How Trans Mountain got built and how it will get sold

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OTTAWA — When Finance Minister Chrystia Freeland delivered her budget speech last month, she gave a nod to the workers on the Trans Mountain pipeline expansion, a $34-billion, government-owned project more than a decade in the making that, after multiple cost overruns and delays, will this month finally begin carrying Alberta oil to the West Coast.

Freeland used the opportunity to take a shot at those who, she said, think government only stands in the way of development.

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“I’d like to introduce them to the talented tradespeople and brilliant engineers who, last Thursday, made the final weld — the Golden Weld — on a great national project: the Trans Mountain pipeline,” Freeland said in the House of Commons. “It took our government to get it built — and last week the Bank of Canada estimated this project will add one-quarter of a percentage point to our GDP in the second quarter.”

The Liberals didn’t propose the Trans Mountain expansion (TMX), of course. They never planned to develop it. But they were forced to buy the project, along with the original Trans Mountain pipeline, in 2018 when Kinder Morgan, the Houston-based owner, said it couldn’t continue putting investor capital at risk in the face of relentless court battles and opposition from politicians — particularly those in B.C.

TMX received its final “leave to open” approval from the Canada Energy Regulator on April 30, after years of delay and tens of billions in cost overruns, although the oil won’t start flowing until later this month. The question now is what the Trudeau government does with it, and whether it can recoup the $34 billion it ended up spending, nearly five times as much as the original $7.4 billion projection.

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The Liberals have said since they bought Trans Mountain that they intended to sell it after it was completed, but insiders who spoke on condition of anonymity say there is no intention of rushing the process. In the meantime, Ottawa will begin collecting tolls on those hundreds of thousands of barrels passing through TMX daily. Currently set at $11.46 per barrel, that should be nearly $4 billion per year, although the Canadian Energy Regulator is still determining what the official toll rate will be.

The government has also said it wants Indigenous communities to at least be part of any future ownership. Several buyers, including some groups including First Nations as well as Alberta’s investment fund, have expressed an interest in buying, but industry analysts are pessimistic that the government will ever sell it at a price sufficient to cover the sunk costs it spent to finally get a pipeline to tidewater over the finish line.

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But for Ottawa, getting Trans Mountain built was the only option left to solve a problem that was costing industry, Alberta, and the federal treasury a lot of money. In 2017, Canada’s export pipelines were full to capacity even as oilsands production continued to grow steadily. More and more Alberta oil, increasingly shipped by train, was being sold at deep discounts, leaving billions of dollars a year on the table. Two other plans for coastal pipelines had already been scuttled: Northern Gateway was killed by Ottawa in 2016 and Energy East was abandoned in 2017, overwhelmed by mounting regulatory barriers.

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Kinder Morgan was preparing to walk away from the last option to get the growing amount of Alberta crude to tidewater. Without it, Canadian oil — stuck with only the U.S. as an export market — would permanently sell at a discount. So the Liberal government bought Trans Mountain for $4.5 billion.

The pipeline largely follows the path of the original Trans Mountain pipe, which has been in place for more than 70 years and was included in the deal. TMX will boost the capacity of the system by roughly 600,000 barrels per day — from about 300,000 to 890,000 barrels. Shipping all that oil from Sherwood Park near Edmonton to the Westridge Marine Terminal near Vancouver will allow Alberta oil to be sold to anyone willing to send a tanker to collect it.

Currently only a handful of tankers arrive at the terminal in the Burrard Inlet each month. Shippers now expect that to rise to 34 a month. Having more potential customers is expected to boost the price for producers. Alberta is expected to collect billions more in royalty revenues as a result — and Canada billions more in taxes.

Western Canadian Select, the type of oil sold by Alberta oilsands producers, has recently been trading at a US$15 discount per barrel to West Texas Intermediate. The difference in the two oils contributes to some of that, but a big part of it is that Canadians have been captive sellers, only able to ship their oil to buyers in the States. And that price differential has been considerably higher in the past. In 2018, the year the government bought TMX, the discount reached US$50 per barrel.

