Trans Mountain’s Rising Shipping Costs Draw Oil Producer Ire
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Some of the largest oil producers in Canada are objecting to potentially rising costs and fees to ship their crude on the expanded Trans Mountain pipeline, underscoring growing disappointment with the highly anticipated project.
BP Plc, Suncor Energy Inc., Canadian Natural Resources Ltd., Cenovus Energy Inc. and PetroChina have filed letters with the Canada Energy Regulator voicing concerns about how much of the project’s cost overruns they’ll have to pay for as well as how the pipeline plans to handle fees for late shipments. Trans Mountain will provide a reply to comments by July 1, the company said by email.
The Trans Mountain expansion — which will nearly triple the system’s capacity to 890,000 barrels a day — was supposed to provide a fast and relatively cheap way to sell Canadian crude into Asian markets through shipping terminals near Vancouver, breaking producers’ dependence on U.S. refiners. But environmental opposition and construction challenges have delayed the line and boosted its costs. The resulting higher tolls may make Trans Mountain a more expensive way to reach Asian buyers than shipping through the U.S. Gulf Coast.
The pipeline’s price tag has risen to almost C$31 billion ($24 billion), up more than fivefold since it was first proposed more than a decade ago. Producers that signed contracts to ship on the line are on the hook to pay for about 20% to 30% of the cost increase via higher tolls. These so-called uncapped costs have climbed to C$9.09 billion from C$1.77 billion in 2017.
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The total fixed tolls for shipping the full length of the conduit from Edmonton to the Westridge Marine Terminal range from C$9.54 to C$11.46 a barrel, depending on how many years the shippers have committed to the line.
Trans Mountain has asked the regulator to approve its proposed interim tolls by Sept. 14, but hasn’t provided a clear start date for the project. Typically, the new tolls for a pipeline are approved just 30 days before the start of service.
Trans Mountain hasn’t provided producers with “substantive or detailed information” regarding the uncapped costs, making it hard for them to tell whether the expenses were properly allocated to the portion shippers have to pay for and whether they are “just and reasonable,” Canadian Natural Resources said in its letter to the regulator.
“The level of proposed increase in the tolls will negatively impact netbacks obtained by Canadian producers and may adversely and materially impact the overall competitiveness of Canada’s oil industry and the public interest,” CNRL said.
Companies are also objecting to the size of the fees for late shipments, known as demurrage charges, as well as provisions that would allow the pipeline to delay shipments and thus generate those fees for its own account.
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