The Trans Mountain Expansion Project: Crossing the Finish Line
This week, our guest is Dawn Farrell, President and CEO of Trans Mountain Corporation. On May 1, 2024, the Trans Mountain Expansion Project (TMEP) started commercial operations. Over a decade in the making, this milestone is a huge accomplishment. Originally built in 1953, the expansion project triples the pipeline’s capacity from 300,000 to 890,000 B/d.
This significant expansion of Canada’s only oil pipeline to the West Coast comes at an important time since Canadian production was expected to hit the limits of the existing pipeline system later this year. The expansion will allow Canadian crude oil to access new markets in California and Asia, and it is expected to lift oil prices by increasing the number of buyers for Canadian oil.
The TMEP is not without controversy, given its high cost (currently estimated at $C 34 billion compared with $C 7.4 billion in 2017), opposition to the pipeline in some areas of British Columbia, and the Federal government’s purchase of the project in 2018.
Here are some of the questions Peter and Jackie ask Dawn: Tell us about the pipeline operations currently, has Alberta crude oil reached the dock in Burnaby, British Columbia? What are the logistics, operations, and safety precautions for moving the Aframax tankers from the Burnaby Terminal to the open ocean? What is the importance of this pipeline to Canada? What are some of the factors that contributed to the high costs? What is the process and timing for the current regulatory hearing that could change the tolls?
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Episode 241 transcript
Speaker 1:
The information and opinions presented in this Arc Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Speaker 2:
This is the Arc Energy Ideas podcast with Peter Tertzakian and Jackie Forrest. Exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the Arc Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Welcome back. Jackie, a couple weeks ago … well more than a couple weeks ago, we were talking about the upcoming commissioning, completion of the Trans Mountain Pipeline. I think that’s a huge milestone event for this country, and we said we were going to talk about it. So here we are. Dawn, when did the pipe finish up?
Dawn Farrell:
The pipeline commercial, May 1st.
Peter Tertzakian:
May 1st? And are we flowing oil yet.
Dawn Farrell:
The pipe is waiting for ships.
Jackie Forrest:
Hey, maybe we should introduce our guest, Peter.
Peter Tertzakian:
Well, let’s do it. We are delighted to have with us Dawn Farrell, president and CEO of the Trans Mountain Corporation. Welcome, Dawn.
Dawn Farrell:
Hey, Peter, Jackie. Great to be here.
Jackie Forrest:
Yeah, and thank you for coming on this very important time. We are going to talk about all the important things around Trans Mountain, but before we get to that, I think you’re well known to our audience as the transformative CEO of TransAlta. And now you’ve retired from TransAlta to take this cushy gig of starting up the Trans Mountain expansion project. So, tell us a bit about why you chose to come out of retirement to do this job.
Dawn Farrell:
Well, I was asked to come out of retirement. And it was funny, I didn’t want to. I didn’t really want to come and do another job. But my husband reminded me that when I was in my early thirties, I worked for a really wonderful man for quite a long time, and he ended up passing away. Actually, he passed away the day before 9/11, and I was in New York on 9/11, so it’s pretty hard to forget that whole situation. He was a good coach to me, and he said, “One day you’re going to work and you’re going to get all your stuff done and achieve all your ambitions. And when you do, you have one public policy thing that you need to do. So, remember that and do it.” So, Brendan said to me, “Remember Jim Leslie, that one public policy thing? Why don’t you go do this?” And so, if he hadn’t said yes because we were retiring, we were going to have some fun, I wouldn’t have done it because it’s been pretty all consuming.
Peter Tertzakian:
Well, we’re happy you did it. And I do feel certainly when you get a certain age and stage in life, you feel a need to give back. And I think that’s what I sense with you is that there was a sense of obligation to pick up where Ian Anderson, whom we’ve had on the show a couple times.
Dawn Farrell:
Yeah.
Peter Tertzakian:
He did a monumental job and the job then passed on to you. And it is monumental.
Dawn Farrell:
Yeah. If there was no Ian Anderson, there would be no Trans Mountain pipeline. He did all the preliminary development work, did all the permitting work, got the project started, got it funded, got Kinder bought by the government. They got to 2022 and Ian had retired, so they were looking for somebody, and it was a government job. So, I had never really wanted to work in a Crown corporation. So, it really was pitched as, “Come in and do your part for Canada.” And it was that that got me to take it. I wasn’t looking for a CEO job. I wasn’t looking to fill time, but it was the give back that made it important to do.
Jackie Forrest:
And it certainly wasn’t a cushy job as I introduced it, as the Trans Mountain has been very difficult, faced, had faced a lot of opposition had high costs, but it is here today and it’s almost tripling the original pipelines capacity from 300,000 barrels a day to 890,000. I was actually just looking at some crude oil price differentials. And for those, I think that aren’t following that, that’s the difference of the price of oil here compared to in Texas.
