What’s next for the Trans Mountain Pipeline?
UNSPLASH/Wolfgang Weiser
The long-delayed expansion of the Trans Mountain Pipeline may be complete and already moving oil, but the project’s economics remain an open sore as debate shifts to who will pay for the exploding costs.
A quick recap. In 2018, amid regulatory delays and fierce opposition from environmental groups, the federal government bought the TMX pipeline from Houston-based Kinder Morgan for $4.5 billion, to ensure it got built. Under government ownership, the project’s costs spiraled out of control and are currently estimated at $34 billion, five times the initial estimate of $7 billion,
The Standing Committee on Natural Resources is currently studying how costs escalated so dramatically and debating how much of the overruns should be borne by oil companies. In a decision that will go a long way to answering that question, the Canada Energy Regulator, the federal body that oversees pipelines, is poised to make a key ruling early next year on final tolls. The outcome could have consequences for Canada's economy, energy policy and future infrastructure investments.
The shippers, i.e. oil companies, argue that the fees to use the pipeline should reflect the original cost estimates, not the massive overruns, which they had no control over and which would have never occurred had the regulatory framework not been so difficult. Trans Mountain claims fair toll rates are essential to recoup the investment, especially since the public is ultimately footing the bill.
While the industry is happy to have the pipeline, the TMX issue illustrates in concrete ways the costs associated with Canada’s ongoing difficulties in building major projects.
Pushing too much of those costs on to taxpayers may erode public trust in large-scale energy projects, fueling dissatisfaction over government support for the oil sector. Such a shift could undermine political will for future projects.
On the flip side, industry leaders argue Canada’s regulatory environment and government policy make it difficult to move forward with projects without incurring significant cost, or in the case of TMX, government control. This sends a worrying signal to investors and could undermine business appetite to invest in future projects.
