The Canada Energy Regulator (CER) has recently vetoed the Trans Mountain Expansion (TMX) project’s request for a variance on a section of oil pipeline under construction in British Columbia. This decision has the potential to cause delays in the 590,000 barrel-per-day (bpd) expansion. The request for a variance was made by Trans Mountain due to encountering tough drilling conditions and the hardness of the rock in a hilly area between Hope and Chilliwack, leading them to seek permission to install smaller diameter pipe in a 2.3-km section of the oil pipeline’s route.
The CER’s decision to deny the variance request was posted on their website and was accompanied by a promise to provide reasons for their decision as soon as possible. At a recent hearing, Trans Mountain had stated that installing the smaller pipe would save 59 days of construction time and enable the expansion to remain on track for a start date late in the first quarter of 2024. This denial of the variance request risks delaying the start date, and Trans Mountain argued that drilling a wider section for the larger diameter pipeline to pass through was unpredictable.
Market participants have noted that the Canadian crude to U.S. benchmark crude discount has widened due to the CER’s decision. Trans Mountain is scheduled to begin shipping oil before the end of March 2024, but concerns about potential delays have been raised due to a series of construction-related obstacles. Trans Mountain, a Canadian government-owned crown corporation, is currently awaiting reasons for the CER’s decision and has clarified that the Trans Mountain Expansion Project construction is over 97% complete. The project, initially proposed by Kinder Morgan in 2012, was bought by the Canadian government in 2018 for $30.9 billion to ensure its completion after years of regulatory delays and cost over-runs.