And often we compare WTI to heavy crude pricing. And for every dollar that that price narrows, that’s almost worth a billion dollars a year in revenue to the oil and gas industry. So, I was looking at differentials late last fall and comparing them till now, these are differentials on the futures market, and it’s come in about $3. Now, there’s a lot of factors for that. It can be seasonal demand changes; it can be storage in Western Canada. But I think the TMX has contributed to that. And I actually think we haven’t even really seen the impact of the TMX because it’s not … and we’ll get into where it’s at right now. I think there’s opportunity for it to narrow more. But if that $3 was attributed to the Trans Mountain, that would be about $3 billion a year of additional revenue.
And think back to 2018 when we had the curtailments, and do you remember the big blowout of differentials? At that time, heavy crude prices were about $40 cheaper here in Western Canada than they were in Texas. And in that case, that differential, that’d be worth about $40 billion a year of lost revenue if it were to be around for a year. So, I think that’s an important context to why we needed this pipe. Because if you look at the forecasts of supply, most forecasters were predicting by the end of this year, we might be back into that situation where we didn’t have enough pipeline capacity. So, there’s a real value to Western Canada to have this pipeline.
Peter Tertzakian:
Well, it’s beyond Western Canada. It’s super important to the country because that billion dollars of revenue, these are very rough numbers, but about 20%, 200 million would go to government take. And that’s base government take, in other words, royalties and taxes. But that does not include the derivative benefits of the multiplier effect of the economy, contribution to the trade balance, as well as things like personal income taxes of all the employees that work and so on. So, the derivative benefits multiply to the country, and super important all the way to things like keeping the Canadian dollar strong and so on, because the magnitude of the business is so big.
Dawn Farrell:
If you look at the math from almost any perspective, the pipeline’s pretty well paid for itself. And it’s because it’s truly opening up another trade route. So, if you study history, which you do, Peter, and you think about what causes geographies to get rich, it’s always you open up a trade route. And we had one way to trade our oil, and it was to one market and one set of buyers, and now we have two, and that competition is what creates all of this. But more importantly, it allows us to … so we get the uplift, but we also get the extra barrels over time. I think our heavy crude is becoming more and more important to the global demand and supply situation because there’s three new refineries that have opened up in the last year that will crack heavy crude. And as you know, there’s different products that come out of the barrel. And frankly, Canadian crude oil is safe. You’re safe if you buy from us.
Peter Tertzakian:
It is. It’s really important. And as you say, the different products that come out of the refinery is important because it’s not just fuels for combustion, right Jackie? There’s all the way from asphalt to all the petrochemical inputs and things like that.
Jackie Forrest:
Lubricant diesel, which is actually still growing because there’s not a lot of alternatives to diesel today. So yeah, I think I totally agree with you. It’s opening up that infrastructure that allows us to get a better price for our crude oil and more optionality. Let’s come back to the cost and benefits, but let’s talk a little bit about the operations right now. First of all, tell us about the team at Trans Mountain. Some of them have been working on this project for over 10 years, so it must be pretty exciting for people to see this milestone.
Dawn Farrell:
Nobody in Canada had as good a job as I’ve had in the last two years. It’s hard. But first of all, just the technological challenges that the team had in building the pipeline. All of the requirements that they had to work into the construction, all of the environmental, First Nations, many, many interesting statistics there in terms of just how sustainably the pipeline was built overall. And then just watching them every day, you get this email and it’d be, “Okay, we’re 33% full, 39% full. The crude’s moving up the pipeline from Edmonton.” By the time we finished 190 people were at Burnaby.
I’ve got a picture of a bucket of the first crude that came from Alberta, a picture of the people waiting to receive the last peg. Just even what they had to do to bring the crude over the Coquihalla. It was a 4,000-meter drop. From the summit of the Coquihalla, you couldn’t have the columns separate. So, they were using nitrogen for back pressure and trucks and helicopters and guys. And it was just a super proud moment, both in terms of the construction people in the field doing some of the toughest construction work, all the way through to the team that moved the crude from Edmonton to Burnaby.
Peter Tertzakian:
Yeah. We were two mountain ranges. And when we think about challenges, maybe the first thing we think about is technical challenges, but there was far more in terms of the socio, environmental, political, you name it. I want to actually just start by the challenges. I know I was talking to you about the golf courses.
Dawn Farrell:
Yeah. Nine golf courses we went through.
Peter Tertzakian:
You had to go through nine golf courses, and that being probably one of the more difficult challenges.
