Documents filed by Trans Mountain as part of a regulatory dispute over its tolls show it could take up to eight years to make money unless the pipeline fills thousands of barrels a day of uncommitted shipping space
The last section of pipeline is assembled on the Trans Mountain pipeline expansion project, near Laidlaw, B.C., on Feb. 18.Canada’s Trans Mountain oil pipeline will rely heavily on last-minute shippers to turn a profit, the corporation’s financial projections show, clouding Ottawa’s efforts to sell the pipeline now that its $34.2-billion expansion is finished after years of delays.
The 890,000 barrel-per-day pipeline started service in May and reserves 20 per cent of its space for uncommitted, or spot, customers, who pay higher tolls than shippers with long-term contracts. Documents filed with Canadian regulators in April show different utilization scenarios for that 178,000 bpd of spot capacity.
But spot-shipping demand is difficult to forecast because it relies on the fluctuating price of Canadian oil versus other heavy crudes in the U.S. and Asian markets, said Morningstar analyst Stephen Ellis.“One of their biggest Achilles’ heels is the reliance on spot,” said Robyn Allan, an independent economist who has studied Trans Mountain’s finances. “Everything is based on a very optimistic set of projections for the next 20 years.
“Forecast tolls for pipeline transportation are higher due to cost escalation and have lessened competitive advantages,” CDEV said. However Ottawa never intended to be the long-term owner and Canada’s Finance Ministry said it is planning a sales process. Spokeswoman Katherine Cuplinskas said the expansion was an important economic investment, creating revenues and well-paying jobs. Maki urged Ottawa not to hurry the sale given uncertainties over spot demand, the tolling dispute, and Ottawa’s plan to sell a stake to Indigenous communities.
Morningstar’s Ellis said even Trans Mountain’s best-case projections show the pipeline will only generate around 8 per cent return on equity by 2034, which he described as the minimum acceptable level for a quality Canadian midstream asset. Trans Mountain’s debt-to-EBITDA ratio, a measure of how well a company can cover its debts, starts at 11.6 in 2025 and remains above the typical level of 3.5 for a midstream firm until 2040, he said.
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