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    Coastal GasLink facing another cost increase – TC Energy

Summary

Competition for labour, enhanced regulatory requirements largely to blame for expected increase. [Image credit: TC Energy]

by: Dale Lunan

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Coastal GasLink facing another cost increase – TC Energy

Canadian infrastructure giant TC Energy is expecting another cost increase for its 2.1bn ft3/day Coastal GasLink (CGL) pipeline under construction to serve the LNG Canada liquefaction terminal on Canada’s west coast, it said November 29.

Ahead of its annual investor day, TC Energy said it was facing “significant cost pressures” on the CGL project, which is now about 80% complete and targeting mechanical completion by the end of 2023.

Last summer, TC Energy raised the cost estimate for CGL to C$11.2bn (US$8.3bn) from C$6.6bn related to a scheduling dispute with LNG Canada and Covid-related impacts.

The latest cost pressures, it said, relate to labour costs and shortages of skilled labour, alongside contractor underperformance and disputes. Unexpected events, including drought conditions and erosion and sediment control challenges, also contributed to the cost increases.

“As a result, we now expect a material increase in project costs and TC Energy’s corresponding funding requirements,” the company said in a statement. “We are actively pursuing cost mitigants and potential recoveries from contractors to offset a portion of these costs, some of which may not be conclusively determined until after project completion.”

During investor day discussions with analysts, Bevin Wirzba, TC Energy’s group executive for Canadian natural gas pipelines, said the labour issues were largely a function of two major pipeline projects underway in BC – CGL, with 6,300 workers on-site, and the TransMountain crude oil pipeline expansion in the south, with nearly 12,000 workers but “but executing less than half the scope” of the CGL project.

“Our challenge is attracting and retaining the right contractor team and labour force when you have those two projects overlapping,” he said.

Earlier this year, CGL was fined a total of C$242,600 by BC’s Environmental Assessment Office (EAO) for failing to uphold erosion and sediment control conditions under its environmental assessment certificate.

Those fines, and 17 enforcement actions issued by the EAO since 2019, prompted CGL to enter into a compliance agreement with the regulator in July to ensure tighter control over erosion and sediment control issues.

“We’ve had over 500 regulatory inspections on the project alone in the past year as a result of these new measures,” Wirzba said. At the same time, he added, the declaration of a drought in BC this year impacted CGL’s ability to hydrotest completed sections of the pipeline.

TC Energy expects to provide an updated capital cost estimate early next year that will incorporate the scope of recent developments.