By Joshua Trott, Chief Revenue Officer
On Jan. 12, the Canada Energy Regulator officially greenlit the construction of the Trans Mountain Pipeline’s last leg. This momentous decision allows the completion of a pipeline that will nearly triple the transmission capacity connecting Canadian production operations to refineries in the US and Asia. It will also cement Canada’s status as the fourth-largest energy producer in the world and a crucial player in the effort to counterbalance OPEC’s influence.
Now that the end is in sight — an astonishing 11 years after the original permitting request was submitted and seven years after the project was initially funded — it’s worth taking a look at the pipeline’s long, fraught journey to the finish line. It is a cautionary tale for lawmakers about the dire need for policy and infrastructure reform at a time when the world is relying on energy companies to deliver affordable, reliable energy now and lead the line in the transition to sustainability.
It started in 2013, when Kinder Morgan filed permit applications to expand the existing Trans Mountain pipeline by just over 700 miles. Construction was originally slated to commence in 2017, and the pipeline was expected to be operational by December 2019, to the tune of $7.4 billion.
Fast forward to 2024, and those original projections look like a pipe dream, no pun intended. By the time the pipeline is operational, expected to be by the start of Q2 of this year, the entire project will have taken 11 years and cost $35 billion — that’s nearly $28 billion over, or a 470% increase from, the original budget forecast. This number renders the sorely needed pipeline’s market value less than its costs, according to some economists. The debt financing alone will be $2 billion a year, which will have to be absorbed as an expense.
So what went wrong?
It depends who you ask. Permitting delays, infighting, lawsuits, environmental protests, Covid-19, supply chain issues, inflation, a revolving door of contractors and laborers, weather events — all have been named as aggravating factors, and there is truth to each one. But from where we sit, the root cause is undeniable: broken policy and regulatory frameworks.
The Trans Mountain pipeline perfectly captures the incoherent quagmire that is Canada’s regulatory environment, an environment that looks all too similar to ours here in the United States. Look no further than the Biden administration’s decision to delay all reviews for LNG export terminals while creating a process to measure long-term climate impacts of the US natural gas exports. I’m all for added measurement, but stopping the permit review process for new projects is unnecessary. For a system that is already incredibly congested, this is a damaging setback on the road to delivering the infrastructure that supports not only our energy security, but also provides a cleaner alternative to coal for Europe, Asia, and the developing world.
Large private energy companies like Kinder Morgan, who have decades of energy infrastructure knowledge and capacity, are best positioned to deliver projects of scale akin to the Trans Mountain pipeline in a way that is both economically viable and environmentally responsible. But decades of hodgepodge energy regulation have put an onslaught of permitting roadblocks and unforeseen costs in front of these companies.
Ultimately, this tangled web of bureaucracy has made projects like Trans Mountain economically infeasible. In fact, in 2018, the Trudeau government had to throw the project a hail Mary by buying the pipeline from Kinder Morgan for $4.5 billion.
They were right to sanction and salvage the pipeline. But it’s vital that we acknowledge that, at the rate of the Trans Mountain’s skyrocketing costs and persistent delays, no private company would continue to receive financing for such a runaway project.
A Warning Shot for Washington
The unfolding drama and financial nightmare that this pipeline became should be taken as a warning shot to American policy makers and regulators. Our regulation is just as confusing, draconian, and contradictory as Canada’s. The economic incentives to deliver infrastructure projects like Trans Mountain — which help expand critical access to affordable, reliable energy sources — are rapidly declining.
Regulation is dissuading the very companies with the financial and infrastructure resources to bridge us into a sustainable future from taking on essential, large-scale energy projects.
And the results could be catastrophic.
If Washington doesn’t pass comprehensive energy and infrastructure policy reform, the massive challenges ahead — overhauling our aging grids, eliminating coal production worldwide, providing global access to cleaner bridge fuels like natural gas — will quickly become insurmountable. Relative to the human and environmental toll this scenario would spell, going $28 billion over budget would be child’s play.
Joshua Trott has spent his career serving the energy industry, including at Workrise where as Chief Revenue Officer (and previously as Head of Oil & Gas) he has helped to grow the company’s industry-leading labor business and shepherd its evolution into a leading supply chain solution for many of the biggest energy companies in the world. A lifelong soccer player and fan, he lives in Austin, Texas.
In Oil & Gas, 2024 Will Be The Year of Doing More with Less
The good news: Despite the continuing wave of consolidation sweeping through the industry, you don't have to buy a company to improve the efficiency of your operations.
The Trans Mountain Saga: A Warning Shot for Washington
While we can recognize the win that the project's completion represents, the Trans Mountain saga reveals the dire need for infrastructure policy and regulatory reform.
3 Reasons Why Congress Should Not Be Concerned with Oil & Gas Consolidation
Despite alarm bells in Washington, the current M&A wave in Oil & Gas will benefit the consumer, the country, and the planet.