Dawn Farrell:
Yeah, golfers are very serious about their game and very serious about their golf courses. But we also went through 100 kilometers of urban pipelining. We were in the backyards of people in Coquitlam and all these different places. Coquitlam had an old dump in it. We were taking washing machines out of the right-of-way as we were digging, things like that. We had to go under hundreds of water courses because in 1953, when they put that pipeline in, it was a cow path from Calgary to Vancouver. There wasn’t the Coquihalla. We couldn’t stop traffic for longer than 20 minutes, so we went under the highway like 190 times under waterways.
And these were all horizontal drills that came out of the drilling technology here in Alberta. Went through mountains, through gulches. I think it was 47 kilometers of steep slopes that were at that 15% grade. And for a person like me, I’m from the power industry and I’m like, “Well, why is that such a big deal?” And they’re going, “Well, if you don’t do that right, the pipe won’t stay together. If you don’t do the engineering correctly, you’ll have problems in the future.” So just lots of technology.
Peter Tertzakian:
So is technology golf courses-
Dawn Farrell:
360 archeological sites.
Peter Tertzakian:
Yeah, I was going to say, archeological sites were a challenge as well.
Dawn Farrell:
We have to be … we may be the only, if not the largest archeological dig in Canadian history. So, we had 360 archeological sites where we recovered over 255,000 artifacts for the First Nations that were along the route. And they now have carriage of those artifacts, and we’ll decide what they’re going to.
Peter Tertzakian:
Is there anything surprising that was found like, “Oh my gosh, this is an amazing archaeological find”?
Dawn Farrell:
Well, what surprised me was some of the dating is back 1400, 1500 years. Some of the tools are more sophisticated than people would’ve thought. So, we don’t have a really clear vision of the life that was going on here in Canada before we were here 200 years ago. So, the First Nations will be able to build that archeological record out of this project, which you can say, “Oh, that costs a lot.” And I’m like, “Well, that is important.” I mean, imagine all the different places in the world that have their archaeological history and they keep it and they cherish it.
Peter Tertzakian:
When you say cost a lot, you mean to stop, pause, call the archeologists because the-
Dawn Farrell:
Yeah, you have-
Peter Tertzakian:
… paintbrush thing.
Dawn Farrell:
You have to do all of the work. So, the 1953 pipeline would’ve just been one long linear pipeline. The 2018 to 2024 pipeline was a series of 100-meter projects. Some of them were as far as two kilometers, but really it was a series of projects that had to be built because there was 27,000 birds nests that were being monitored. There was 1.5 million amphibians that were relocated and moved. There was 360 archaeological sites.
Peter Tertzakian:
Amphibians. You mean like…
Dawn Farrell:
Little salamanders and frogs.
Peter Tertzakian:
Like frogs?
Dawn Farrell:
Yeah, that were relocated. I was showing a picture to my daughter, and I said, “See, this is what we did.” And she goes, “Oh, that little guy. I am so glad you moved him.”
Peter Tertzakian:
Where did you move him?
Dawn Farrell:
To another place that was safe for them to be.
Peter Tertzakian:
And it was zoologists, biologists?
Dawn Farrell:
Biologists, archaeologists were all on site. We had First Nations monitors watching all of the work. The regulator had First Nations monitors, so we really did it up right.
Peter Tertzakian:
Yeah. We’re going to talk about it, track the cost of the pipeline, which is on a lot of people’s minds, but it’s important to recognize billions of dollars that went into this pipe actually was spent on archaeologists and zoologists and biologists-
Dawn Farrell:
Well, first of all-
Peter Tertzakian:
… some people. It was sort of like an economic stimulus for this whole…
Dawn Farrell:
Yeah, first, the cost right now is estimated about 34 billion, and about 5 of that is just return, AFUDC, the interest to finance it and the return on financing the sort of 29 to 30 billion of costs. In the 29 to 30 billion is the cost of the pipe and all of the work that we had to do to engineer and construct the pipe. There are also the tanks at Edmonton and Sumas and Burnaby. There’s two-kilometer tunnel with three pipes in it coming from Burnaby Mountain through to the Westridge. Westridge was this tiny little place with one berth. We built out a whole huge loading facility with three berths at Westridge with new equipment to capture fumes and all that sort of stuff. And as well, it was 12 brand new pump stations. So, it’s not just the construction methodology for building the pipe, but it’s where the pipe was and all of the facilities that went along with it.
Jackie Forrest:
Right. So, there was a lot of equipment and things-
Dawn Farrell:
A lot of infrastructure.
Jackie Forrest:
It’s not just a pipe. That was a really good description. Let’s talk about Burnaby. First of all, you talked about the oil started to flow on May 1. How long does it take to get to Burnaby. It sounds like there’s oil there from your description of the bucket.
Dawn Farrell:
Oh, the oil’s sitting there right now waiting. Part of the first month’s startup is the pipeline will run a little bit slower and the people had to really believe that we were finishing. And so they’ve got ships now coming in May and June. Our shipping window is May 15th to June 15th. There’s always a couple of spots where there’s a low tide and you can’t bring ships in. It took actually about 24 days to fill the pipeline, and it was over 4.2 million barrels that had to be put in the pipeline so that you have one long column of pipe so that we can push in from Edmonton and pull out from Burnaby.
