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Pembina Not Giving Trans Mountain Hard Look Due to Shipping Fee Uncertainties

Pembina Pipeline Corp (PPL.TO) of Canada is veering away from considering a substantial investment in the recently expanded Trans Mountain oil pipeline (TMX), primarily due to lingering uncertainties surrounding shipping tolls, a top company executive revealed on Friday.

While Pembina initially formed a partnership with the Western Indigenous Pipeline Group (WIPG)  in 2021 to explore the possibility of acquiring a stake in the Canadian government-owned pipeline, recent months have seen a notable shift in their stance towards investing in the project. In 2021, Indigenous-led group Project Reconciliation and Chinook Pathways, a partnership between Pembina and WIPG, expressed interest in bidding to own either the whole or part of Trans Mountain. At the time, high financing costs and institutional investor reluctance to be associated with fossil fuels projects were limiting the pool of potential buyers.

According to Cameron Goldade, Pembina's Chief Financial Officer, significant uncertainty continues to cloud the asset's prospects from their perspective. Consequently, the TMX doesn't currently command much attention as an investment opportunity within Pembina's strategic focus.

Despite Trans Mountain commencing commercial operations just last week, Ottawa has announced plans to initiate a divestment process for the pipeline later this year. However, analysts are skeptical about the government's ability to recoup its substantial investment.

The pipeline's shippers have been vocal about their concerns regarding the high tolls imposed for oil transportation, especially given the considerable cost overruns that saw construction expenses soar to C$34 billion—more than four times the original estimate.

Canadian regulators are slated to conduct hearings this year to finalize the toll rates, a decision that could significantly impact the project's financial viability.

TMX's expanded capacity—set to transport an additional 590,000 barrels per day from Alberta's oil sands to the west coast of Canada—holds the promise of enhanced market access, particularly to lucrative markets in Asia and the U.S. West Coast.

By Julianne Geiger for Oilprice.com

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