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Ian Anderson, the now retired CEO of Trans Mountain, who oversaw the project and most of its construction, said the new pipeline can finally change that.

“The high tide raises all boats and that’s what’s gonna happen here,” he said. “The access that it’s going to provide is going to raise the value of the Canadian barrel — period. And how much and how fast, we’ll see what the market does.”

Anderson worked on the project when it was first conceived by Kinder Morgan in 2010 and was made Trans Mountain CEO when the federal government took over. He said Kinder Morgan believed in the project, but it couldn’t put up with the endless uncertainty it faced as Canadian activists, including some politicians, continued to find ways to block its development, primarily through the courts. Climate activists had made it their mission to land lock Canadian oil.

“They (Kinder Morgan) saw the risks as being too steep for their investment, appetite, and they were prepared to walk away,” Anderson said.

Trans Mountain had a federal approval permit in hand, approved by Prime Minister Justin Trudeau’s cabinet in 2016. But B.C.’s then NDP premier, John Horgan, had pledged in 2017 to use “every tool in the toolbox” to stop the project, which was unpopular among Vancouver urbanites and West Coast progressives who didn’t want more oil and tanker traffic in their backyard. Alberta’s then premier, the NDP’s Rachel Notley, had tried to retaliate, including by banning B.C. wine imports. But the political risk was too much for Kinder Morgan: it announced in early 2018 that it was pausing any further investment in the project.

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In his 2023 book, Where To from Here: A Path to Canadian Prosperity, Bill Morneau, who was federal finance minister at the time (he has since left politics), said the dispute between Alberta and B.C. was stalling the project with no clear path to get a resolution. Worse, he said, the federal government essentially left it to Kinder Morgan to sort out disputes between provincial governments, Indigenous groups and others opposed to the pipelines.

“We lacked a process for bringing the many constituents together to resolve their different perspectives,” he wrote. Ultimately, if the government wanted TMX built, it was “left with no choice” but to take on the risks itself.

“It was a decision I didn’t want to take — owning a pipeline was not part of our plan — but it was necessary to complete the project and show international investors that Canada is a place where things can get done.”

A senior government official familiar with the sale who only agreed to speak on condition of anonymity said the government knew it could not just let the project fail.

“You can’t turn a blind eye to a situation where you have an export blocked,” he said.

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The Liberals initially approached Trans Mountain with a proposal to insure the project against political risk, promising to cover any additional costs that court challenges and political disputes added. But the company was mostly seeking a sale that would take the project off its hands. The source familiar with the negotiations said the government probably gained leverage, and a better price, by not initially offering to simply buy the pipeline, but to insure it instead.

Anderson wouldn’t disclose anything from those negotiations in 2018, but confirmed there were a number of ideas on the table. He said the company also sought other bidders, including the province of Alberta.

“In the end the only party who saw the importance of completing this project and were prepared to take it on was the federal government,” he said.

Ultimately, the Liberals made the deal, and set up Trans Mountain as an arm’s-length Crown corporation.

The decision was politically unpopular for the Liberals, alienating many of its more fervid anti-oil supporters while failing to impress Albertans and conservatives who blamed Ottawa for using taxpayer money to fix a crisis they blamed the government for creating. Many MPs and candidates complained privately and publicly about having to defend the decision on doorsteps in the 2019 federal election. The Liberals lost two MPs from Alberta in that election, including cabinet minister Amarjeet Sohi — defeated by the Conservatives in Edmonton Mill Woods  — who was credited by many for getting the project back on track. The party lost six seats in B.C., but held on to their Vancouver ridings, including in Burnaby North-Seymour, where the pipeline was a key election issue.

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Sohi, now the mayor of Edmonton, was the federal natural resources minister in 2018 and 2019 and Alberta’s voice at the cabinet table. He said he pushed his colleagues to buy the pipeline. Once the stakes were made clear, he said, the decision seemed obvious.

