Canada’s New Oil Pipeline Worth Up to $24 Billion, Report Finds

(Bloomberg) - A project to triple the capacity of the Trans Mountain Pipeline still has a high value after massive cost overruns to build it, Canada's government spending watchdog concluded.

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The finding is good news for Prime Minister Justin Trudeau's government, which owns the pipeline and plans to eventually sell it. But the report made no predictions on whether the government will record a profit or loss on a sale, saying too many factors are unknown.

The expanded Trans Mountain pipeline, which started operation earlier this year, is worth as much as C$33.4 billion ($24 billion) based on the assumption that shipping contracts are renewed in the early 2040s, said the report from Parliamentary Budget Officer Yves Giroux.

However, if oil demand plummets so much that contracts aren't renewed, the value dips to around C$29.6 billion, Giroux said. The numbers are based on potential cash flows through 2063.

The pipeline transports crude from Alberta to the west coast in British Columbia, primarily for export to the US and Asia. Trudeau's government bought it in 2018 to save the expansion project from cancellation, as previous owner Kinder Morgan Inc. was preparing to walk away due to opposition from some local governments, Indigenous groups and environmentalists.

After the purchase, the project to boost Trans Mountain's capacity to about 900,000 barrels a day saw enormous cost increases due to construction complications and the Covid pandemic, eventually coming in at C$34.2 billion.

Although Trudeau has said the government doesn't intend to be a long-term owner of the pipeline, a sale is not likely anytime soon.

There is still a regulatory dispute playing out over the final tolls on the pipeline, and the government is also wrestling with how to give equity in the project to Indigenous groups along the route.

Ultimately, whether the government can record a profit by selling the pipeline depends on a wide range of factors, the report said. That includes "the number of potential buyers, their cost in raising the required capital" and the timing and conditions of any sale.

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