And then of course, we fill tanks at Burnaby as well so that we can, it’s a batch system. So, we batch in the oil from the different shippers in the sort of recipes that they’re putting on their ships. Or they’re also delivering, as you know, from Sumas down into Cherry point. So, they deliver to refineries down there, and there’s refineries in Vancouver. The first batches off the system went to Sumas, but the first batches off of line two just for the ships will start after the 15th of May, which is right now.
Jackie Forrest:
Right yeah. The existing original pipeline had those connections to take down to the U.S. Let’s talk about those tankers. They’re called Aframax tankers.
Dawn Farrell:
Right.
Jackie Forrest:
Explain some of the logistics of moving that tanker from the Burnaby terminal to the open ocean. I know there was a lot of requirements and safety precautions that were put in as part of the regulatory approval, so just to give people a sense of that.
Dawn Farrell:
Well, that’s a 12-year project in itself. So, our COO, Mike Davies, has worked on all of what’s been going on in the shipping ports for 12 years. So, first of all, that will go from one ship a month to pretty well one ship a day. So that sounds like a lot, but we’re in a port that has 6,000 ships, so there’s a lot of ships in there. So, part of the work that we had to do, which they took me all through, was super interesting, was they had to do all of the mapping of the channels and the tides and really, really understand just where the issues would be. So, they decided, and I think this is one of the only shipping channels that does this, but our ships are met with tugboats right out past Vancouver Island, and they’re brought all the way in. And of course, as you know, when these pilots board the ships and bring them into Westridge where they are then filled with oil and then back out.
Jackie Forrest:
And those are local pilots that know the area and that reduces the risk, right?
Dawn Farrell:
Yeah. But normally you would be coming all the way into the harbor before you’d meet up with the tugboats. In Vancouver, they meet the tugboats out by Vancouver Islands. So that was a big upgrade that happened there. As well, there are about a hundred whales that live in that area, and they changed the regulations. So, all of the traffic there has to go slower. And all of them now have a different kind of sonar. Mike can explain this. This is not my area of expertise, but they have a different kind of sonar so that the whales can hear all the ships. So that whole shipping channel has been upgraded because of Trans Mountain because that’s part of the conditions of what we had to do is make sure that all of that was safe.
Peter Tertzakian:
So, you’re saying is that other ships of different kinds of cargo follow the same protocols?
Dawn Farrell:
Yeah.
Peter Tertzakian:
So, the whole area is-
Dawn Farrell:
There are new protocols overall. When I first got there, I was skeptical. I’m going, “How could this thing cost so much?” When people talk in hundreds of millions, I get it. But when they talk in billions, it’s hard for me to even imagine what that looks like. But when you look at all of the care that was taken through the construction, the kind of construction that we did, the kind of welding, and then taking care of all the different interests, all the agencies, 69 agencies, all the regulations, all of the conditions that were required to do the build, and then you actually get it operating in a way that is as safe as you can do it for the environment, it costs more-
Peter Tertzakian:
What do you mean by the agencies, given-
Dawn Farrell:
Well, for example, in British Columbia, I mean, I can’t name all 69 of them. But in British Columbia, just to go in and out of a site into the mountains, you need a permit from Modo, which is the road guys. And they had requirements just even in terms of the flagging people and different ways that we had to do things. So, all of that was all incorporated into the project costs.
So, the biggest challenge I think was I don’t think anybody could have ever estimated this project. Like people go, “Oh, well, what happened to your estimating?” And I’m going, “Well, if you hadn’t done it before and you didn’t have all these requirements, 156 conditions, and then you estimated the cost, but you hadn’t actually done it in the field, it’s very difficult to know what it really truly costs.” And I think now we know what it costs. And now you can optimize around understanding how you’d meet the regulations, but I still think part of the challenge here in Canada as we think about regulation is if you wanted to do this privately, how would you lay this out so that a private company could estimate the true costs and do a business deal around it? That’s the difficult part.
Peter Tertzakian:
Right. Can I ask, you took us through the 29 to $30 billion, that’s net of the financing costs, which takes it up to 34. I mean, it’s just staggering numbers. As you said, billions are hard to fathom. And you listed off things like the cost of the pipes, the tanks, the tunneling, the pump stations, and of course the workers. So where are all these people going now that it’s over?
Dawn Farrell:
Well, we employed 35,000 people over 110 million hours of work.
Peter Tertzakian:
Wow.
Dawn Farrell:
It was from probably 2019. Now, remember, this project had quite a few events that you normally wouldn’t see. So, we had the atmospheric floods where we had to stop work and really put BC back together because of that. And the pictures of that flooding, it’s just astronomical.
