge amount of pain for Canadian taxpayers,” Eugene Kung, a lawyer for West Coast Environmental Law, told The Epoch Times.

“Probably $17 to $20 billion in forgiven debt.”

West Coast Environmental Law published a study in October 2022—back when costs were estimated at $21.4 billion—by economist Robyn Allan. Even then, the study predicted the project was at the point that it could not turn a profit and called the tolls its “Achilles heel.” Tolls refer to the fees Trans Mountain charges oil companies to ship their product through the line to B.C.’s west coast.

“The big numbers that the tolls will cover are less than half of the cost of construction, leaving the remainder for the owners to absorb, and in this case the owners are the Canadian public,” said Mr. Kung.

Significant Losses

He’s not the only one who sees big numbers coming.

Stephen Ellis, an analyst with investment research firm Morningstar, said in a July 18 post that the Trans Mountain project is looking at significant losses.

“A loss between CAD 15 billion and CAD 20 billion … is likely, with the potential for a higher loss still if the pipeline sees further cost increases,” Mr. Ellis wrote.

In June 2022, the Parliamentary Budget Officer (PBO) published his own analysis of the project and concluded that “the Government’s 2018 decision to acquire, expand, operate, and eventually divest of the Trans Mountain assets will result in a net loss for the federal government.”

However, the PBO said shutting down the expansion project would mean walking away from billions of dollars of assets.

Mr. Kung said Trans Mountain faces a dilemma. The higher the tolls, the more money the project can make—but if they go too high, oil companies will find other ways to get their oil to market.

“And so the only two ways out of that are to get the oil companies to pay more, approximately double, or to forgive a huge amount of debt owed by Trans Mountain to Canadian taxpayers,” he said.

Rising Costs

It wasn’t supposed to happen this way. Back in 2018, the feds bought the existing Trans Mountain pipeline from Kinder Morgan, after the company threatened to walk away from the expansion project because of delays and regulatory hurdles.

In 2019, when the project was being held up by a court ruling, the federal Conservatives said the delays were part of a pattern.

“It did not have to be this way. Within a week of the Aug. 30, 2018, Federal Court of Appeal ruling, Conservatives had a plan to rescue the project and get it built,” Shannon Stubbs, natural resources critic for the Conservative Party, said in a statement at the time.

“Instead, the Liberals picked the lengthiest, costliest, and most uncertain option by directing the NEB [National Energy Board] to undertake a 22-week reconsideration, further delaying progress on the Trans Mountain Expansion.”

Since then, costs have continued to go up.

In a news release in March, Trans Mountain Corporation said a variety of factors were behind costs ballooning to $30.9 billion, including inflation, global supply chain problems, labour shortages, and floods in B.C.

It also warned costs could go higher.

“As with all projects of this size, risks to the final costs and schedule will remain as work is completed through 2023,” it said. However, the company added that the project is expected to be done by the end of 2023 and to be shipping oil in the first quarter of 2024.

‘Cost Advantage’

In a statement sent to The Epoch Times, Trans Mountain said the project will still have a cost advantage.

“Recent analysis conducted by Trans Mountain shows that a vast majority of the time, Trans Mountain will have a cost advantage of US$2.50/bbl for shipping to China versus shipping through Gulf Coast,” the company said.

“Our cost advantage to Japan, South Korea and California is even greater. This analysis is based on historical marine costs and Trans Mountain’s current project tolls to Westridge Marine Terminal [in Burnaby].”

And it said the project has other advantages.

“Without the Trans Mountain Expansion Project, and expanded pipeline system and capacity, oil production in Alberta will exceed existing pipeline capacity likely as soon as next year. When this occurs, discounts on Canadian crude oil prices increase substantially which has rippling effects to the Canadian economy including royalties, taxes, and subsequently jobs.”

Regardless, Mr. Kung believes Ottawa has not been forthright with Canadians about the full cost of the expansion.

“I think there have been some deliberately misleading statements made by the federal government over the years, from promises that the project would be profitable and viable, or that it'd be run in a commercially viable way,” he said.

Once completed, the expansion will nearly triple the capacity of the existing Trans Mountain pipeline system, boosting it by 590,000 barrels a day to a total of 890,000 barrels a day, the company said in its news release in March.