Trans Mountain pipeline at risk of being sold at a loss, PBO calculates

Photo: Darryl Dick The Canadian Press Tankers dock at the Trans Mountain Westridge Marine Terminal in Burnaby, B.C., to be loaded with oil from the Trans Mountain pipeline.

The Trans Mountain pipeline, acquired and expanded by the Government of Canada at a cost of $34.2 billion, is currently worth slightly less than that amount, according to estimates by the Parliamentary Budget Officer (PBO).

A report released Friday estimates its current value at between $33.4 billion and $29.6 billion, based on two plausible future scenarios. “Ultimately, whether the government [makes] a profit or a loss on the eventual sale of the Trans Mountain pipeline system will depend on what someone is willing to pay for it,” it says.

There is considerable uncertainty surrounding the true price of the Trans Mountain pipeline, owned by Canadian taxpayers, whose expansion project concluded last May with the start of commercial operations. Ottawa plans to sell the infrastructure when the opportunity arises.

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For example, “the majority of the capacity of the Trans Mountain pipeline system is reserved for committed contracts for the first 15 to 20 years of operation,” the analysis notes. It is unclear what the global oil market will look like after this period, and whether this pipeline will still be needed.

A good deal ?

Canada’s Finance Minister Chrystia Freeland assured earlier this week that her government had gotten a good deal in buying the pipeline that connects the Edmonton, Alberta, region to Vancouver, British Columbia. “The pipeline has already proven to be a good investment,” the minister insisted to Bloc Québécois MP Mario Simard. “It’s a project that’s worth a lot of money. I hope we sell it for more [than $34 billion],” she told NDP MP Charlie Angus.

The Trudeau government argues that the main benefit is the increase in the price that Canadian oil companies get for a barrel of black gold intended for export. The Trans Mountain pipeline expansion was originally expected to cost $7.4 billion when it was purchased by the Canadian government in 2018. Instead, the project has swallowed up tens of billions more in public money over the years.

“The big question is, who built a pipeline and who didn’t,” Freeland bragged to Conservative MP Shannon Stubbs.

Of uncertain value

While the PBO itself acknowledges that the scenarios being calculated are not the only possible or probable ones, its estimates can give an idea of ​​how much the infrastructure might sell for.

Under the first scenario, based on the assumption that Trans Mountain’s current customers renew their oil transportation contracts so that the pipeline is used at 96% of its long-term capacity, its value could reach $33.4 billion. Another way of looking at it, based on an estimate of how service costs and revenues evolve, puts the sale price instead at $29.6 billion.

According to its most recent annual report, for 2023, Trans Mountain Corporation has total assets of $35.2 billion and liabilities of $26.9 billion. This leaves $8.3 billion in shareholders’ equity.