Peter Tertzakian:
Was that a couple of years ago? I lost track of time.
Dawn Farrell:
That was 2021, I think. 2020 or 2021.
Peter Tertzakian:
- During the pandemic, actually.
Dawn Farrell:
The pandemic came first, and then the atmosphere of floods. We had wildfires throughout that period. So, when you have wildfires, you can’t put people in the field to work. Or if you do, you can only work for a small part of the day. There was a lot of that going on as well.
Jackie Forrest:
A lot of people mentioned it was estimated to be 7.4 billion in 2017 and that it ballooned to 34 billion. But I think another difference is after that 2017, there actually was changes in scope because then the original approval was withdrawn and then there was a new consultation which resulted in additional scope. Some of these marine things that we’re talking about were added as that. So I think that’s the other thing to keep in mind, is there was a changing scope. Not only did you have all these things that caused delay, but the scope changed a lot.
Dawn Farrell:
Yeah, I mean, you can look at a number of makeup projects, and I won’t list them here because I’m not an expert on them, but there was a lot of projects that even I worked on that were estimated in the zeros to 2010, 2011 that were in that 5 to $7 billion range that have all come in somewhere between 20 and 30 billion. So Trans Mountain is not different than a lot of projects, number one. But number two,
you’re right, they had a CPCN in 2017. It was pulled. There was a new consultation was done, a new set of conditions came. It all had to be re-estimated then. I think it was re-estimated several times.
When I joined, the number that was out in the market was $21 billion. And I did a bottom-up estimate of… I broke the project down into all sorts of small pieces. I had the team re-estimated it, do Westridge, do the Burnaby Tunnel. There was 28 technically challenging areas just in 5B, which is around Hope, which the people who worked on that came from all over the world. And they said, “Well, we’ve worked on pipelines where there’s been five technically challenging areas, but never 28.” So, we estimated each one of those. We broke down the spreads from one to seven. So, by the time we were finished, I think the number that we went out with in February a year later was $31 billion, close to $31 billion. And oh my gosh, even after we did all that work, we had one area in the Sumas Prairie, which is all that agricultural land, and we had estimated about six kilometers of water. So, you’re trenching, the ditch fills up with water. Now you have to take all the water out. The water is full of iron, and if you put the water back into the river, it would kill all the fish.
So, we had to bring in units to take all the iron out of the water, so we could return the water to the ditches, so that we could get the water out of the ditches and lay the pipe. And then we had to go all those little crossings, you’re driving down a country road and you’re in the Sumas Prairie. We had to go underneath all of them. So that in itself was a couple of hundred extra million dollars just because it wasn’t six kilometers of water. It was 34. And so, part of what I had to do is keep going, “How could that cost that much more? Okay, explain that to me one more time.” And then you start to see just the intricacies of doing an estimate in a mountain range. Remember in 1953, there were 400,000 people in Vancouver, and 200,000 in Calgary, probably 200,000, maybe 150,000 in Edmonton. In 2024, there are 2.5 million people living in the lower mainland. When we were going through the backyards of houses, we had $5 million houses that we were going through their backyards.
Peter Tertzakian:
Can you talk about their sentiment? Are they compensated? And how do they feel about that? I guess if they’re compensated, do they feel okay?
Dawn Farrell:
Well, there’s always, when you’re in somebody’s backyard and you’re building a big pipeline, and there’s big equipment everywhere, nobody’s all that happy. But I would say generally what I saw, is people were treated fairly, and they would get perplexed because it would take a long time. Because let’s say you’re going through an area of a golf course and you find an archeological site, or we had one, Laidlaw Road, that it was in an area where there had been a lot of construction. So, a lot of artifacts were all in one ditch, and we had to go through that ditch. So, there’s delays. So, people get frustrated, but they’re all compensated fairly for their land and the change. And we put everything back. Not only did we go through their backyards, but we put everything back, so they have backyards. So, I think in the end, Canadians have a pipeline that they can be proud of that met a lot of standards. But when you build pipeline projects or infrastructure today… I think this is another interesting stat. I don’t know if it’s true, but you’ll find out. I think only we can only really live in about 3% of the Earth’s land, and it’s always in river valleys. So, Mountain 3 where we had to drill through the mountain, which that was the one that caused me the most mini heart attacks.
Peter Tertzakian:
That’s in the coastal mountain range?
Dawn Farrell:
There’s three mountains just outside of Hope, and we call this one Mountain 3. And it was a two-and-a-half-kilometer horizontal drill and started at 12 inches and went all the way up to 42 inches. And we had to apply to actually put a 30-inch pipe through there, because we were too worried that if we went to the next ream, there was water in the hole, because there’s water that runs through the mountains, and we just didn’t want to lose the hole. So, we had to go through a lot of regulatory stuff to do that. That causes a delay. But when you think about those kinds of projects, and the work that’s done, and some of the delays for different things like the archeology, or putting in some new equipment, all of that contributes to the length of time it takes, and it also contributes to the cost, because there’s more carrying costs. Right?
