‘Risks and uncertainties’ could make Trans Mountain unprofitable, says budget watchdog

Trans Mountain remains a profitable investment for Canadian taxpayers but changes in oil demand, construction delays and soaring costs could quickly change that assessment, says Canada’s budget watchdog.

New figures from the Office of the Parliamentary Budget Officer show the government-owned pipeline is still a profitable investment based on net present value calculations — measurements of an investment’s financial value over time. The PBO estimates that since the government purchased the pipeline in 2018 for $4.4 billion, its value has increased to $5 billion.

But as the Trans Mountain project proceeds with the expansion of its Edmonton-to-Burnaby, B.C. pipeline, the report warns that “risks and uncertainties” hang over its future viability.

The government-owned asset could become less viable if pipeline demand and construction costs and delays increase, the analysis shows. The pipeline’s financial outlook could worsen further, the report adds, due to economic uncertainties driven by the COVID-19 pandemic and the specific climate and environmental policies the federal government adopts to meet its net-zero greenhouse gas emissions target.

Canada’s budget watchdog talks about Trans Mountain’s best and worst-case financial scenarios. Parliamentary Budget Officer Yves Giroux estimates Canada could make a profit of $2.3 billion from selling the pipeline — or it could lose $3.5 billion. 1:12

For example, the report suggests that if the pipeline’s completion were to be delayed by just one year, the government could lose about $400 million of its purchase value. The pipeline also could lose millions or even billions of dollars more if other factors such as delays, soaring budgets and contract commitments change over time, the report says.

In a statement, the press secretary for Finance Minister Chrystia Freeland said the government made the prudent choice by purchasing Trans Mountain and it intends to sell the pipeline “after the expansion project is further de-risked and after engagement with Indigenous groups has concluded.”

“The government is confident that the Trans Mountain project is a responsible investment for Canadians. The government is committed to investing every dollar earned in clean energy projects,” Kat Cuplinskas said in an email.

In a statement, Trans Mountain said it has secured contracts for 80 per cent of the pipeline’s 890,000 barrel-per-day capacity for the next 15 to 20 years. Trans Mountain also said the pipeline generates about $185 million annually and the company expects that sum to increase to $1.5 billion per year by 2023 after the expansion.

The Office of the Parliamentary Budget Officer, meanwhile, notes that Canada and many other governments have set target dates for reducing their carbon emissions to zero that land roughly when Trans Mountain’s contracts expire — making it hard to anticipate demand beyond that point.

“After these initial 20 years, it’s a big unknown as to how much of the pipeline will be used,” said Parliamentary Budget Officer Yves Giroux. “Over the long-term horizon we don’t know exactly what proportion of the pipeline will indeed be needed.”

If Trans Mountain were to cease operations “to address the climate policy of the Government of Canada to achieve net-zero emissions by 2050,” the report says, it would cost the federal government roughly $1.5 billion.

The Office of the Parliamentary Budget Officer (PBO) is an independent and non-partisan office of Parliament. It provides analyses of budgets and other financial and economic policies with national significance.

Moratorium on construction: critics

NDP MPs asked the PBO to provide an update on the costs of the Trans Mountain pipeline and expansion project in July. New Democrats Laurel Collins and Peter Julian asked for the review because of what they called “delays and rising costs during the pandemic.”

On Tuesday, Julian said investing more money in Trans Mountain would be a risky gamble for the Liberals.

“We’re simply calling on Mr. Trudeau today to stop rolling the dice on Trans Mountain,” he said. “What we really need to do is invest this money in clean energy production.”

New Democrats and a group that opposes the pipeline’s expansion today called for a halt on construction, saying it could save taxpayers about $9 billion.

“Unless the federal government can show how it plans to reconcile its climate goals with Trans Mountain, and prove that this project is in Canada’s best economic interests, we need a moratorium on any new federal spending on this boondoggle of a project,” said Alexandra Woodsworth, the campaigns manager with Dogwood, a B.C. non-profit.  

The twinning of the 1,150 kilometre-long Trans Mountain pipeline will nearly triple its capacity to an estimated 890,000 barrels a day and increase traffic off B.C.s coast from approximately five tankers to 34 tankers a month. (CBC)

When it’s finished, the Trans Mountain expansion project will twin the existing Alberta-to-British Columbia line and boost the pipeline’s capacity from about 300,000 to 890,000 barrels per day.

According to Environment and Climate Change Canada figures, the expanded pipeline will directly produce 400,000 tonnes of greenhouse gas emissions annually, which has been factored into Canada’s emission targets.

Although it’s difficult to account for indirect emissions, the department also estimates the upstream emissions will add between 21 and 26 megatonnes of carbon dioxide per year, based on 2015 calculations. Those numbers don’t account for land-use changes and electricity or other fuels used elsewhere.

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