The federal government now stands to lose money from its investment in the Trans Mountain pipeline, according to a new report, but Canada's oil industry says the war in Ukraine has made the massively expensive infrastructure project more important than ever.

The latest analysis by the Parliamentary Budget Officer, released Wednesday, shows the net present value of the pipeline is negative $600 million, leaving it worth about $1.2 billion less than the PBO's estimate in December 2020.

The new financial analysis takes into account new developments such as the budget overruns disclosed in February that peg the current cost of the Trans Mountain expansion at $21.4 billion, a 70 per cent increase from an earlier estimate of $12.6 billion.

The new PBO report also reflects the fact that the pipeline's projected completion date has been pushed back to the third quarter of 2023.

"We heard that the costs had gone up months ago. We knew this was really bad news and would have a big impact on the value for the federal government. This (Wednesday's report) is just kind of the math confirming that,” said Richard Masson, executive fellow with the University of Calgary's School of Public Policy.

The 1,150-km Trans Mountain pipeline carries 300,000 barrels of oil per day, and is Canada's only pipeline system transporting oil from Alberta to the West Coast.

Its expansion, for which construction is currently underway, will essentially twin the existing pipeline, raising daily output to 890,000 barrels to support Canadian crude oil production growth and ensure access to global energy markets.

The Trans Mountain project was bought by the federal government for $4.5 billion in 2018, after previous owner Kinder Morgan Canada Inc. threatened to scrap the pipeline's planned expansion project in the face of environmentalist opposition.

Federal Crown corporation Trans Mountain Corp. has blamed the ballooning costs since it took over the project on a variety of factors, including the COVID-19 pandemic and the effects of the November 2021 flooding in British Columbia, as well as project enhancements, increased security costs, route changes to avoid culturally and environmentally sensitive areas, and scheduling pressures related to permitting processes and construction challenges in difficult terrain.

On Wednesday, Adrienne Vaupshas — press secretary for federal Finance Minister Chrystia Freeland — said independent analyses from both BMO Capital Markets and TD Securities have found that the Trans Mountain pipeline project remains commercially viable.

The #TMX pipeline expansion project will be a definite money loser, a new report from Canada's parliamentary budget officer states. #TransMountain #cdnpoli

"The Trans Mountain Expansion Project is in the national interest and will make Canada and the Canadian economy more sovereign and more resilient," Vaupshas said in an email, adding the federal government still plans to launch a divestment process after the project is further derisked and after negotiations with Indigenous groups have progressed.

A number of Indigenous-led initiatives have previously stated their intentions to pursue an equity stake in the pipeline.

“How much will the feds get for this? Well, it could be that they have to give somebody hundreds of millions of dollars to take it off their hands," Masson said. "They'd probably do that through a loan guarantee, to help (a buyer) access cheaper financing."

Part of the reason why the value of Trans Mountain is declining as the project costs soar is due to the way oil companies pay for the use of the pipeline through tolling arrangements.

Due to Trans Mountain's existing long-term contractual agreements with oil shippers, only 20 to 25 per cent of the increased capital costs of the project can be passed on to oil companies in the form of increased tolls.

Masson said it wouldn't be easy for the federal government to get out of those contracts.

"The federal government was in charge of the project when the cost went up," Masson said. "So it's not so easy to blame the shippers – they weren’t the ones managing the project when the costs went up.”

Environmental groups were quick to point to the PBO's report Wednesday as proof that the federal government should never have purchased Trans Mountain in the first place.

"The federal government is losing money on the pipeline whose profits they promised would pay for green energy," said Keith Stewart, senior energy strategist for Greenpeace Canada.

"Rather than pouring billions more into a money-losing, climate-destroying pipeline that only benefits oil company bottom lines, let’s spend it directly on green energy solutions that help Canadians avoid pain at the pump while fighting climate change."

But the Canadian Association of Petroleum Producers, an industry lobby group, said the current global energy crisis that has been exacerbated by Russia's invasion of Ukraine proves the importance of the Trans Mountain project, as the pipeline will help to link Canada's oil to its allies and trading partners around the world.

"In a world that is running short on energy and in need of safe, secure and responsibly produced oil and natural gas, the Trans Mountain expansion is more important now than when the project began construction," said Lisa Baiton, CAPP president and chief executive, in a statement.

Calgary-based oil company Cenovus Energy Inc. said in a statement Wednesday it believes the business case for Trans Mountain remains sound.

"The Trans Mountain expansion will play an important role by helping to ensure the long-term stability and future of our industry, providesustainable energy security for Canadians and make significant contributions to government revenues through taxes and royalties as well as good paying jobs for Canadians," said Cenovus spokesman Reg Curren in an email.

In its report, the PBO also looked at what would happen if the federal government were to stop construction this month and cancel the Trans Mountain project indefinitely, suggesting that such a move would require the government to write off over $14 billion in assets.

There has been no indication that the Trudeau government has any intention of cancelling the pipeline project.

In February, Freeland said Trans Mountain Corp. — a federal Crown corporation — will need to secure third-party funding to complete the project, either through banks or public debt markets.

However, the federal government has agreed to sign a $10-billion loan guarantee for the project.

This report by The Canadian Press was first published June 22, 2022.

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"Due to Trans Mountain's existing long-term contractual agreements with oil shippers, only 20 to 25 per cent of the increased capital costs of the project can be passed on to oil companies in the form of increased tolls."

The gift that keeps on giving.

