Newly expanded Trans Mountain pipeline ‘going very well’ despite costs

The Trans Mountain pipeline expansion was well worth the $34 billion price tag, according to experts.

Until May, Trans Mountain was regularly overbooked. Not anymore, reports the Canadian Energy Centre.

The expansion effort effectively triples the pipeline’s original capacity to 890,000 barrels per day of crude oil from Alberta’s oil sands. From British Columbia’s Pacific Coast, it is shipped to global markets throughout Asia and North America.

Analysts estimate the pipeline loaded 20 vessels last month, compared to five before the expansion. Dubai Angel, a crude carrier, made the first shipment May 22 to China.

“You’re seeing multiple buyers. It’s going very well,” said Phil Skolnick, managing director of research with New York-based Eight Capital.

“You’re seeing the exact buyers that we always thought were going to show up,” he adds. “The U.S. west coast refineries and as well as the Asian refineries, and there was a shipment that went to India as well.”

Asian markets, especially China, are “opened in earnest” to Canadian oil, the International Energy Agency (IEA) said in its June Oil 2024 report.

“There’s demand for this crude and people are going to make deals,” said Kevin Birn, chief analyst of Canadian oil markets with S&P Global. Oil sands production is expected to rise from 3.4 million barrels per day to 3.8 million barrels by 2030.

Canadian crude will become increasingly desirable in a market dominated by Latin America and the Middle East, the Canadian Energy Centre says.

Global demand for oil reached a record 103 million barrels per day last year, and is expected to rise further.

A June outlook by the International Energy Forum (IEF) pegs 2030 oil demand at nearly 110 million barrels per day.

“More investment in new oil and gas supply is needed to meet growing demand and maintain energy market stability, which is the foundation of global economic and social well-being,” said IEF secretary Joseph McMonigle.

Alberta Premier Danielle Smith welcomed the expansion project’s completion after being delayed six years.

“TMX will also result in billions of dollars of economic prosperity for Albertans, Indigenous communities and Canadians and create well-paying jobs throughout Canada,” she said. 

Between 2016 and 2040, the Canada Energy Regulator estimated building no new pipelines would cost Canada’s economy nearly $240 billion. “Building pipelines avoids these costs,” writes economist Trevor Tombe.

“I estimate the value of projected earnings, before depreciation and interest, over the next twenty years is between $26 billion and $38 billion, depending on the scenario,” he said.

Despite the $34 billion cost, the Government of Alberta said the pipeline ushers in a “new era of prosperity and economic growth.” 

Economists contend the economic benefit is not just limited to Alberta. “There are benefits throughout the Canadian economy,” Tombe said. It employed more than 30,000 skilled workers.

University of Calgary research suggests a 10% boost in oil prices boosts national economic output by 1%. 

The Parliamentary Budget Office (PBO) contends an increase of US$5 per barrel for Canadian crude over one year would add $6 billion to our economy.

“Was it worth the high price?” Tombe said. “Yes! And it’s not even close,” he writes. Recent financial filings paint a promising outlook in spite of the $34 billion building cost.

Canada’s oil producers also appear to be in the good graces of investors once more, reads a report by Enervus Intelligence Research.

Additionally, taxpayers “may not lose any money on the purchase at all,” Tombe writes.

The cost overruns were largely covered by debt, he notes, which the future buyer will assume. Tolls of $11 each barrel would cover $9 billion in costs.

Meanwhile, the debt interest “pales in comparison” to projected future revenues.

Trans Mountain anticipates $3 billion in revenues and $500 million in expenses. Though the interest will exceed $1.6 billion, the economist says considerable cash is available to start repaying debt. 

Upwards of $8.6 billion is left over after paying down debt and interest.

Alex Dhaliwal

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