TC Energy wins approval for NGTL pipeline expansion, but shares downfall


Bottlenecks on the critical pipeline network have long been a source of frustration for western Canadian gas producers

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TC Energy Corp. scored a victory this week when the federal government approved a major expansion of its NOVA Gas Transmission Ltd. pipeline system. (NGTL), putting the Calgary-based company in a position to meet growing demand for natural gas in the United States. .

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But the glory of this victory was short-lived. TC Energy stock was set to end the week down around 10%, after chief executive Francois Poirier revealed the share price The embattled Coastal GasLink pipeline project was expected to blow up again.

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The good news came on November 30, when the Canada Energy Regulator conditionally approved TC Energy’s West Path Delivery 2023 project, which will add an additional 40 kilometers of new pipeline to the existing 25,000 kilometer NGTL system, enabling the company to ship gas from the Western Canadian Sedimentary Basin to markets in Canada and the United States, specifically Washington, Oregon and California.

Bottlenecks on the critical pipeline network have long been a source of frustration for western Canadian gas producers and have become an even greater source of contention as gas production has reached record levels.

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Earlier this year, as global gas prices soared on the back of soaring demand overseas, spot prices at the AECO hub in western Canada crashed and briefly turned negative as the maintenance of the NGTL pipeline system has resulted in a reduction in capacity, blocking gas supplies in Alberta and British Columbia.

Before the energy regulator revealed its decision, producers were celebrating TC Energy’s recently announced operating outlook for 2023, which indicated that « significant » capacity had been added at key points on the NGTL, according to the analysts.

“The outages of recent years have had a profound impact on natural gas prices in Western Canada, with differentials exploding as volumes squeezed against reduced capacity,” wrote Michael Shaw and Andrew Bradford of Raymond James in a recent research note. “The additional capacity will provide (upstream producers) the ability to increase production volumes, increase throughput of gas gathering processing facilities, liquids pipelines, and liquids fractionation and marketing facilities in downstream. »

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However, Ottawa’s approval of the pipeline expansion came with strings attached. TC Energy will have to comply with 34 binding conditions related to environmental protection and the involvement of indigenous peoples in the monitoring and safety of the project, according to Natural Resources Canada.

The company didn’t seem to care. TC Energy said in a December 1 statement that construction of the West Path Delivery project could be completed by November 1, 2023. The project is part of a $1.2 billion expansion program first announced by TC Energy in 2019, supported by approximately 258 million cubic feet per day (mcf/d) of new long-term service contracts.

But while TC Energy executives were rejoicing at the approval, their enthusiasm was quickly dulled by the company’s acknowledgment of the inflated cost of its Coastal GasLink pipeline project.

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At TC Energy’s Investor Day in Toronto on Dec. 1, the company said the 670-kilometre pipeline, which will deliver natural gas to LNG Canada’s export facility in Kitimat, British Columbia, is 80% complete. Reaching 100% will require another hardware cost increases, although TC Energy declined to say by how much.

In July, the company said the price of Coastal GasLink had reached $11.2 billion, up from an earlier estimate of $6.6 billion. TC Energy blamed rising labor costs, a shortage of skilled labor and contractor underperformance and disputes for the latest cost overrun. He said a higher capital cost estimate would be provided early next year and that the revised estimate would also take into account unforeseen events, including drought conditions, erosion and soil control issues. sediments.

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Bank of Nova Scotia analyst Robert Hope pegged the potential increase at $1 billion to $3 billion.

“There were also few details regarding the recoverability of higher costs, whether through tolls, its partners or its contractors,” Hope said in a research note. « The construction environment surrounding the CGL project remains challenging, given the labor pressures as well as the productivity of its contractors. »

TC Energy was trading at around $58 per share at the end of the trading week, 11% below its opening value on Nov. 28.

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“While we are very disappointed to make this announcement with respect to increased costs, our goal, and how we will get to the finish line, is to continue to be 100% focused on pursuing safety of the rest of the rest of the construction activities,” said Bevin Wirzba, president of TC Energy’s Coastal GasLink, at the event in Toronto.

“We continue to see the long-term value of the project. We see that this will not only be useful for our customers, but it is obviously strategic for the entire basin.

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Clarification: An earlier version of this story incorrectly identified Bevin Wirzba as Vice President of Canadian Gas Pipelines at TC Energy. His full title is Executive Vice President, Strategy and Corporate Development, Group Director, Canadian Natural Gas and Liquids Pipelines and President of Coastal GasLink.



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