“That realization led to the tough decision,” Sohi said. “It was not an easy decision. It was a tough decision, but it was the right decision to make.”

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The day that Kinder Morgan’s shareholders approved the sale of Trans Mountain to the government, Aug. 30, 2018, was the same day that the Federal Court of Appeal handed down yet another devastating blow to the project. It ruled that the permit the federal government gave to the project was based on inadequate consultation with Indigenous groups and the National Energy Board review had failed to consider the impact of increased marine traffic in B.C.’s Georgia Strait that the project would create.

It was the first of many more delays to come  — including 2021’s massive flooding in B.C. and the pandemic — that would more than quadruple costs and put the pipeline project years behind schedule. These had all become the federal government’s problems now.

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“Delays cost money, and whether there were regulatory delays, whether they were legal delays, whether there were delays related to, wildfires or heat domes or floods or COVID. Delays are crippling to a project,” Anderson said.

Construction costs were rising across the industry, too. The Coastal Gas Link project, a natural gas pipeline in northern B.C., also more than doubled during construction, going from an estimated $6.2 billion to $14.8 billion when it was completed last year.

After the court rejected the project, Sohi, the natural resources minister, led consultation efforts with Indigenous communities designed to satisfy the court’s demands.

He travelled to more than 60 First Nations communities to find out their concerns, he says, and spoke with Indigenous groups who identified real problems with the pipelines routing that would take the project through important parts of their area.

“Instead of expecting First Nations communities to come to Ottawa to engage, I felt that I needed to be out in the community building relationships, meeting people where they are,” Sohi said.

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“The more I leaned into learning what went wrong in the first place, the more convinced I became that the Crown did not fulfill the responsibility for meaningful consultation.” He said the lesson for large projects should be don’t gloss over consultation.

“Don’t cut corners. It will do a big favour to yourself, a big favour to the country and you’ll do a big favour to the projects that you want to advance,” he said.

Cabinet re-approved the pipeline in July 2019. That did little to dissuade TMX’s single-minded opponents who challenged it yet again, fighting all the way to the Supreme Court. The government hung in, and this time, won the court’s blessing.

Anderson said the construction progressed slowly even after the new federal permits were secured, including delays from the B.C. government in issuing provincial development permits.

“One of the other factors I think that can’t be overlooked is this project was likely more highly scrutinized than any project in Canadian history,” he said.

Still, he thinks that being under the microscope ultimately means TMX ended up being a better pipeline. The route was changed to avoid many sensitive areas, and in many more places than originally planned the company used “trench-less” construction techniques, installing the pipeline by boring through the ground, without having to disturb the land on top.

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But the added costs, some of it taken on as debt, have all been Ottawa’s to bear, and it will fall to this government, or some future government, to try to recoup as much of them as possible. The fastest way to do that would be through a sale.

Anderson, who spent 14 years of his life on the project, is confident the government will find a buyer.

“The question will be how quickly do they want to sell it? And what kind of process do they want to run to sell it?”

Project Reconciliation, an Indigenous-focused initiative based in Calgary, is one potential investor and others have expressed interest. The company has offered to take an ownership stake in the pipeline using debt financing and says it will share its profits with 120 Indigenous communities. Stephen Mason, the group’s CEO, said it’s a plan for “economic reconciliation.”

“In my view, this could ultimately go down in history as the most transformational moment in history since treaties were signed over 150 years ago,” he said.

Mason submitted an offer to buy 51 per cent of the pipeline back in 2019. He said the government told him to call them back when the project was finished. He won’t reveal what his group is prepared to pay, but said Project Reconciliation is ready to make an offer whenever the government is ready to take it.

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“(W)e’ve been sitting here, I would love to say with great patience, but it’s been a long journey getting Trans Mountain to that proverbial ‘last weld’.”

National Post
rtumilty@postmedia.com

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