Analysts say it’s a ‘no-brainer’ way to diversify energy exports away from the United States
“Pursuing a Trans Mountain expansion should be a no-brainer,” the team at Scotiabank Global Equity Research said in a note published on Monday that examined additional expansion opportunities for the pipeline, adding that “the looming threat of 10 per cent tariffs on Canadian energy has once again highlighted its reliance on U.S. markets.”
Justin Trudeau’s Liberal government bought the pipeline, which transports crude to the west coast for export to the U.S. and Asia, for $4.5 billion in 2018, only to watch the costs balloon to $34.2 billion.
“We see little chance of these mega-projects being revived,” they said.
“We see a further expansion of Trans Mountain as positive for Canadian energy producers and the country overall,” Scotiabank said.
The analysts think time is of the essence, which is an idea that meshes with what’s happening in British Columbia. Premier David Eby recently opened the door to expediting resource initiatives by announcing the province was fast-tracking 18 projects to shift its reliance away from the U.S.
Scotiabank proposed two ways to expand the TMX: adding a chemical to reduce the drag on flows, which would require some mechanical work and permitting, and upgrading pumping stations to increase flows.
Analysts are so worried about the threat posed by tariffs that they don’t think the pipeline’s owner should make expansion contingent on shipping commitments.
“In this case, one could argue that this should not be a gating factor for the owner, as having excess pipeline capacity to offshore markets is a very inexpensive insurance option for the Canadian economy,” they said.
The pipeline has a capacity of 890,000 barrels per day, but it was still running under capacity prior to the tariff threat.
However, an executive at Trans Mountain said the company thinks it’s possible TMX could fill up this year if tariffs come to pass. Otherwise, Trans Mountain expects the pipeline to hit capacity in 2028, a Bloomberg report said.
Trans Mountain’s CEO recently indicated the company was looking at adding 250 million barrels per day to bring capacity to 1.13 million barrels per day.
“We would not be surprised if optimizations beyond this level could be realized as well,” Scotiabank said.
The PBO said it remains unclear whether the government can make a profit by selling the pipeline, something that has been the Liberals’ stated intention.
Analysts think expanding, or having the pieces in place to expand again is a worthwhile investment that will make TMX more attractive to sell.
“Who the ultimate owner of the Trans Mountain pipeline is remains unclear, and we do not expect any movement on this file until 2026 at the earliest,” they said. “However, if the government is looking to maximize the value of the asset, we believe it would be prudent for the pipeline to be expanded, or at the very least, have a very clear path to expansion.”
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