Yahoo Finance Trans Mountain may be 'the last pipeline' for Canada: Cenovus CEO
On the official start date of the long-awaited $34 billion Trans Mountain oil pipeline expansion, Cenovus Energy’s (CVE.TO)(CVE) CEO says he thinks the project may be the last of its kind in Canada.
“It is increasingly difficult to build pipelines in the country, and it wouldn’t surprise me if this was the last pipeline. But the reality is, we have a tremendous resource here in Canada,” Jon McKenzie told analysts on his company’s quarterly earnings call on Wednesday. "We should be building more pipelines."
The industry expects the bigger link between Alberta and export terminals on British Columbia’s coast will shrink the discount on Canadian crude versus the U.S. benchmark price.
Crown corporation Trans Mountain took more than four years to construct the expansion, which ups capacity from 300,000 barrels per day to 890,000 barrels per day.
At the same time, S&P Global estimates Canadian producers will boost the oil supply available for export by about half a million barrels per day by next year. TD Bank says Canada could set a global record for production increases in 2024.
The federal government purchased the pipeline project in 2018 for $4.4 billion after Kinder Morgan announced it would halt spending. The company filed its first regulatory application with the government in 2013.
The Trans Mountain expansion's delays and rising cost estimates have raised concerns about other major infrastructure projects planned in Canada.
“I don't want to taint today with a discussion about the difficulty of getting projects built,” McKenzie said in response to a question about what the pipeline’s challenges signal for the Pathways Alliance.
Cenovus is one of six oilsands companies behind the group’s ambitious plan for a $16.5 billion carbon capture network in Alberta. Imperial Oil (IMO.TO)(IMO), Suncor Energy (SU.TO)(SU), Canadian Natural Resources (CNQ.TO)(CNQ), MEG Energy (MEG.TO), and ConocoPhillips Canada are the other members.
The Pathways Alliance recently began filing regulatory applications for its formative carbon capture project, which could become one of the largest in the world. Pathways has said the project could help its member companies achieve a 32 per cent reduction from 2019 emissions levels by 2030.
While preliminary engineering work has started, the group has yet to make a final investment decision for the megaproject.
Last week, Imperial CEO Brad Corson was asked if he thinks Pathways can avoid the type of cost overruns and regulatory snags that have impacted other major projects in Canada.
“There is a sordid history of large infrastructure projects in the country, and you could probably make the same generalization globally,” he said last Friday as Imperial reported financial results.
He remains “optimistic” about Pathways, given the collective experience of the six companies involved and their proactive approach to regulations.
However, Corson warns that time is of the essence, if costs are to be kept in line.
"It's critical for us to make a mill reservation for the pipe order by the end of the year in order for us to achieve the timing we've laid out," he said. "There will be many thousands of workers that we will need to employ to execute this project. We need to do that in a staged and orderly fashion or else it will drive significant cost increases."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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