Trans Mountain Would Still Be Profitable Even If Costs Rise 26%

The Trans Mountain Expansion Project would still be profitable even if costs rise by around 26 percent, according to an analysis by Kinder Morgan's adviser TD Securities included in the pipeline company's SEC filing about its plan to sell the pipeline project to the Canadian government.

Earlier this week, Kinder Morgan filings suggested that the project could end up costing more than initially estimated, and its in-service date could be pushed back to end-2021 from originally planned end-2020.

In the SEC filing, Kinder Morgan Canada cites three scenarios that its adviser TD Securities has modeled for the future cash flows of Trans Mountain. Even if costs were to increase to US$7.13 billion (C$9.3 billion)-the highest capital-program scenario with the Trans Mountain project proceeding and in-service date December 31, 2021-Trans Mountain would still generate distributable cash flow of US$96.6 million (C$126 million) in the following year, 2022, with said cash flow rising to US$98.1 million (C$128 million) in 2023.

The other two scenarios that TD Securities has analyzed are a scenario where the expansion project does not proceed, and a scenario with capital program of US$6.44 billion (C$8.4 billion) and in-service date December 31, 2020.

The Trans Mountain expansion has become one of the most controversial pipeline projects in North America as it pitted two provinces against each other, sparking both protests and support rallies.

Alberta's heavy oil producers need more pipeline capacity as their production grows, but pipeline capacity has stayed the same. British Columbia's NDP government, which came into office last year, however, is against any new oil pipelines, although it doesn't mind getting the crude it gets currently through the existing pipeline. The fierce opposition in British Columbia has forced Kinder Morgan to reconsider its commitment to expand the Trans Mountain pipeline, and to sell the project to the Canadian government.

By Tsvetana Paraskova for Oilprice.com

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