Canada’s Trans Mountain oil pipeline will rely heavily on last-minute, or spot, shippers to turn a profit, according to the corporation’s financial projections. This could pose challenges for the government’s efforts to sell the pipeline now that its C$34.2 billion ($25.04 billion) expansion is complete after years of delays.
Documents filed by Trans Mountain as part of a regulatory dispute over its tolls show it could take up to eight years to make money unless the pipeline fills thousands of barrels a day of uncommitted shipping space. Trans Mountain expects the pipeline will be highly utilized as Canadian production grows, but some traders and analysts warn that will be difficult given higher tolls and logistical constraints at the Port of Vancouver, where the pipeline ends.
The 890,000 barrel-per-day (bpd) pipeline started service in May and reserves 20% of its space for uncommitted, or spot, customers, who pay higher tolls than shippers with long-term contracts. In a scenario with zero spot shipments, the pipeline would not generate positive equity return until 2031. If the pipe runs 96% full from next year, as Trans Mountain forecasts, equity return turns positive in 2026.
Spot-shipping demand is difficult to forecast because it relies on the fluctuating price of Canadian oil versus other heavy crudes in the U.S. and Asian markets. Morningstar analyst Stephen Ellis described Trans Mountain’s long-term forecast for 96% utilization as aggressive, and independent economist Robyn Allan noted that “everything is based on a very optimistic set of projections for the next 20 years.”
Costs during construction surged to nearly five times the 2017 budget, sparking a backlash from committed shippers like Suncor Energy and Canadian Natural Resources, who face higher-than-expected tolls as a result. This could deter customers, as the Canada Development Investment Corporation (CDEV), the government corporation that owns Trans Mountain, has noted.