Projected costs for the controversial Coastal GasLink pipeline spanning northern British Columbia have jumped 70 percent to $11.2 billion as a result of a newly signed deal between operator TC Energy Corp. and the group building a West Bank LNG terminal.
Amid growing global demand for fossil fuels, TC Energy CEO Francois Poirier said a package of revised agreements with LNG Canada “settles all outstanding disputes” and allows for the “timely execution of our largest LNG-related project.” .
TC Energy expects “mechanical completion” — when all construction and testing is complete and the pipes are ready to move gas — by the end of 2023.
The 670-kilometre pipeline, designed to carry natural gas across the province to LNG Canada’s processing and export facility in Kitimat, is now about 70 per cent complete, Poirier said.
As of Thursday, the cost estimate for the pipeline stood at $6.6 billion.
“Capital costs have increased from the original cost estimates made in 2012, and the revised agreements include a new cost estimate for the Coastal GasLink project of $11.2 billion,” Poirier told investors on a conference call.
He said TC Energy will repay $1.9 billion in equity through installments starting this month.
“We currently value our portion of the capital contributions to Coastal GasLink LP over the life of the project at approximately $2.1 billion,” the Calgary-based company said in a statement.
The Coastal GasLink pipeline crosses about 625 rivers, creeks, streams, creeks and lakes along its 670-kilometre route through northern British Columbia (CBC News)
Details of the agreement were not disclosed, but it covers costs arising from causes as broad as COVID-19, weather, the “scope” of the project and “other events beyond the control of Coastal GasLink LP,” TC Energy said.
“Together with LNG Canada, this project will provide the first direct route for Canadian natural gas to reach global LNG markets,” Poirier said, calling the deal a “significant milestone.”
The project has faced political and environmental hurdles over the past few years.
A series of protests by members of the Wet’suwet’en Nation and other indigenous and green groups repeatedly halted progress on parts of the pipeline, while several fines from the British Columbia government punished the company for failing to comply with environmental orders that time of year.
TC Energy has agreements with all 20 elected First Nations councils along the route and signed option agreements earlier this year to potentially sell a 10 per cent stake to two indigenous groups representing 16 of those communities, Poirier noted.
The Coastal GasLink pipeline has faced strong opposition. In this December file photo, a supporter of the Wet’suwet’en First Nation hereditary chiefs waves a Mohawk Warrior Society flag during a protest in Toronto. (Kyaw Soe Oo/Reuters)
Poirier also referred to the energy turmoil sparked by Russia’s invasion of Ukraine in February, saying global LNG demand is expected to grow 50 percent to 75 billion cubic feet per day by 2030 from 50 billion currently.
“This growth has been largely supported by heightened concerns about energy security and the realignment and reorientation of the energy mix,” he said.
“This next wave of LNG demand creates significant opportunities that align with our strategy.” TC Energy’s unmatched asset footprint will play a critical role in securing global energy supplies.”
However, analyst Robert Kwan of RBC Capital Markets questioned whether the pipeline’s returns would be more modest than initially expected returns, “which I think were quite low to begin with.”
“Phase 1 clearly did not meet its original return goals,” responded Bevin Wirzba, head of natural gas pipelines at TC Energy. “But as we’ve indicated, reaching an agreement puts the project in the best position to move forward.”
Phase 1 of the project involves building the pipeline, while Phase 2 involves more than doubling its capacity by installing compressor stations.
TC Energy, which owns 35 percent of the utility, sold a 65 percent stake in it to Alberta Investment Management Corp. and KKR & Co. Inc. in 2020
The Calgary-based company reported lower quarterly earnings on Thursday, reporting that net income attributable to shareholders fell to $889 million, or 90 cents per share, in the second quarter from $975 million, or $1 per share a year earlier.
The pipeline operator’s comparable earnings were $979 million, or $1 per common share, down from $1.04 billion, or $1.06 per share, in the same period in 2021.
Revenue for the three months ended June 30 rose to $3.64 billion from $3.18 billion in the same quarter last year.
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