North American pipeline operator TC Energy Corp sent its share price plummeting on Wednesday after higher-than-expected cost estimates to complete the troubled Coastal GasLink project.
First announced in 2018, the 670 km pipeline will transport natural gas from the Peace River region of northeastern British Columbia to the Shell PLC-led LNG Canada facility on British Columbia’s northwest coast. This is Canada’s first liquefied natural gas export terminal.
The long-delayed pipeline, owned by private equity firms KKR & Co Inc, Alberta Investment Management Corp, and TC, has been plagued by environmental concerns, inflation and protests against mountainous terrain, prompting TC to sell ski. I had to move the pipe with a lift.
The company blames labor shortages, underworked contractors and bad weather for the rising costs.
Costs may continue to rise: analyst
Coastal’s cost increased 30% to C$14.5 billion from the project’s previous estimate of C$11.2 billion, and was increased by 70% from its original budget in July. Analysts at BMO, Scotiabank and RBC said the recent increase was slightly higher than expected.
Costs could increase by another C$1.2 billion if construction is extended to 2024, TC added.
“Given its history of cost overruns, we believe the cost and timing of the project will overhang the stock,” RBC analyst Robert Kwan said in a note.
TC’s Toronto-listed shares fell 6.5%, down 18% since the company warned in November that Coastal’s costs were rising.
CEO François Poirier said the increase was disappointing, but the company remains focused on mechanical completion by the end of 2023. Work is 83% complete.
In the Coastal GasLink issue, the company says its employees were attacked by masked attackers last February, damaging millions of dollars worth of equipment and construction trailers. The RCMP has released few details about its investigation.
The company has also been fined multiple times for environmental violations, costing them more than $450,000.
It faces opposition from multiple groups, including supporters of a group of hereditary Wet’suwet’en chiefs in the territories through which the pipeline passes.
Last month, it was announced that LNG Canada, a facility that processes gas from pipelines and exports it overseas, will be powered by natural gas rather than electricity, further increasing the project’s carbon footprint.
Trans Mountain Pipeline Also Faces Delays
The expansion of the Canadian government-owned oil pipeline Trans Mountain also saw rising costs and delays.
TC aims to sell C$5 billion worth of assets this year to pay off debt and raise funds to pay for projects, including Coastal.
TC Energy has increased its 2023 overall capex outlook to C$12.0 billion from C$11.5 billion, up from C$9.5 billion previously.
An impairment loss will be recognized on TC Energy’s equity investment in Coastal in its fourth quarter results, due on February 14, the company said.