2022 the ‘best case scenario’ for TMX startup: analysts

Image: Kinder Morgan Canada

Analysts are speculating that it will be at least two and a half years before the Trans Mountain Expansion is completed, now that it has been re-approved by Prime Minister Justin Trudeau’s cabinet.

The government has not given an updated construction timeline, but Trans Mountain CEO Ian Anderson told reporters on Wednesday that there could be "shovels in the ground" by September.

Trudeau had noted that there are still “a number of immediate steps to do with permitting.”

“To us, this would indicate that potential delays remain an issue,” analysts with GMP FirstEnergy wrote in a research note on Wednesday.

“The previously disclosed construction timeline was 30 months, which would suggest the pipeline should theoretically begin operations in early 2022, but there was no mention of this in any of the disclosures.”

Earlier this week the Canadian Association of Petroleum Producers said that construction must begin by early this summer, or the 2019 construction season will be lost and the project will face at least another year of delay.

With delays on Enbridge’s Line 3 Replacement Project and ongoing litigation on Keystone XL, TMX is critical for improving long-term Western Canadian Sedimentary Basin (WCSB) egress and investor sentiment for Canadian energy, analysts with Peters & Co. said on Tuesday.

“The project timeline remains uncertain on the pace of construction, but we believe a potential completion in late 2021 or realistically 2022 would be a best-case scenario if construction were to start immediately.

“It will be important to actually see construction progress to gain more confidence on the project. In the meantime, the ability for rail to ramp and/or continued curtailments will be a key for balancing the WCSB oil market,” Peters & Co. said.

“TMX would add 590,000 bbls/d of WCSB takeaway when complete, eliminating the need for curtailments and significantly lowering reliance on rail. Until a new pipeline is completed, we estimate the WCSB will require at least 400,000 bbls/d of rail and/or curtailments to balance the market. Recent rail data has been encouraging with the most recent public data showing total WCSB rail volumes i the approximately 225,000 bbl/d range (our estimate based on March data), and the most recent data suggest a quicker ramp up towards 300,000 bbls/d.”

Analysts said there is enough industry capacity to take rail above 400,000 bbls/d, and incremental rail should be incentivized with expectations for near-term WCS-WTI differentials around ~US$20/bbl.

“The WCSB would have adequate pipeline capacity in 2022/23 with L3R and TMX, with room for higher volumes,” according to Peters & Co.

Trans Mountain is “ready to restart the project,” the company said in a statement on Tuesday, with the next step being for the National Energy Board to grant its Certificate of Public Convenience and Necessity.

Trans Mountain also expects an NEB process to reinstate the record from the previous regulatory proceeding and Trans Mountain will request that the project be brought back to the same state of construction readiness that it was prior to the Federal Court of Appeal decision that overturned its original approval in August 2018.

“Our project will be the best built, safest, and most technically advanced pipeline possible,” Anderson said.

“The extensive Crown-led Indigenous consultations and marine environment review recommendations have made TMEP an even stronger, and more responsive project.”

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