Jackie Forrest:
And the more you’re waiting around. There was a lot of regulatory hearings kind of leading up to Christmas. Was that related to that situation there?
Dawn Farrell:
Well, the first regulatory hearing we did for Mountain 3, we failed. We lost. And so, we decided, I just said, “Well, we failed. We didn’t do a good enough job of showing them that we have to do it this way.” So, we went back in, did a second regulatory hearing, and got it approved the second time. They actually sweep a two-and-a-half-kilometer pipeline through this HDD. So, imagine you’re in the middle of a mountain, you’ve drilled it all out, and there’s trucks, and you’re putting two and a half kilometers through, and it’s two sections. So, you weld in the middle, they start putting the first one through, they get it in a kilometer, and it got stuck, and they had to pull it out. And I’m just like, you can’t write this stuff. I don’t even have to watch TV anymore, Peter. Because every day I go, “Yeah, nothing here. Nothing to see here.” So, we had to pull it out, get new pipe, recode it, get it all organized again, do some more reaming, be very careful about the water, figure it all out. And then I think it was, I’ll never forget it, because it was Good Friday at noon. The pipe came through Mountain 3 in 30 hours, and that was when we were home. As soon as that pipe came through, everything from there moved to where we are today.
Jackie Forrest:
Right. Yeah. Well, you’re really describing how challenging, and that’s I’m sure, just the tip of the iceberg.
Dawn Farrell:
Interesting.
Jackie Forrest:
Of some of the challenges.
Dawn Farrell:
To look at that stuff. It’s great
Jackie Forrest:
Well, let’s talk about the indigenous groups, the benefits of the pipeline to them. I know there was some benefit agreements. Can you talk a little bit to that and how they’re viewing the pipeline at this point?
Dawn Farrell:
Well, there was 69 MBAs, Major Benefits Agreements that were signed. They all had different attributes to them, but a lot of them had employment opportunities and businesses associated with them, as well as sort of compensation. What was fantastic is about I think it ended up being $5 billion of procurement deals that we did along the pipeline included First Nations partners. So, there was a lot of businesses that emerged out of what we did, and 10% of the workforce was First Nations people, and 30% of the workforce was what are called Green Hats. So, a lot of young people got to go out and get their first jobs in this large construction project, which trained up a lot of people. So, I think overall, in the end, most of the First Nations group have become really great partners for Trans Mountain. And of course, there is some thought that in the future there’ll be some ownership by the First Nations. So, all of that I think is a great contribution there.
Peter Tertzakian:
Yeah. There was tremendous polarization, tremendous consternation, opposition, certainly 10 years ago.
Dawn Farrell:
Well, that’s where Ian worked his magic. Ian spent hours and hours and days and days, and he just built an enormous trust with the First Nations groups.
Peter Tertzakian:
He did. And now as we look at the completion, how do you feel sentiment has changed towards the pipeline amongst Canadians. Even since you took over, I sense that there has been sort of a sentiment change.
Dawn Farrell:
Well, I think when I got there, it was sort of that pipeline that was never going to get built, or never going to get finished that was going up in price, and the government was building it, and they must be just throwing all our money away, was kind of the sentiment. It’s probably when I went in there, I was like, “Okay, where’s the government people? Oh, they’re not here. We have a board, and a company, and a group of people, and contractors, and it’s a big mega project.” I was trying to figure it out. I was like, “How could this thing cost us much?” I started working on sustainability in 1987 with Ken McCready, who ran TransAlta, and he started the first-round table on the environment and the economy,
And I was this executive assistant for that. And so, I’ve had this sort of both ends. It’s a both ends. You can do both. And as I was looking at it, I was going, “I don’t know. I think if Canadians knew that we did a pipeline, an oil pipeline and it’s a both hand, and that eventually because of the work guys, I think you guys have had podcasts on pathways. There’ll be more CO2 taken out of our heavy oil. So, you got low carbon oil going down a very sustainably built pipeline. I think Canada can stand up on the world stage and say, “Hey, wait a minute, folks, you can’t keep looking over at us. What are you doing?” And I bet you will not find a pipeline builder on this planet that took as much care building that pipeline is as TransMountain did. So, I think what’s happened is we’ve been out talking about it. People are going, a lot of my friends, they’re like, “Oh, we did that? Oh, that’s cool. That’s good.” So, I hope the sentiment changes because my view is, if you can’t accept this, I don’t know how you keep developing, because you’ve got to get energy to people,
Peter Tertzakian:
Yeah. You got to get energy to people and you have to build infrastructure, even if it’s clean energy infrastructure going forward. And I think there was a lot of lessons learned, wasn’t there? Well, first of all, it demonstrated that yes, we can as Canadians build infrastructure responsibly with the highest attention to detail. And now, is that learning, and is that the new protocols that we’ve learned spilling over into making it easier for other big infrastructure projects to proceed?
