Estimated cost of Coastal GasLink pipeline rises to $14.5 billion

The cost estimate has risen for the construction of the Coastal GasLink pipeline project in northern British Columbia, leaving uncertainty about when the route will be completed.

Calgary-based TC Energy Corp. TRP-T said Wednesday that it raised the expected cost of Coastal GasLink to $14.5 billion. That’s nearly 30 percent more than last year’s previous estimate of $11.2 billion and 134 percent more than the original price in 2018 of $6.2 billion.

TC Energy, co-owner of the BC project, said it expects to complete the natural gas pipeline by the end of this year, but warned that if construction activities dragged into next year, the price could rise another $1.2 billion.

Coastal GasLink is facing cost pressures from a shortage of skilled labor, as well as addressing “underperformance” on work performed by some subcontractors and facing challenges related to mitigating soil erosion and sediment, TC Energy said.

The 670-kilometre pipeline is designed to transport natural gas from northeast BC to the $18 billion LNG Canada export terminal, which is under construction in Kitimat, BC.

Natural gas producers in Canada face the lure of US export terminals.

Shares of TC Energy fell $3.22 to close at $54.11 apiece Wednesday on the Toronto Stock Exchange.

“The market remains concerned about additional cost overruns from the project,” Robert Hope, an analyst at Scotia Capital Inc., said in a research note. Given the uncertainty about the final cost and the time frame for construction completion, he added that “the project is not out of the woods yet.”

Coastal GasLink’s goal is to test the pipeline next year and have it ready to supply LNG Canada by 2025, when LNG exports to Asia from Kitimat are scheduled to begin.

“We are disappointed with the increase in costs for the Coastal GasLink project,” TC Energy CEO François Poirier said in a press release. “We remain laser-focused on safely completing this critical piece of energy infrastructure at the lowest possible cost, which will enable Canada’s first direct path for LNG exports.”

TC Energy said there is strong interest in its previously disclosed plans to sell $5 billion worth of various assets, and that the divestment program could be expanded.

When the LNG Canada co-owners approved the construction of the Kitimat terminal in the fall of 2018, Prime Minister Justin Trudeau set the total investment at $40 billion, including the original estimate of $6.2 billion for Coastal GasLink, but the forecast for pipeline costs has ballooned by $8.3 billion since then.

Total costs will now be at least $48.3 billion for Phase 1 of LNG Canada, counting the $18 billion Kitimat terminal and various infrastructure including the revised estimate of $14.5 billion for the pipeline. , as well as annual budgets for drilling at North Montney. region in northeast BC

TC Energy completed the sale of a 65 percent stake in the pipeline company in 2020 to Alberta Investment Management Corp. and KKR & Co. Inc.

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TC Energy, which currently owns 35 percent of Coastal GasLink, announced an agreement last year to reserve a 10 percent stake for a planned share sale to up to 20 elected First Nations councils along the route of the pipeline. TC Energy now expects to record an impairment charge on its equity interest in the pipeline project when it publishes its fourth-quarter results on February 14.

While TC Energy has already told investors it would suffer financial harm on the project, the severity of the charge could depend on how much of the rising pipeline costs the company could recoup by imposing higher tolls on its customers, he said. Clark Williams. -Derry, a Seattle-based analyst at the Institute for Energy Economics and Financial Analysis (IEEFA).

Mr. Williams-Derry forecasts that the costs of the Coastal GasLink project to transport natural gas through British Columbia could be twice the cost of shipping the fuel from northeast BC to the Gulf of Mexico.

A new IEEFA report said independent Canadian producers may increasingly look to the US Gulf Coast as an attractive market to ship natural gas supplies rather than rely on the plans of BC LNG advocates. to export abroad from the west coast of Canada.

Details yet to be worked out include how the increased cost of the pipeline will be specifically allocated. “LNG Canada continues to monitor cost and schedule developments for Coastal GasLink. While we cannot disclose details, a trade agreement is in place that addresses risk allocation,” LNG Canada said in a statement.

The Kitimat terminal is located in the traditional territory of the Haisla Nation. Some 190 kilometers of the disputed pipeline route runs through the traditional territory of the Wet’suwet’en Nation. The Wet’suwet’en hereditary chiefs who oppose Coastal GasLink say they have jurisdiction over that territory.

London-based Shell PLC RYDAF is LNG Canada’s largest partner with a 40 percent stake, followed by Malaysia’s Petronas PNAGF with 25 percent. The other co-owners are PetroChina PCCYF (15 percent), Japan’s Mitsubishi Corp. MSBHF (15 percent) and South Korea’s Kogas (5 percent).

LNG Canada’s co-owners are considering whether to go ahead with Phase 2 expansion plans that would double capacity to export natural gas in liquid form.

Five proposals for exports using tankers remain active in BC, including potential expansions at LNG Canada at Kitimat and FortisBC’s domestic Tilbury LNG plant in Delta. The other three projects are Cedar LNG, Ksi Lisims LNG and Woodfibre LNG.