June 27 (Reuters) - Canada's Trans Mountain oil pipeline

will rely heavily on last-minute shippers to turn a profit, the

corporation's financial projections show, clouding Ottawa's

efforts to sell the pipeline now that its C$34.2 billion ($25.04

billion) expansion is finished after years of delays.

Documents filed by Trans Mountain as part of a regulatory

dispute over its tolls show it could take up to eight years to

make money unless the pipeline fills thousands of barrels a day

of uncommitted shipping space.

Trans Mountain said it expects the pipeline will be highly

utilized as Canadian production grows, but some traders and

analysts warn that will be challenging given higher tolls and

logistical constraints at the Port of Vancouver, where the

pipeline ends.

The 890,000 barrel-per-day (bpd) pipeline started service in May

and reserves 20% of its space for uncommitted, or spot,

customers, who pay higher tolls than shippers with long-term

contracts.

Documents filed with Canadian regulators in April show different

utilization scenarios for that 178,000 bpd of spot capacity.

In a scenario with zero spot shipments, the pipeline would not

generate positive equity return - earnings after depreciation,

interest and taxes are subtracted - until 2031. If, as Trans

Mountain forecasts, the pipe runs 96% full from next year,

equity return turns positive in 2026.

This month, a Trans Mountain executive told Reuters a "little

bit" of spot capacity is being used. Mark Maki, Trans Mountain's

chief financial officer, said spot capacity was important to the

company's overall economics and he expected volumes to rise late

in the year.

But spot-shipping demand is difficult to forecast because it

relies on the fluctuating price of Canadian oil versus other

heavy crudes in the U.S. and Asian markets, said Morningstar

analyst Stephen Ellis.

He described Trans Mountain's long-term forecast for 96%

utilization as aggressive.

"One of their biggest Achilles' heels is the reliance on

spot," said Robyn Allan, an independent economist who has

studied Trans Mountain's finances. "Everything is based on a

very optimistic set of projections for the next 20 years."

The rival Enbridge Mainline, which takes crude to the

U.S. Midwest and eastern Canada, offers 100% spot capacity but

tolls are roughly half Trans Mountain's rate. TC Energy's ( TRP )

Keystone pipeline to the U.S. reserves around 10% spot

capacity.

One Canadian crude trader said spot demand for Trans

Mountain would depend on how full rival pipelines are.

Canada Development Investment Corporation (CDEV), the government

corporation that owns Trans Mountain, noted in May 2023 that

higher tolls may deter customers.

"Forecast tolls for pipeline transportation are higher due

to (the expansion's) cost escalation and have lessened

competitive advantages," CDEV said.

Costs surged during construction to nearly five times the 2017

budget and sparked a backlash from committed shippers including

Suncor Energy ( SU ) and Canadian Natural Resources ( CNQ ),

who face higher-than-expected tolls as a result.

One mountainous segment soared from an estimated C$377 million

in 2017 to C$4.6 billion in 2023 after hitting technical

difficulties. Other segments passing through Metro Vancouver

jumped from C$310 million to C$1.7 billion over the same

period.

NO HURRY TO SELL

Prime Minister Justin Trudeau's government bought Trans Mountain

in 2018 to ensure the expansion, which has nearly tripled

shipping capacity from Alberta to the Pacific coast, proceeded.

However Ottawa never intended to be the long-term owner and

Canada's Finance Ministry said it is planning a sales process.

Spokeswoman Katherine Cuplinskas said the expansion was an

important economic investment, creating revenues and well-paying

jobs.

Maki urged Ottawa not to hurry the sale given uncertainties over

spot demand, the tolling dispute, and Ottawa's plan to sell a

stake to Indigenous communities.

"If you're trying to sell something, and you have uncertainties,

it's going to affect the value someone's going to pay for it,"

Maki said.

Trans Mountain has borrowed C$17 billion from the Canadian

government and has a C$19-billion syndicated loan facility from

commercial banks. The April financial projections show it could

pay more than C$1 billion in interest annually until 2032,

although that will depend on interest rates and the

corporation's future capital structure.

Morningstar's Ellis said even Trans Mountain's best-case

projections show the pipeline will only generate around 8%

return on equity by 2034, which he described as the minimum

acceptable level for a quality Canadian midstream asset.

Trans Mountain's debt-to-EBITDA ratio, a measure of how well a

company can cover its debts, starts at 11.6 in 2025 and remains

above the typical level of 3.5 for a midstream firm until 2040,

he said.

"If this was not a government-owned entity the market would

have a really hard time supporting it. Those leverage ratios are

like junk," Ellis said.

Trans Mountain said interest payments will likely be reduced if

the corporation is recapitalized, and it is working with the

government on optimizing its financing plan.

Many analysts say Ottawa will need to take a discount on its

investment to make Trans Mountain appealing.

Pembina Pipeline Corp ( PBA ), the only listed company to

publicly express interest in buying Trans Mountain, recently

said there was still too much uncertainty. Indigenous groups are

also awaiting more clarity.

"Until the tolls are resolved, it will indeed be challenging

to move forward with the sale of the pipeline," said Stephen

Mason, CEO of Project Reconciliation, an Indigenous-led group

that wants to bid for a stake in Trans Mountain.

($1 = 1.3702 Canadian dollars)