Dawn Farrell:
I don’t know. There’s lots of talk. We are certainly getting a lot of governments and regulatory organizations want us to make presentations to what we learned. The challenge I find though, this is why I like podcasts, you have conversations, and you don’t just gloss over the top. The challenge is this isn’t the kind of learning you can do in a half an hour. You can’t just say, “Oh, here’s some new ideas.” We’ve really got to go back and think deeply about what we didn’t know, what we learned, and what we now know. And then you have to translate what we now know into how could we do that better? And then how does that help people who are getting permits, get their permits easier because they just need to know what the rules are. They need to know what the conditions are. And then governments need to be able to say, “Yeah, you met the rules,” so…
Jackie Forrest:
Yeah, I mean, I think with this kind of cost and a process that had all these changes in terms of the requirements, it’s not very enticing for private capital to come to Canada. So, this to me, this pipeline, I think it’s very important. I’ve been asked by the media, considering what you know now, do you think it was a good idea to build the pipeline? I’m like, “Absolutely.” And I just want to highlight, we’ll put a link to this article by Trevor Tombe, he’s economist at the University of Calgary, but he wrote The Trans Mountain Pipeline was worth every penny of its $34 billion price tag. And he had two arguments to that.
One was it will provide a great return for Canada. He had the benefits measured in the hundreds of billions when you think of it that way. And we talked about that at the onset, right? The differentials, the taxes, the royalties. But then he also argued looking at some data that was in the regulatory hearings that he felt that the pipeline could pay down all of its cost over 20 years, and there’d even be some additional cash left over after paying down the debt. So, he argued it was worth it, and I think it is too, but I don’t think it’s a good indicator for private capital to come here unfortunately.
Dawn Farrell:
Yeah. So, I spent my career in infrastructure and in power. If we could get a seven-to-10-year simple payback, I was the simple person. What’s the simple payback? And as you know, people that make a lot of money get a simple payback in three or four years, but infrastructure does not pay back in three or four years. It’s usually seven to 10, and big infrastructure is 10 to 12. The toll on this, the EBITDA from Trans Mountain is two and a half billion a year. At 34 billion, it’s a 13-year payback, simple payback. That’s a good deal for Canadians, and that’s a good investment.
And frankly, my advice is, hold on to it Canadians. Don’t get too anxious to sell this too soon because it only takes a small movement in interest rates, and you could sell it and get all your money back, and
that’s what we should be doing. But going to your point around how would private capital invest in this, private capital has to estimate the risk, has to be able to look at the risk around the costs and has to do commercial deals because they have to raise capital.
And that’s the part I now know that we could figure out how to cost it. But I’m not sure if you were doing it all over again today and you knew everything you knew today, we could do it cheaper for sure because we would have the learning of knowing how to get the permits. But we need huge cooperation. And we’ve talked about this. I’ve talked about this with the regulators and with governments, and we’ve talked about this, Peter, we have to have innovation in the way we do regulation and permits as well.
Peter Tertzakian:
Yeah.
Dawn Farrell:
Because the CER gave us 42 leave-to-opens, and they gave us the last one on the 30th, which basically said we were mechanically complete, they have verified the safety of that pipeline. When we go to the market at some point to sell that pipeline, that regulatory verification is worth a lot of money because they verified that we met every single standard through that LTO process. But how do you now do the innovation between business and government so that we know the needs that each other has and it’s easier to get the permits? Not because you cut corners, because you did it right.
Peter Tertzakian:
Right.
Jackie Forrest:
And the streamlining like not having so many different levels of government to deal with. We’re coming close to the end of the time. I have a quick question. You talked about the payback, but that assumes a certain amount of tolls. And I know that there’s a hearing right now about the proposed tolls and that some of the shippers think that the tolls are too high. I understand this is a hearing and it’s sensitive, but can you just talk about the process and timing to resolve that?
Dawn Farrell:
So, the interim toll has been approved by the CER, and that’s the toll that the shippers are paying today and started paying on May 1st. So that stays in place until there’s a hearing that will take place next January where we’re presenting thousands of documents. In fact, I just came from the office, and we have a filing due on Friday, and I think it’s 12,000 documents somehow have to leave Trans Mountain and go to 10 shippers in the CER on Friday. So, we were talking about how that was going to happen, and that is not easy to do. So, over the next 10 months, a lot of documents and questions will be exchanged, a hearing will be heard, and a set of commissioners will determine if our interim toll is in fact the toll. They’ll confirm that. And then after that, there’s a final process where the final costs, like we’re still doing machine and final cleanup this summer, the final cost will be calibrated and there’ll be a final toll. So, all in all, I’d say it’s about a two-year process to get to the final toll.
