TC Energy: Coastal GasLink project will cost $14.5 billion
The company says the increase is due to material costs, labour shortages, weather and contractor issues.
Crews work on the Coastal GasLink project in B.C.
Cost estimates for the Coastal GasLink Project in B.C. have risen by billions and could rise more.
TC Energy Corporation announced it now expects the project to cost $14.5 billion instead of $11.2 billion. The company gave the following reasons for the increase:
- Material cost pressures
- Shortages of skilled labour
- Impacts of contractor underperformance and disputes
- Drought conditions
- Erosion and sediment control challenges.
Company officials said a comprehensive cost and schedule risk analysis (CSRA) was conducted to assess current market conditions and potential risks and uncertainties facing the remaining project scope. As a result of the CSRA, TC Energy’s estimate of the costs to complete the Project has increased to approximately $14.5 billion. TC noted that the estimate excludes potential cost recoveries and incorporates contingencies for certain factors that may be outside of its control such as labour conditions, contractor performance and weather-related events.
TC Energy expects to fund the incremental revised project costs and is actively pursuing cost mitigants and recoveries that may partially offset a portion of these costs, some of which may not be conclusively determined until after the project is in service.
They added that Coastal GasLink is working closely with its prime contractors on implementing productivity improvement strategies targeting mechanical completion by year-end 2023, with commissioning and clean-up work continuing into 2024 and 2025. The CSRA review also considered the potential impact of an extension of construction well into 2024. In that event, costs would increase further by up to $1.2 billion. Due to the increase in the expected cost of the project and the additional funding required, TC Energy said it will recognize an impairment to its equity investment in Coastal GasLink LP in its fourth quarter 2022 financial results.
The company said that despite the challenges, project continues to make significant progress having reached approximately 83 per cent overall completion. The entire route has been cleared, grading is more than 94 per cent complete and over 485 km of the approximately 670 km pipeline has been backfilled with restoration activities underway in many areas. The Wilde Lake Compressor Facility has commenced commissioning work with the introduction of natural gas expected in March. Once complete, Coastal GasLink will be Canada’s first direct link for LNG deliveries.
TC Energy’s overall 2023 capital expenditure outlook has been revised to approximately $11.5 to $12.0 billion, reflecting the deferral of certain project spending, expected cost-saving initiatives and incremental funding requirements associated with Coastal GasLink.
“We are disappointed with the increase in the Coastal GasLink Project costs. We continue to be laser-focused on safely completing this critical piece of energy infrastructure at the lowest possible cost, which will enable Canada’s first direct path for LNG exports,” said TC Energy president and CEO François Poirier. “The Project will provide substantive benefits for Indigenous and local communities across the Project route, our customers, the Western Canadian Sedimentary Basin, as well as playing a vital role in enabling global energy security and emissions reduction contributing to global climate goals.”
Poirier added that TC Energy remains committed to growing its dividend at an annual rate of three to five per cent and accelerating our deleveraging target from 2026.
As previously announced, the company is advancing a $5+ billion asset divestiture program this year. Officials stated that they anticipate a combination of strong market interest and compelling valuations will support upsizing the program to fully fund the capital program and achieve the company’s deleveraging target. Poirier stated that the company will maintain its intent to cease the discounted Dividend Reinvestment Plan following the dividend declarations for the quarter ending June 30, 2023.
“Our strategic priorities for 2023 remain unchanged. Our focus is on safe project execution and operational excellence, strengthening our balance sheet and financial flexibility, enhancing returns on our assets, and advancing our decarbonization and low-carbon opportunities,” said Poirier.