Alberta’s oil sands producers are eagerly anticipating startup of the long awaited, oft delayed TransMountain pipeline expansion when it finally comes into service starting the fourth quarter of this year..The $21.9-billion TMX will nearly triple capacity to 890,000 barrels per day (bpd) of crude oil and refined products on the existing TransMountain system from Refinery Row in Edmonton to the Port of Burnaby. As of January of this year, it was approximately 75% complete. Mechanical completion is expected by the third quarter with physical deliveries starting before the end of the year..It couldn’t come soon enough for Alberta’s market-hungry oil sands producers who find themselves backed behind pipe as the country struggles to increase production to meet rising global demand, according to the latest International Energy Agency (IEA) market report. .In a Reuters interview MEG Energy CEO Derek Evans said the line would diversify outlets for the company’s oil output — most of which presently goes to the US Gulf Coast..In its annual production guidance released Nov. 28, 2022, MEG said it has contracted an initial 20,000 bpd on TMX system which would “position the company to optimize realized prices” for an expected rebound back above $100 later in the year..First proposed in 2013, TMX has been an on-again off-again saga of melodramatic proportions. In 2018 the Government of Canada purchased the pipeline from Kinder Morgan after the company threatened to pull the plug on it altogether..Kinder’s decision was prompted in part by ongoing legal and environmental challenges that eventually wound up at the Supreme Court of Canada, culminating in a favourable ruling for the company on July 2, 2020..Partly as a result of those protests, the company was required to take additional steps to protect culturally and environmentally sensitive areas, which it said tacked on an additional $2.8 billion to the final price tag — after it went to “great lengths” to protect rare species in the construction zone by relocating as many as 100 anthills, 150,000 frogs along with various species of fish, snails and snakes. Another $500 million was directly related to the floods in British Columbia in December 2021..That’s notwithstanding massive cost overruns from successive years of dithering and delay. When Prime Minister Trudeau and former finance minister Bill Morneau finally stepped in, TMX was expected to cost $7.4 billion, on top of the $4.5 billion purchase price. In June 2022 the Parliamentary budget officer pegged that number at $21.4 billion — which has since increased another $500 million to $21.9 billion — prompting the PBO to question its economic viability. .In its summer update, PBO found 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 as calculated on a net present value (NPV basis).”.The PBO also examined a scenario if TMX were stopped after June 2022 and cancelled indefinitely. If so, the feds would have needed to write off over $14 billion in assets..“The net impact would result in a significant financial loss for the government and would lead to the Trans Mountain Corporation no longer being a going concern.”.Fortunately for the Canada Development Investment Corporation (CDIC) — which actually owns the pipeline — TransMountain remains profitable. Full-year financials are forthcoming, but for the three-month period that ended Sept. 30, 2022, net income increased by $65.3 million to $139.7 million, compared to $74.4 million in the same period of the prior year. Net profits for the nine-month period increased by $186.9 million to $375.7 million due to a $231.3 million increase in equity to fund ongoing construction. .Since its inception, $16.6 billion in construction capital spending was incurred to the end of the third quarter in 2022, TransMountain said, including $2.4 billion and $6.1 billion for the three and nine months ended Sept. 30, 2022, respectively..On an even more optimistic note, TransMountian said it expects to realize more than $2 billion of annual earnings once the project is finally complete. It said its projections are underpinned by long-term contractual commitments for 80% of the system’s 890,000 bpd and expected 100% utilization of the remaining 20% capacity once it's fully in service.
