Despite its vow to end subsidies for the oil and gas sector, the Liberal government in Ottawa has anted up an additional $3 billion in loan guarantees for the troubled Trans Mountain pipeline expansion to the West Coast..Export Development Canada (EDC) announced late on Friday it had provided a guarantee of financing provided by commercial lenders to Trans Mountain Corporation — which is 100% owned by the federal government through the Canada Development Investment Corporation — effective July 20..It comes on top of $13 billion in similar loan guarantees and $9.75 billion in direct financing provided by EDC since 2020 to complete the long-delayed pipeline to the West Coast which is about 85% complete..Last year, Finance Minister Chrystia Freeland said no additional public funds would be committed to the project and the company has since been forced to secure private funding..The federal government bought the project from Kinder Morgan Canada in 2017 and costs to build the expansion have more than quadrupled from $7.4 billion to $30.9 billion.The increase has been brought on by a string of environmental delays, floods and natural disasters in BC and court challenges from environmental and native groups, including a Supreme Court ruling that eventually went in the company’s favour..Which is to say, the latest guarantee doesn’t represent any new money and will be repaid when they mature in 2025, after it comes into service..That is expected to happen by the end of this year, facilitating some 890,000 barrels per day of exports to tidewater starting in the first quarter of 2024..That in turn should alleviate price pressure on Alberta barrels and narrow price discounts in the US Gulf Coast, assuming the companies can reach a mutually agreeable toll structure..The company earlier this month reported that it is nearing completion of the Westridge marine terminal near Burnaby and procured two methanol-powered tug boats to move tankers to and from the pier..Final financial preparations are also being made to at long last begin moving oil..On June 1, Trans Mountain applied to the Canadian Energy Regulator (CER) to set tolls of about $11 to ship a barrel of crude from Hardisty, near Edmonton to the marine terminal at Burnaby..It was immediately opposed by shippers with LNG-term contracts — Imperial, Suncor, Canadian Natural Resources, ConocoPhillips and Cenovus have all applied as intervenors — that backstopped the project to begin with..The higher toll structure means it could be cheaper to ship oil to China via the Gulf Coast through the Panama Canal..Among the original Trans Mountain contractors, producers are on the hook for 20% to 30% of the cost overrun or nearly $9.1 billion, up from $1.8 billion in 2017. That still leaves about $17 billion the federal government is going to have to eat or pass onto taxpayers..If they were to pass on the full amount, Trans Mountain would have to charge a minimum of $22 per barrel to recover its unfounded liability. .There were no further details on either the EDC of CDEV websites — or whether its related to the tolling shortfall — although a previous assessment from BMO Capital Markets and TD Securities, following a similar loan guarantee earlier this spring, stressed the need for Trans Mountain to maintain an investment grade credit rating to “enable the company to access debt financing in the private markets without reliance on government support.”
Despite its vow to end subsidies for the oil and gas sector, the Liberal government in Ottawa has anted up an additional $3 billion in loan guarantees for the troubled Trans Mountain pipeline expansion to the West Coast..Export Development Canada (EDC) announced late on Friday it had provided a guarantee of financing provided by commercial lenders to Trans Mountain Corporation — which is 100% owned by the federal government through the Canada Development Investment Corporation — effective July 20..It comes on top of $13 billion in similar loan guarantees and $9.75 billion in direct financing provided by EDC since 2020 to complete the long-delayed pipeline to the West Coast which is about 85% complete..Last year, Finance Minister Chrystia Freeland said no additional public funds would be committed to the project and the company has since been forced to secure private funding..The federal government bought the project from Kinder Morgan Canada in 2017 and costs to build the expansion have more than quadrupled from $7.4 billion to $30.9 billion.The increase has been brought on by a string of environmental delays, floods and natural disasters in BC and court challenges from environmental and native groups, including a Supreme Court ruling that eventually went in the company’s favour..Which is to say, the latest guarantee doesn’t represent any new money and will be repaid when they mature in 2025, after it comes into service..That is expected to happen by the end of this year, facilitating some 890,000 barrels per day of exports to tidewater starting in the first quarter of 2024..That in turn should alleviate price pressure on Alberta barrels and narrow price discounts in the US Gulf Coast, assuming the companies can reach a mutually agreeable toll structure..The company earlier this month reported that it is nearing completion of the Westridge marine terminal near Burnaby and procured two methanol-powered tug boats to move tankers to and from the pier..Final financial preparations are also being made to at long last begin moving oil..On June 1, Trans Mountain applied to the Canadian Energy Regulator (CER) to set tolls of about $11 to ship a barrel of crude from Hardisty, near Edmonton to the marine terminal at Burnaby..It was immediately opposed by shippers with LNG-term contracts — Imperial, Suncor, Canadian Natural Resources, ConocoPhillips and Cenovus have all applied as intervenors — that backstopped the project to begin with..The higher toll structure means it could be cheaper to ship oil to China via the Gulf Coast through the Panama Canal..Among the original Trans Mountain contractors, producers are on the hook for 20% to 30% of the cost overrun or nearly $9.1 billion, up from $1.8 billion in 2017. That still leaves about $17 billion the federal government is going to have to eat or pass onto taxpayers..If they were to pass on the full amount, Trans Mountain would have to charge a minimum of $22 per barrel to recover its unfounded liability. .There were no further details on either the EDC of CDEV websites — or whether its related to the tolling shortfall — although a previous assessment from BMO Capital Markets and TD Securities, following a similar loan guarantee earlier this spring, stressed the need for Trans Mountain to maintain an investment grade credit rating to “enable the company to access debt financing in the private markets without reliance on government support.”
