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Trans Mountain seeks toll approval

Published by , Editorial Assistant
World Pipelines,

Canadian government-owned Trans Mountain Corp (TMC) has applied to regulators for tolls on its long-delayed 590 000 bpd pipeline expansion to Canada's west coast, noting shipping fees would increase if project costs mount.

The Trans Mountain Expansion (TMX) will nearly treble the flow of crude from Alberta's oil sands to Burnaby, British Columbia to 890 000 bpd, but the project has struggled with regulatory hurdles, environmental opposition and surging costs.

In March, TMC said the expansion would cost CAN$30.9 billion (US$23 billion), more than four times the original estimate, and that the final bill could rise further. The tolling application is a sign TMX, due to start shipping in the 1Q24, is nearing the finish line more than a decade after it was first proposed. The pipeline will struggle to recoup the billions spent during construction, analysts said, adding that the Canadian government, which bought it in 2018 to ensure it got built and plans to sell it once complete, faces a substantial loss.

"TMX is really trapped between a rock and a hard place. It is unlikely to be able to charge a rate compatible with earning viable returns on a CAN$31 billion investment," said Morningstar Analyst, Stephen Ellis, who estimates the pipeline will be worth around CAN$15 billion once complete.

In a 1 June application to the Canadian Energy Regulator (CER), TMC proposed a base toll of CAN$11 - 12/bbl (US$8 - 9/bbl), depending on the type of crude shipped and its final destination. Any shipper committing to a term longer than 15 years or more than 75 000 bpd would receive a discount. The filing said the toll is based on the latest project cost estimate and is not final.

This could increase by around CAN$0.07/bbl for every extra CAN$100 million spent on uncapped costs, which are currently estimated at CAN$9.1 billion. Uncapped costs include two specific segments of the pipeline and other factors, including Indigenous and community consultation. "The tolls adjust for changes in the cost of the project based on a formula specified in the contract," a TMC spokesperson said in an email.

BMO Capital Markets Analyst, Ben Pham said in a note the TMX tolls compare to a toll of US$8 - 10/bbl for Canadian crude to reach the US Gulf Coast, "well above" the initial TMX expected toll of around CAN$4.50/bbl. A month ago, rival pipeline company Enbridge agreed a new lower toll with shippers on its Mainline network, which transports the bulk of Canadian crude to the US.

After years of limited pipeline space, the Canadian oil market will have excess export capacity from next year, meaning TMX will be vulnerable to being undercut by rivals, Morningstar's Ellis said. There are 10 committed shippers on the pipeline, including Cenovus Energy and MEG Energy. Both companies declined to comment. TMC asked the regulator to approve the tolls by 14 September.

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