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Exclusive: The feds bought a pipeline for $5B. How did the cost balloon to over $30B?


Construction on the Trans Mountain pipeline in 2022 cost almost $9 billion, almost double the estimate of $5.3 billion, a Global News analysis has discovered.

The expenditure for the Crown corporation expansion, found through a detailed reading of filings that included corporate plan summaries and projections, is one of several line items that reveal how a project purchased by Ottawa exceeded its original cost estimate by a factor of six, from $5.4 billion to $30.9 billion.

The most telling details pertain to “uncapped” costs, a catch-all term pipeline companies use to describe expenditures that are more difficult to plan for in advance or that are subject to price swings. Accommodations with Indigenous groups and the cost of steel are two examples.

Another is the construction through B.C.’s treacherous mountains and down to the coast. The ‘uncapped’ costs for this stretch ballooned from an initial estimate of $315 million in 2017 to $7.4 billion upon project completion, a 23-fold increase.

This information is provided in an appendix to Trans Mountain’s latest update on tolls it plans to charge shippers, submitted to the Canada Energy Regulator in June. The documents are publicly available.

Global News reached out to Trans Mountain for comment on how the project costs soared beyond $30 billion.

The company did not attribute specific dollar figures to any particular overrun, but cited 10 reasons for the greater-than-anticipated expenditures. Those range from “increased global inflationary pressures,” to “significant cost increases associated with building major infrastructure in densely populated areas,” to “cultural preservation activities.”

Details pertaining to specific overruns, where available, can only be gleaned through various and lengthy filings from Trans Mountain and Canada Development Investment Corporation, or CDEV, the Crown corporation that owns the pipeline, posted to the energy regulator’s website.

Ottawa has long said that it does not want to be in the pipeline business, but the overruns have led to concerns about the possibility of selling off a company saddled with so much debt. It also has raised worries with several experts that Global News spoke with about taxpayers eventually having to absorb the beleaguered pipeline company’s liabilities.

Vital Link

The Trudeau government purchased the controversial pipeline project in 2018, saying it would nearly triple the flow of crude from Alberta to Burnaby, B.C., bolstering local job markets along the way, and eventually pulling in billions of revenue for the oil sector.

The Trans Mountain expansion project twins an existing pipeline that moves oil from Alberta to the B.C. coast. The project will triple the amount of oil that can be shipped.

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Trans Mountain, along with the federal government, maintains that the new line is in Canada’s national interest, especially in terms of opening new markets for Canada’s landlocked energy resources.

“The Trans Mountain Expansion Project will ensure Canada receives fair market value for our resources while maintaining the highest environmental standards,” the company wrote in an emailed response to Global News.

Citing an independent report produced by consulting firm Ernst & Young, the pipeline company added “that Trans Mountain’s expanded operations will contribute $17.3 billion in gross output, $9.2 billion in GDP, including $3.7 billion in wages … and $2.8 billion in tax revenue over the next 20 years.”

Completed in 1953, the original pipeline is a vital economic link for B.C., delivering crude oil that gets converted into gasoline and diesel at local refineries.

The new link is intended for shipping Canadian energy resources to overseas markets; as it stands, Canada can only deliver those resources in one direction — south, to the U.S. Gulf Coast.

Costly Construction

But construction costs continue to plague the expansion project.

Another area, called “engineering and plan maturity,” represented 55 per cent of the pipeline’s most recent overrun, which went from $21.4 billion to the current $30.9 billion. That sum amounts to an additional $5.2 billion spent on “engineering and plan maturity” than Trans Mountain had initially anticipated.

(In contrast, external events, presumably flooding that decimated parts of Southwestern B.C. in 2021, accounted for only 25 per cent of the latest cost overruns).

Three experts Global News spoke with were unfamiliar with the term “plan maturity.”

Trans Mountain, however, in its response to Global News described the term as having all the available information in order to make the most well-informed choices for construction.

The construction expenditures, which ran from $600-$900 million each month last year, can be explained by techniques the company belatedly realized it needed as it made its way through B.C.’s extremely treacherous mountains – some of the most challenging terrain for pipeline construction anywhere.

