The Canada Energy Regulator judged it to be “in the public interest” to allow the Crown corporation building the Trans Mountain pipeline to use smaller pipes on a 2.3-kilometre stretch where it had previously rejected that choice, the CER said in a January 31 release.
The release said the decision was “based on Trans Mountain’s new in-line inspection commitments and demonstration of effective quality management processes in relation to the materials Trans Mountain purchased.”
But Trans Mountain Corporation—which had sought the CER’s permission to get around the problem of boring through hard rock in British Columbia by installing smaller-diameter pipes—hit another snag a few days before the CER issued its reasons for decision.
On January 29, the company said it had encountered “technical issues” and would need additional time to determine the “safest and most prudent actions for minimizing further delay.”
Trans Mountain previously said it expected to have the C$30+-billion pipeline in service near the end of the first quarter of the year, but is now extending that to the second quarter, The Canadian Press reports. The delay left industry watchers less than impressed.
“We had a timeline in sight, and we were so close, only to now be disappointed. And I think that’s been the narrative of this project from the beginning,” Raymond James analyst Jeremy McCrea told CP. “If we can come out with a Q2 startup, great, but I think now there’s going to be a lot of skepticism. Is that date going to be pushed out again?”
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In mid-January, the CER announced it had approved the use of smaller pipe in a section of Trans Mountain Corporation’s pipeline to Canada’s West Coast, reversing its earlier refusal on safety grounds after the company warned that completion would be delayed by two years if its request was denied.
At a hearing in Calgary on January 12, the Crown corporation urged the regulator to quickly decide whether the company would be allowed to change the size, thickness, and coating of a 2.3-kilometre stretch of pipe between the communities of Hope and Chilliwack, British Columbia, reported The Canadian Press. The CER announced its approval hours after the hearing.
“Having thoroughly and carefully considered all written and oral submissions received, the Commission approved the variance, subject to the conditions imposed relating to materials and in-line inspections,” the CER told The Energy Mix in an email, adding that “the commission of the CER will only approve a variance application if it ensures safety and environmental protection.”
The reasons for the decision “will be released in the coming weeks,” the regulator added.
Initial Request Denied
Last December, concerns about pipeline quality and integrity led CER to deny Trans Mountain’s initial request for the variance, made after the company faced difficulties boring through hard rock along the route. TMX applied to reduce the pipe diameter from 36 to 30 inches for that section, which engineers said would not reduce the flow of oil when the pipeline is in operation.
The regulator said at the time that the variance’s “drawbacks outweighed Trans Mountain’s stated benefits.”
“Trans Mountain did not demonstrate compliance with its Quality Management Program” (QMP) and did not show that the quality of materials for the 30-inch pipe would meet the standard of those used in the rest of the pipeline, the regulator added.
The company also “did not demonstrate how they would conduct in-line inspections before beginning operations,” when in-line inspections (ILI) are considered important to ensure the safety and integrity of the pipe. Trans Mountain also failed to “adequately address potential environmental impacts from material quality changes and lack of ILI capability” and “did not provide satisfactory responses or solutions to address the Commission’s requests for additional information.”
Trans Mountain Urges Haste
Trans Mountain responded that the rejection, if upheld, would result in delays of up to two years in a worst-case scenario, because the challenges posed by the hard rock formations were greater than it initially realized. Proceeding with the initial bore size could cause drilling equipment to fail, the company said, adding that delays would cost C$200 million in lost revenues for each month lost.
The company’s lawyer Sander Duncanson confirmed in a hearing that each week of delayed completion would cost the company $50 million in lost oil shipping revenue, wrote CP.
“The commission must be mindful that every day counts now,” Duncanson said. “An extra week of deliberations, or a condition that requires an extra week or two before Trans Mountain can start up the expansion, may not seem like a big deal. But it will have real, material impacts.”
The company maintained it could address all the regulator’s concerns about the pipeline’s safety and integrity.
CER approved the request, saying the variance is “subject to the conditions imposed relating to materials and in-line inspections.” Those conditions are described in Amending Order AO-012-OC-065, in which the regulator requires that Trans Mountain’s accountability officer file a signed letter to confirm adequate testing of the new pipe material and compliance with regulatory specifications, prior to installing the pipe.
The regulator also said it would allow the company’s request that it need not adhere to the QMP with respect to the new materials used for that section of the pipeline “if the variance is approved and the Commission determines such materials do not comply with the QMP.”
Reuters reported that an approval could see the pipeline on track to be completed later this year.
Turning Into a Liability
The Trans Mountain pipeline is expected to nearly triple the amount of crude flowing to B.C.’s coast for export, making it a potential boon for Alberta’s oil sands. Back in 2018, the Canadian government purchased the project from previous owner Kinder Morgan Canada to ensure it would be completed, but lengthy delays and ballooning costs have plagued the project—and while the company looks to push that debt onto taxpayers, polls show that two-thirds of Canadians think oil companies should pay for their own expenses.
The CER is responsible for overseeing the pipeline’s regulatory compliance. But economist Robyn Allen, former president and CEO of the Insurance Corporation of British Columbia, has said Trans Mountain’s lax safety culture shows that the regulator’s oversight of the company has been haphazard. The company’s performance has left some insurers hesitant to offer coverage, which has in turn contributed to the project’s “catastrophic” cost increases.
“If you’ve got a situation where insurers see that the regulator is captured, is actually controlled by the company that it’s supposed to regulate, it means they can’t trust the CER to do the job of keeping Trans Mountain responsible and accountable,” Allen previously told The Energy Mix.
