Trans Mountain Pipeline (TMPL), is a multiple product pipeline system which carries crude and refined products from Edmonton, Alberta, to the coast of British Columbia, Canada.
May 8, 2024
Author
Trevor Toomb. Professor of economics at the University of Calgary and a research fellow at the U of C School of Public Policy. He's also a co-director of Finances of the Nation, a website dedicated to compiling and analyzing Canadian public finance data.
Trans Mountain Pipeline expansion
Moving oil from Edmonton to Vancouver. Value of the project. Overruns. Inflation. Energy prices rising. The initial estimate for the Transmountain expansion about 10 years ago was for roughly $5 billion, and it's coming now at about $34 billion.
Despite that, the benefits of it are still so large that it makes sense both as an individual asset, just in terms of the revenue and expenditures of the pipeline itself, but much more importantly and more broadly for the Canadian economy as a whole.
It's a government-owned project. Debt. Interest costs and debt repayment are more than covered by the revenues that the pipeline generates. In the first full year of operation it'll earn about $3 billion in revenue, and it only costs about a half a billion to operate. Considerable surplus there to cover both the high interests and debt repayments over time. The gap between the revenues and the expenses just gets wider as you look further and further out.
Tolling agreement, between $10.88 per barrel and $11.46 per barrel. Firms asking to Canada Energy Regulator for a final per-barrel toll lower than this numbers. But even at these prices, it is much better than the alternative of shipping by rail. The bigger source of uncertainty around future revenue is the capacity utilization of the pipeline itself. But 80% of the pipeline capacity is already committed to contractually. Pessimistic scenario. A present value of the excess cash that the pipeline generates over the next two decades is over $4 billion.
Econ 101: Opportunity costs. Federal borrowing rate of 3.5%. Effect for the Canadian economy. Bank of Canada estimate the effect would be in terms of growth of 0.25%, about a $7 billion per year boost to economic activity from the decrease in transportation costs on one hand and the differencial in price between the cheap canadian oil and the price in the world market, mainly, and the increase of export capacity in the Pacific with the expansion. 0.3 to 0.4% annualized, or about $240 billion in present value, between now and 2040.
What are you reading these days?
The long-run future of the oil sands: "Last Barrel Standing" by Kent Fellows confronting the myth of Canadian oil sands production being high cost.