Jackie Forrest:
Right.
Peter Tertzakian:
Right. Right. Right.
Jackie Forrest:
Well, you guys are real experts at these regulatory hearings by now.
Dawn Farrell:
Yeah.
Peter Tertzakian:
So, I want to just conclude by keying in on one of your comments about, “Hold onto it,” your recommendation to the federal government, which really is a recommendation for all Canadians to hold onto this vital piece of strategic infrastructure. To this point of the podcast, we spend a lot of time talking about costs, returns, paybacks, tolls. It’s all sort of money related, but what is the value of us owning a vital piece of strategic infrastructure? I mean, this is energy security, and you can’t put a price on that, in my opinion. In fact, most vital infrastructure whether it’s power lines or pipelines in most countries in the world is state-owned. My question then is what are the owners, the federal government, the people of Canada, thinking now about hanging onto it or selling it?
Dawn Farrell:
That happens in the halls of Ottawa, and I’m not really in that process there, but I think… and again, I just look at it a little bit differently. So, if we do have a lot of infrastructure in Canada that is held by Crown corporations like all of BC Hydro’s assets and dams are Quebec’s, a lot of Ontario’s, Saskatchewan.
Alberta, we have a private power market and that can work as well. We have Enbridge’s pipelines going south. They’re all owned by private investors. Trans Mountain was private, and I think could be private again. I guess my only point, Peter, is at the end of the day, the pipeline is creating a lot of benefits for Canadian and Alberta taxpayers. I think we get 4 billion a year in royalties and taxes as Alberta, Canadians get about a billion. And at the same time, the tolls kind of cover the cost of the capital that we put in place. My advice is just simply this. The Canadian government… you know, you’re an investor, if you have a liquidity problem, sometimes you have to sell stuff because you have a liquidity issue. The Canadian government does not have a liquidity problem. They can hold this asset and monetize it whenever they want at the right time, or they can choose to decide to make it strategic. They have that choice.
Peter Tertzakian:
But I just come back to the notion it’s not all about money. There’s other value here that’s important. And we can post the link to the story that I wrote and recorded called Long Way Around because in 1973, the Trans Mountain Pipeline during the Arab Oil embargo at that time shipped oil. It was loaded onto then chartered Greek tankers. Those tankers went all the way around the Panama Canal up the east coast of North America and into Montreal. And that was energy security because we did not have and still do not have-
Dawn Farrell:
A pipeline going east.
Peter Tertzakian:
A pipeline going from west to east. So now with the Trans Mountain Pipeline tripled in its capacity and with all sorts of nastiness on the other side of the world, I don’t want to be selling this thing as a Canadian to some private entity that is going to be making decisions about how it’s used just purely on financial metrics. This is a vital strategic piece of infrastructure to our country.
Dawn Farrell:
You could be right, and those are political decisions that are over my pay grade. But I guess my only point is I think no matter how you cut the economics, the math, the cost, the value creation, I think taxpayers are going to find that they’re not the ones paying for this pipeline, which I think is an important attribute that they should be proud of.
Jackie Forrest:
Yeah. And I think that’s important. And in all of the dialogue since the startup, there’s been a lot of media coverage. I think that has to be really reminded to people that this is an asset that will pay for itself. It’ll pay for itself over maybe a longer time period than it would’ve if the cost had been lower. But it provides a lot of benefits to the country. Well, Dawn, we really thank you for coming out of your retirement and of course to Ian Anderson for all the work he did and the whole team at Trans Mountain. This really is an asset for the country.
Dawn Farrell:
Yeah, I want to say, I mean, I had a very, very small part in this. The team at Trans Mountain, those folks, my gosh, you’ve never seen a group of people who wake up every day put one foot in front of the other. One of the things I said the first six months I was there is, “Why did you guys keep doing this? You just keep going.” They could not be put down and they finished it, and that has to be celebrated. And there’s a team of people that have been there a long time doing it. So a banker came in and said, “I should have brought you a bottle of champagne.” And I said, “Well, you would’ve had to buy 35,000 bottles, so don’t buy me one. Buy the 35,000 people that did this project one. They’re the ones who did it.”
Peter Tertzakian:
Wow. Well, thank you so much, Dawn Farrell, president and CEO of Trans Mountain Corporation. Thanks for taking time.
Dawn Farrell:
Thanks guys. It was great. Thanks for the opportunity.
Jackie Forrest:
Thanks, Dawn. And thank you to our listeners. If you enjoyed this podcast, please rate us on the app that you listened to and tell someone else about us.
Speaker 1:
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