Page 4 - NorthAmOil Week 06

NorthAmOil COMMENTARY NorthAmOil
Trans Mountain expansion cost jumps to $9.5bn
The cost of the Trans Mountain pipeline expansion has risen two- thirds to $9.5bn following extensive delays and changes to the scope of the project
WESTERN CANADA
WHAT:
The cost of the Trans Mountain expansion has risen two-thirds since its previous estimate.
WHY:
Court and regulatory delays, the rising cost
of steel, land, labour
and security, indigenous consultation and changes to the scope of the project have all contributed to the increase.
WHAT NEXT:
Ottawa has launched new consultations on indigenous participation in Trans Mountain.
THE cost of the Trans Mountain expansion has risen to CAD12.6bn ($9.5bn), an increase of two-thirds compared with the previous cost estimate of CAD7.4bn ($5.6bn). Speaking on a conference call, the state-owned Trans Mountain Corp.’s CEO, Ian Anderson, attributed the cost escalation to several factors. Court and regula- tory delays, the rising cost of steel, land, labour and security and consultation with indigenous groups that had raised concerns over the pro- ject were all cited as factors contributing to the expansion’s increased price tag.
The company has also made a number of changes to the project in recent years, with Anderson describing it as “a different project” compared to when the last formal cost estimate was made in 2017. Among the changes made, the company decided to use thicker steel than it had previously planned for sensitive areas such as water crossings, as well as adjusting its proposed construction techniques in an effort to protect places that may contain indigenous artifacts.
“As we [have] moved on, it gets costlier and costlier,” Anderson said. “Time is money, market conditions have changed.”
The new, higher price tag includes CAD8.4bn ($6.3bn) in construction costs and an additional CAD1.7bn ($1.3bn) in financial carrying costs.
The company is also recommending an extra CAD600mn ($453mn) contingency fund for cost impacts that it describes as being beyond its control.
Delays
On top of the changes made to the project as it has progressed, the extensive legal and reg- ulatory delays it has faced mean that it comes as no surprise that the cost has escalated this much. When former operator Kinder Morgan first applied for regulatory approval to expand the system in 2013, it was proposing to have oil flowing through the expansion by Decem- ber 2019. Instead, the project has been caught up in legal challenges and regulatory delays, as well as undergoing a change in ownership. The Canadian government bought the Trans Mountain system and its proposed expansion for CAD4.5bn ($3.4bn) in May 2018 amid fears that Kinder Morgan would scrap the project. The regulatory approval for the expansion was sub- sequently overturned by a court in August 2018. The project was re-approved by federal regula- tors, as well as Canadian Prime Minister Justin Trudeau, in July 2019 following an additional environmental review and further consultation with indigenous communities affected by the project.
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w w w . N E W S B A S E . c o m Week 06 12•February•2020