The federal government-owned Trans Mountain Pipeline system is no longer a "profitable undertaking," according to a report from the Parliamentary Budget Officer (PBO) on Wednesday.
Ottawa purchased Canada's only oil pipeline system from Alberta to the West Coast for $4.4 billion in 2018 from Kinder Morgan Canada. At the time, the company threatened to halt expansion due to environmental opposition. The construction project, now roughly half complete, would essentially twin the existing pipeline, raising output to 890,000 barrels per day.
Canada's budgetary watchdog determined the project will result in a $600 million net loss, in its report on Wednesday. The PBO also examined scenarios where the expansion is stopped after June 2022 and cancelled indefinitely. That would require Ottawa to write off over $14 billion in assets, the report said.
"The net impact would result in a significant financial loss for the Government, and would lead to the Trans Mountain Corporation no longer being a going concern," the PBO wrote.
In its previous report on Trans Mountain released in December 2020 using the same methodology, the PBO estimated the project carried a net present value of $600 million. Since then, estimated construction costs for the pipeline expansion have surged from $12.6 billion to $21.4 billion.
The latest PBO analysis also pushes the completion date of the project by a year, to the end of 2023.
Adrienne Vaupshas, press secretary for Finance Minister Chrystia Freeland, says assessments by BMO Capital Markets and TD Securities have confirmed the project remains commercially viable.
"The Trans Mountain Expansion Project is in the national interest and will make Canada and the Canadian economy more sovereign and more resilient," she said in an emailed statement.
"The federal government intends to launch a divestment process after the project is further de-risked, and after economic participation with Indigenous groups has progressed."
The PBO says its analysis is limited to the financial cost of the expansion, and does not account for broader economic costs or benefits. The agency adds that it based its findings on five key assumptions. These include the project's expected in-service date, construction costs, pipeline utilization, the service and tolling framework after contracts expire, and the discount rate used to value Trans Mountain's cashflow.
Last month, Ottawa approved a $10 billion loan guarantee for Trans Mountain Corp., the federal Crown corporation overseeing the project. At that time, Freeland said no additional taxpayer funds would be used to support it. She said expansion of the pipeline will require third-party financing, either from banks or public debt markets.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.