Trans Mountain expansion has ‘technical issues’ and completion may be delayed

The Trans Mountain pipeline expansion faces delay once again.

The Crown corporation building the massive project, which had previously stated it hoped to have the pipeline in service near the end of the first quarter, said Monday that it once again encountered construction challenges in British Columbia and pushed back that date.

In a statement on its website, Trans Mountain Corp. said Monday that it has encountered “technical issues” and needs additional time to determine the “safest and most prudent actions to minimize further delays.”

The company said the technical issues were discovered between Jan. 25 and Jan. 27 during construction work in the Fraser Valley between Hope and Chilliwack, B.C.

“Trans Mountain is fully focused on the completion of the pipeline and will not be providing (media) interviews at this time as it works toward the planned in-service date in the second quarter of 2024,” the company said.

The Trans Mountain Pipeline is Canada’s only pipeline to the West Coast and its expansion will increase the pipeline’s capacity to 890,000 barrels per day from the current 300,000 bpd.

Its construction, which is more than 98 percent complete, has been underway for more than three years. Canadian oil producers have already begun to increase production in anticipation of additional export capacity, which is expected to improve the prices Canadian oil companies receive.

But Trans Mountain Corp. has been racing against the clock as it faces difficulties drilling hard rock in British Columbia.

Their initial request to use a different size of pipe for the location in question was denied by the Canada Energy Regulator due to concerns about the quality and integrity of the pipe.

Trans Mountain Corp. then asked the regulator to reconsider, saying in December that the project could face a worst-case scenario: a two-year delay in completion if it was not allowed to alter its construction plans.

After an oral hearing in Calgary earlier this month, the regulator agreed to allow a variance for the pipeline, as long as Trans Mountain Corp. met a number of conditions, including testing and documentation requirements for pipeline materials.

“We had a schedule in sight, and we were very close, only to now be disappointed. And I think that’s been the narrative of this project from the beginning,” Raymond James analyst Jeremy McCrea said in an interview Monday.

“If we can launch a startup in the second quarter, great, but I think there will be a lot of skepticism now. Will that date be pushed back again?”

McCrea said a significant delay would likely widen the Western Canada Select spread, a term for the discount Canadian oil producers typically receive on their product due in part to a lack of export capacity.

That spread has been narrowing in recent weeks in anticipation of the pipeline expansion opening, but a glut of oil with nowhere to go will widen it again and hurt Canadian oil producers’ profits in the near term, he said. McCrea.

In the long term, the difficulties Trans Mountain Corp. has experienced in getting its project to the finish line hurt Canada’s reputation as an investment destination, he added.

“It just doesn’t look good for us as a country when we constantly have these delays and cost overruns,” McCrea said.

“In terms of any foreign capital wanting to come into the country, in terms of building megaprojects, this is a black eye for Canada.”

The Trans Mountain pipeline is owned by the federal government, which purchased it in 2018 in an effort to bring the expansion project over the finish line after it was scuttled by the previous owner, Kinder Morgan Canada.

Project costs have skyrocketed throughout construction from an original estimate of $5.4 billion to the most recent estimate of $30.9 billion.

Trans Mountain Corp. has attributed rising costs to several things, including evolving compliance requirements, indigenous adaptations, compensation and stakeholder engagement requirements, extreme weather, the COVID-19 pandemic and the challenging terrain.

This report by The Canadian Press was first published Jan. 29, 2024.

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