TC Energy now estimates costs for its giant pipeline that will supply natural gas to the Shell-led LNG Canada export terminal to reach C$14.5 billion ($10.89 billion).
TC Energy’s Coastal GasLink project is about 83 percent complete and the firm expects to complete the 670 kilometers long pipeline by the end of this year.
The pipeline will have the capacity to transport 2.1 billion cubic feet of natural gas per day (bcf/d) from Groundbirch, BC to Kitimat, with the potential to boost it further.
As per the LNG Canada plant in Kitimat, the C$40 billion project is 80 percent complete.
The first phase of the giant LNG Canada project includes building two liquefaction trains with a capacity of 14 mtpa.
LNG Canada expects to deliver its first cargo by the middle of this decade.
In July last year, LNG Canada and TC Energy reached a revised deal for the pipeline saying the project will cost about C$11.2 billion ($8.4 billion).
However, the project costs continued to rise and TC Energy said in November that the firm expects a “material increase in project costs” and TC Energy’s corresponding funding requirements.
30 percent increase
The project continues to face material cost pressures that include challenging conditions in the Western Canadian labor market; shortages of skilled labor; impacts of contractor underperformance and disputes; as well as other unexpected events like drought conditions and erosion and sediment control challenges, TC Energy said in a statement on Wednesday.
According to the firm, 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 analysis, TC Energy’s estimate of the costs to complete the project has increased to about C$14.5 billion ($10.89 billion).
This estimate excludes potential cost recoveries and incorporates contingencies for certain factors that may be outside of the company’s control such as labor conditions, contractor performance, and weather-related events, the firm said.
TC Energy to fund incremental revised project costs
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, it said.
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, it said.
The CSRA review also considered the potential impact of an extension of construction well into 2024, it said.
In that event, costs would increase further by up to C$1.2 billion, according to the firm.
Due to the increase in the expected cost of the project and the additional funding required, TC Energy will recognize an impairment to its equity investment in Coastal GasLink in its fourth quarter 2022 financial results.
TC Energy revised its overall 2023 capital expenditure outlook to about C$11.5 to C$12.0 billion, reflecting the deferral of certain project spending, expected cost-saving initiatives and incremental funding requirements associated with Coastal GasLink, it said.