TC Energy Corporation is expecting what it calls a “material increase” in the cost of its Coastal GasLink pipeline project.
The Calgary-based pipeline company said in an investor presentation last Tuesday that it is facing significant cost pressures in Western Canada related to labour costs and shortages of skilled labour, along with contractor underperformance and disputes, The Canadian Press reports.
The project has also been hurt by other unexpected events including drought conditions, and erosion and sediment control challenges, the company said.
TC Energy did not put a dollar value on the cost overruns. It said it expects to provide an updated capital cost estimate early next year that will incorporate the recent developments.
It is the second time in a handful of months that TC Energy has flagged the rising costs of Coastal GasLink. In July, the company said it expected the cost of the project spanning northern British Columbia had risen to C$11.2 billion compared with an earlier estimate of $6.6 billion.
The 670-kilometre pipeline, which aims to carry fracked gas across the province to the LNG Canada processing and export facility in Kitimat, BC, is 80% complete.
TC Energy CEO François Poirier said the company is pursuing potential recoveries from contractors to offset a portion of the rising costs, though those efforts might not end until after the project is completed.
The company still expects to finish building Coastal GasLink by the end of 2023. In a release, Poirier said the escalating price tag won’t keep TC Energy from achieving its debt reduction target or increasing its dividends to shareholders.
“Although Phase One of Coastal GasLink has been challenged by cost performance, we do not expect any impact on the sustainability of our dividend growth rate of 3 to 5% or our ability to accelerate our deleveraging target from 2026,” said Poirier in a news release.
Coastal GasLink is not the only major energy infrastructure project in Canada to be plagued by cost overruns this year, CP notes. In February, the federal Crown corporation behind the “out of control” Trans Mountain pipeline expansion project put the new cost of the project at an estimated $21.4 billion, up from an earlier estimate of $12.6 billion.
Trans Mountain Corporation blamed the surging cost projections for the project on the COVID-19 pandemic and the effects of the November, 2021, climate-driven flooding in B.C., as well as project enhancements, increased security costs, route changes to avoid culturally and environmentally sensitive areas, and scheduling pressures related to permitting processes and construction challenges in difficult terrain.
Budget overruns at both pipelines have reinforced environmental groups’ arguments for investing in green energy instead of traditional fossil fuels, CP says.
“The multi-billion-dollar cost overrun on this pipeline could have financed the largest investment in community-based renewables in Canadian history,” said Keith Stewart, senior energy strategist with Greenpeace Canada.
This report by The Canadian Press was first published November 29, 2022.