However, this challenge, say two engineers that Global News spoke with, should not have been an unexpected surprise.

The standard approach to building a pipeline is digging a trench, laying down pieces of pipe and connecting them.

Instead, Trans Mountain used a technique called stove-piping along 13 per cent of the line. This technique, which is 10 times more expensive than conventional pipe-laying, involves welding together big pieces of pipe and laying them down through treacherous terrain in one go.

Nemkumar Banthia, a civil engineer and pipeline expert at the University of British Columbia, rejects the idea that geography should have surprised anyone.

“You don’t do these cost analyses without understanding the terrain,” Banthia says, pointing out that the pipeline expansion largely follows the route of the existing 1950s-era pipeline built through the same terrain.

“So from an engineering perspective, there’s no excuse for that,” Banthia adds.

Similarly, Trans Mountain spent millions boring under rivers and highways to meet environmental requirements. Called horizontal directional drilling, this process should have been anticipated in early planning, critics say.

“When you sit down to have your final construction budget […] you should know how you’re going to build [the project],” says Robyn Allan, an independent economist who has been studying the pipeline company’s finances for over a decade.

“What really concerns me is that if they’re still doing design and engineering planning at this stage, they haven’t known what they’re doing,” she added.

Consultation Costs

Another particularly steep uncapped cost mentioned by Trans Mountain was accommodation with Indigenous communities.

The pipeline company originally estimated $99 million but ended up spending almost 10 times that amount, around $900 million. There are over 120 First Nations communities along or near the pipeline’s route.

“I really think they have seriously misplanned this entire adventure,” says Ramanan Krishnamoorti, a professor of petroleum engineering, and a pipeline expert, at the University of Houston.

“We all anticipate a 25-per cent [increase] — but if you miss it by a factor of two, you should be out of a job, and if you miss it out of a factor of six, you should be out of a job many times over, instantaneously.”

Richard Masson, the Chair of the World Petroleum Council in Canada and a strong believer in the need for pipeline access to the West Coast, believes the write-off could amount to $18 billion.

This calculation can be done by looking at the cost overruns and subtracting the amount that Trans Mountain expects to be covered by toll payments from oil companies using the new pipeline.

“So that means that $18 billion is just hanging there with no revenue,” Masson says, adding that he still thinks the new pipeline is a strategic asset for Canada. But that doesn’t eliminate the possibility of a very big write-off, he says.

(An independent calculation by Global News, using the current tolling rates, results in a debt of $16.2 billion).

PBO expects a ‘net loss’

But even with the revenues it expects to generate, it’s uncertain if Trans Mountain will be able to pay off its debt – unless the tolls are increased, additional revenue is found elsewhere, or the feds write off the debt.

Last year, Yves Giroux, Canada’s Parliamentary Budget Officer concluded that “the Government’s 2018 decision to acquire, expand, operate, and eventually divest of the Trans Mountain assets would result in a net loss for the federal government.”

That was when the cost of the project was still sitting at $21.4 billion.

Initially purchased for $5 billion, the Trans Mountain expansion project’s costs have since ballooned to over $30 billion. This marks one of the costliest increases in recent memory for a pipeline project in Canada.

Global News

Ultimately, a pipeline has little other than tolls charged to shippers to pay for itself, and if those tolls aren’t enough to cover the debt, then the company – or Ottawa – will have to find the money elsewhere.

“So very likely,” says Masson, “if the federal government is going to want to sell this, they’re going to have to take a write-down and sell it at a much-reduced value compared to what has been spent so far.”

Other experts were even more emphatic about the costs that could end up being borne by Canadian taxpayers.

Tom Gunton, a professor of environmental and resource management at Simon Fraser University, warned the Canadian government about the possibility of excessive overruns as early as  2015. He believes a bailout from Ottawa, if it were to happen, would put an extremely unfair burden on the shoulder of Canadian taxpayers.

“Why should the Canadian taxpayer be bearing all of these extra costs when the oil industry is making record profits, and is going to receive all the benefits from this project?”


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