"$14 bn in assets"? As asset that no one wants, because it has no practical use, no potential earnings, no value on the market ... But dad gummit, pander to CAPP, bc they never elect Liberals anyway.
The only piece that's truly an asset, is the one that was purchased, not the one wanting to be built.
Is that what's lost us $600m to date? Does that mean that enough revenue has been generated since the purchase of the old pipeline, that the purchase of the existing line has generated almost enough income to break even? And it's "just" the one under construction that's costing us over $21bn?
"independent analyses from both BMO Capital Markets and TD Securities have found that the Trans Mountain pipeline project remains commercially viable"

Sure it's viable from their POV as a lender, as long as the federal government backstop exists.

But by what double-speak do two organizations who stand to profit more, the longer the thing drags on, qualify as "independent" assessments?

It seems the government has the same kind of problem with independent assessments as they have around the concepts of conflict of interest, interference, personal gain, rule of law, and consent. On top of some difficulty understanding, apparently, the national languages when it comes to truth and reconciliation, leading one to wonder if that educational blank extends to basic economic practicalities.

Fallacy or not, being left with nothing of value, either way, means get out while the getting's not getting worse by the interest calculation day.

>>On Wednesday, Adrienne Vaupshas — press secretary for federal Finance Minister Chrystia Freeland — said independent analyses from both BMO Capital Markets and TD Securities have found that the Trans Mountain pipeline project remains commercially viable.<<

This should be taken with a big grain of salt because both BMO and TD have skin in the game, literally huge oil sands investment portfolios. It's in their self-interest to shield their shareholders from independent analysis and criticism of board decisions. We the unwilling public owners of TMX need to see more independent reports like the one from the PBO and private consultants. Any reputable manager of a large-scale project would actually invite independent feasibility and risk assessments and public financial audits. But who said TMX was reputable?

>>"The Trans Mountain Expansion Project is in the national interest and will make Canada and the Canadian economy more sovereign and more resilient," Vaupshas said<<

Oh sure, take her word for it without inviting independent review. Just look the other way as the project approaches 30 billion taxpayer bucks. It's pretty rich to suggest that more sovereignty will magically appear based only on the rhetoric of the organization representing Canada's oil sector, 3/4 of which is fully or majority foreign-owned, some being specialists in avoiding the concept of value added, as though doing so would be akin to forcing convoy truckers to attend gay bars. It would be interesting to read what economists like Robyn Alan or geoscientists like David Hughes -- professionals who have done the math -- would say about maximizing fossil fuel dependency to increase economic resilience.

>>...the federal government still plans to launch a divestment process after the project is further derisked and after negotiations with Indigenous groups have progressed. A number of Indigenous-led initiatives have previously stated their intentions to pursue an equity stake in the pipeline.<<

The only First Nation on the coast that verbally supported this project was the tiny Tsawwassen Nation, but that support seemed weak. All other ocean-based First Nations are adamantly opposed, not the least the Tsleil Waututh in whose ancient territory the pipe project terminates and the tanker traffic begins. Westshore Terminal is directly across Burrard Inlet from their community. Marine culture, ecosystems and economies have never been the subjects of any professional, independent risk assessment with respect to tanker traffic on the ~250 km convoluted route to the open Pacific. A single medium-scale spill into Boundary Pass could result in a suite of international lawsuits for damages potentially reaching double digit billions. Posting bonds to cover oil spill cleanup costs adds more cost and begs the question, How high does this project's price tag have to go before it can be cancelled? This one has now left the economic arena and is now in protecting political butt and ego territory.

Regarding the First Nations who expressed interest in an equity stake in TMX, these Nations are along the landlocked pipeline route, not the ocean. Geology matters because it directly influences physical risk. One of the Nations (the Coldwater Band) has since pulled out under the fear of the contamination of their underground water supply. And the others are clearly not getting quality advice from diverse sources.

>>“How much will the feds get for this? Well, it could be that they have to give somebody hundreds of millions of dollars to take it off their hands," Masson said. "They'd probably do that through a loan guarantee, to help (a buyer) access cheaper financing." [...] Due to Trans Mountain's existing long-term contractual agreements with oil shippers, only 20 to 25 per cent of the increased capital costs of the project can be passed on to oil companies in the form of increased tolls.<<

More than $26B has been spent on the existing aged pipe and the expansion project so far. Whatever happened to due diligence? What we actually got seems to be a very, very diligent knee jerk decision to make Texan Rich Kinder an exceedingly happy camper. Trudeau et al were played like a tuba in a high school marching band.

>>Calgary-based oil company Cenovus Energy Inc. said in a statement Wednesday it believes the business case for Trans Mountain remains sound.<<

Then please take your words at face value and make a viable offer ASAP. We climate aware taxpayers clearly don't need to absorb the risk that should be assumed by those who, in their own narrative, would profit from the project. Hello? Any private oil company offers out there? You're waiting for the pot to be sweetened even more? Figures.

Now is a good time to look at EVs and heat pumps.

"Canada's oil industry says the war in Ukraine has made the massively expensive infrastructure project more important than ever."

China and India, presumably the two biggest target markets for TMX and expanding dilbit exports, are now buying discounted oil from Russia. Making AB tar sludge even less competitive in Asia, unless it drops the price.

Press secretary for federal Finance Minister Chrystia Freeland: "The Trans Mountain Expansion Project is in the national interest and will make Canada and the Canadian economy more sovereign and more resilient."

Increasing dependence on oil exports from Canada's largely foreign-owned sunset fossil fuel industry makes Canada's economy more vulnerable to global price shocks and OPEC's market manipulations.
Unprepared for the energy transition. Less sovereign. Less resilient.