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Settlement talks could prevent need for regulatory hearing

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Dispute stems from budget overruns during Trans Mountain's

expansion

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Tolling uncertainty has cast doubt on ability of Canadian

government to attract pipeline buyer

By Amanda Stephenson

CALGARY, Oct 22 (Reuters) - The operator of Canada's

Trans Mountain pipeline and oil shippers are in talks to resolve

a shipping cost dispute that has deterred usage of Canada's only

east-west pipeline and hindered the government's plan to sell

it.

Documents filed with the Canada Energy Regulator on Tuesday

by Trans Mountain Corp and a group of oil shippers including

Cenovus Energy ( CVE ), Canadian Natural Resources ( CNQ ),

and ConocoPhillips Canada said the parties are having "active

commercial discussions."

The talks could settle how much the companies pay to ship

oil on the expanded 890,000-barrel-per-day pipeline, which

offers direct access to China and other Asian markets at a time

Canada is trying to diversify oil exports away from the United

States.

A Trans Mountain spokeswoman confirmed in an email on

Wednesday that talks are underway and said the company is

requesting regulatory proceedings be halted to allow time for an

agreement.

Canada's Energy Regulator said it is reviewing the request.

The shippers did not immediately reply to a request for comment.

The more than two-year-old tolling dispute has added uncertainty

to the Canadian government's plans to eventually sell the Trans

Mountain pipeline.

Ottawa, which bought the pipeline for C$4.5 billion ($3.21

billion) in 2018 to rescue the expansion project after years of

regulatory delays and cost increases, began informal talks in

2023 with Indigenous groups along the pipeline's route to

explore their interest in a potential equity stake.

Analysts say it would be difficult for an Indigenous group

or private sector buyer to commit to purchasing the pipeline

until the tolling dispute is settled and Trans Mountain's

long-term revenue potential is clear.

FINAL TOLL UNCERTAINTY

The C$34 billion expansion completed in 2024 tripled the

pipeline's capacity, but the final price tag was nearly

quintuple a 2017 estimate.

While approximately 70% of cost overruns will be borne by

Trans Mountain Corp, the remaining more than $9 billion are to

be covered by tolls under a formula agreed to by shippers and

approved by the Canada Energy Regulator more than a decade ago.

Contracted shippers now pay nearly twice what Trans Mountain

had estimated in 2017. Spot shippers pay even higher rates.

Some shippers have pushed back against the higher tolls,

arguing they are not responsible for cost overruns incurred

during construction. The Canada Energy Regulator had been set to

hold a hearing on the tolls next month.

Since the expansion's startup in May 2024, the Trans Mountain

pipeline has been less full than its operator had earlier

forecast, in part because its higher tolls are deterring

utilization.

If the final toll structure comes in below what Trans

Mountain is looking for, it will make it harder for the pipeline

to recoup its construction costs and could impact its potential

selling price, analysts say.

Trans Mountain CEO Mark Maki said in June he believes the

Canadian government can recover its investment in the pipeline,

but should hold off on the sale until uncertainties around

tolling and utilization are resolved.

($1 = 1.4024 Canadian dollars)